Galanz Case Study
Post these responses directly in your private student journal. Your assignment is due Wednesday, April 10th. Then a forum will open for each of these assignment questions. Please write two-to-three paragraphs per question. 1. What are Galanz’s competitive and operations strategies? Considering the expertise of international players like Panasonic and Toshiba, Galanz didn’t really have a competitive advantage with respect to technology. Cost arbitrage (of land and labor) was the chief competitive strategy employed by Galanz to capture the Chinese microwave market.
Galanz conjured up mutually beneficial deals with its clients to achieve rapid expansion of production capacity by arranging for production line transfers, process and quality enhancements. Also, the non-stop production by Galanz could not be matched by any other competitor. Thus, Galanz achieved domestic microwave market dominance by employing a dirt cheap pricing strategy which was attractive to the cost sensitive Chinese market and expanding its production capacity to exceed the market demand. However, these strategies alone could not satiate the requirements of the overseas market.
Due to the risks involved in launching a Chinese product in the international market, Galanz entered the overseas market as an OEM supplier. Collaboration with large retailers such as K-mart and Wal-mart facilitated the successful entry of Galanz in the international market. The low cost, high production was maintained by Galanz through cheap labor and large production ability. The popularity of this Chinese brand rose in the overseas market due to its consistent efforts in maintaining low cost and high supply. The success of the international OEM brand gave Galanz the leeway it required to start thinking about overseas brand building.
Galanz started off its OBM venture by introducing Galanz branded microwaves to its OEM customers. Galanz further pushed its efforts in gaining worldwide recognition by investing in a dedicated R&D facility to match international competitors. The supply was matched with the demand through outsourcing of magnetron manufacture, and subsequently, with development of independent magnetrons. Thus, after the superlative domestic success, Galanz focused on building a world brand by maintaining its low cost, abundant supply and stressed on important aspects such as customer relation management and after sales support. . How does Galanz’s operations strategy support its competitive strategy? Initially as a market entrant, Galanz focused on a low cost strategy to gain leverage in the domestic market. This strategy was supported by an abundance of cheap land and labor. The expensive microwaves produced by players like Toshiba and LG were unaffordable for majority of the Chinese population and hence, Galanz became popular right from its inception. The rapidly increasing demand, which rose to almost 25 million units in 2003, for these low-cost microwaves prompted Galanz to expand its production capabilities.
Galanz, facing shortage in production, decided to outsource magnetron production to Japan for the production deficit that it faced. Furthermore, deals with customers like Fillony to transfer entire production lines made sure that the ever growing demand for the ovens was met successfully. The perennial working shifts for the production team ensured that production scale and costs of Galanz was unmatched anywhere in the entire market. Galanz’s strategy of a price war worked in its favor as competitors like LG and Panasonic went out of business in the domestic market and hence, left.
Later, Galanz entered the international market as an OEM product with a similar low-cost strategy. The operations strategy had to be revised due to the large demand and thus, due to shortage of magnetrons and retrenchment by suppliers, Galanz decided to set-up an R&D facility to turn into an ODM produce magnetrons independently. This strategy worked wonders for them since their production capacity boosted, to 44,000 units per day in 2003, and costs went down considerably. The drive to establish firm ground in the overseas market was evident in the self-sufficiency that Galanz was achieving in production.
The rapid innovation by improving existing processes by introducing LCD touch-pads and other aesthetic renovations further increased the popularity of their products in the international arena. Subsequently, Galanz decided to introduce Galanz branded (OBM) microwaves in overseas stores along with its traditional OEM supplies. This was a very critical move as it requires multiple changes in its production such as customized products to cater a large international audience, after sales service and strong customer relationship management.
Thus, to meet this demand, Galanz started a small scale production of customized products as opposed to its traditional approach of producing a standard product on a large scale. Also, the company had to invest heavily in enhancing its customer service capabilities so that it could build a loyal customer base and change the mindset of the international audience with regards to Chinese products. 3. What are the differences between OEM/ODM versus OBM in terms of production, design, marketing, distribution and customer service?
A company is termed OEM (Original Equipment Manufacturer) when it manufactures a product which is comprised of components made by the manufacturer of the product or a third party vendor, and then sells it to a customer who in turn brands it with a different name. Here, the production is taken care of by a different company and the brand name is decided by the customer who purchases it. For instance, when Galanz manufactures a microwave oven, it acquires the magnetron from Toshiba and then sells off the final product to Wal-Mart.
Subsequently, Wal-Mart brands this oven with its own brand name and sells it in the market. Here, the marketing, distribution and customer service is taken care of by Wal-Mart, not by Galanz. A company is termed ODM (Original Design Manufacturer) when it manufactures a component specified by another company but owns the technology to manufacture it. For instance, Toshiba is an ODM when it produces magnetrons according to Galanz’s specification. ODM’s are in charge of production of components based on customer requirements and owns the design for the same.
A company is termed OBM (Original Brand Manufacturer) when it sells the final product as with its own brand name. The product components maybe manufactured in house, or bought from an ODM. For instance, when Dell assembles a laptop, it specifies the processing requirements to Intel (ODM) and then sells it under the brand name ‘Dell’. An OBM has to take care of marketing, distribution and customer service.