The manufacturing of electronic appliances is becoming a booming investment in developing and developed nations because of the need to embrace modern lifestyles. In addition, modernization has forced people to seek cheaper and faster ways of doing things to ensure they have time for other activities. This has necessitated the need for companies to invest in the production of cheap home appliances like fridges, microwaves, toasters, and cookers amongst others. This essay presents a case study that examines operations strategy at Galanz.
Galanz (formerly Guizhou down Product Factory) was a down feather business founded in 1978 by Liang Qingde, and it was located in China. He was an influential person in Shunde due to his position as the deputy chairman of the Industrial and Transportation Office of Shunde. This company specialised in producing down feather products for overseas customers. The Foreign Trade Department of Guangdong province and the Shunde government jointly owned this business, and this enabled it to get the required quota to export its products. This company shifted its operations from garment manufacturing to the production of home appliances because there was a lot of competition in the international market. In addition, the export quota ensured that companies did not expand and thus there was no need of investing in an activity that had a dead end. Moreover, the 1994 flood submerged the company and this forced the two government shareholders to sell all their shares to Liang Senior and in 1999 he closed it, and this marked the end of garment manufacturing for this company.
The current vice-chairman and chief executive officer of this company, Liang Zhaoxian is engaged in various plans to outsource part of the production of designed and branded magnetrons. This has been necessitated by the huge demand for this company’s products in the local and international market. Therefore, the company has been forced to seek various alternatives that will help in reducing production costs, increasing efficiency, and exploring new markets.
The transformation from OEM to ODM
This company launched a fierce domestic price war that ensured foreign investors withdrew their operations from China. This involved taking advantage of the locally available cheap labor and the production of affordable microwaves to ensure the middle-income earners acquired this appliance. Therefore, the market for Galanz’s products was beyond its ability to produce them within the required time because of a shortage of magnetrons. This company had relied on Toshiba Hokuto Electronics as the chief magnetron supplier. Galanz had experienced significant growth in its sales and this forced it to increase its demand for magnetrons. Therefore, the magnetrons produced by Toshiba were not enough to share with Galanz. There was no relief in sight when Galanz request to seek assistance from Panasonic was thwarted by its board of directors that were aiming at the Chinese oven market in Shanghai. However, this company managed to secure a supply of three million units annually from Panasonic and Toshiba, but these were not enough to meet the requirements of this company. Therefore, this crisis pushed this company to design and produce its magnetrons and to ensure that it shifts its focus from assembling products to creating them. Galanz had acquired the necessary technical capability that helped it to design and develop its magnetrons and avoid relying on its competitors to supply these components. Its collaboration with the South China University of Technology, Guangdong Academy of Science, and the Chinese Academy of Sciences offered technical assistance on how to design and produce magnetrons. It was necessary to shift from OEM to ODM to ensure the magnetrons produced had improved mechanical design that enhanced function and quality. In addition, this enabled the company to advance its technology regarding micro-switching and microwave cavity matching. Moreover, this led to the establishment of the Galanz Magnetron Subsidiary Company to produce magnetrons and ensure that there was no shortage of these components. Therefore, it had a steady supply of magnetrons, and this helped it to meet its market requirements. OEM magnetrons were imported from Japan, and they did not have functional specifications that allowed users to diversify the uses of microwaves. Galanz should continue producing the three types of magnetrons because consumers have different tastes and preferences. This will enable it to compete favorably in the international market.
Overseas consumers did not receive Galanz products positively as the company had anticipated. This was a serious challenge that limited its ability to explore international markets. Lack of brand recognition of its OEM microwave ovens and became a serious concern to the success of its new products. In addition, most nations were embracing globalization, and there was a fierce battle between multinational companies. Therefore, they had to develop new strategies like reaching for new markets to promote their products. Moreover, they had to sell branded products, and this disadvantaged Galanz. In addition, some agents like Cosmos (Indonesia) wanted to monopolize the supply of Galanz-branded products, and this limited its supply in this country. Moreover, this company had outsourced a lot of its technology and the government had started fearing that it was importing foreign investors through back doors. Therefore, it was forced to limit the influence of specialists in its activities, and this reduced its performance. Even though, other companies were investing in new brands and developing marketing strategies to promote their products Galanz was unable to achieve its target because it was unable to decide which product to abandon between OBM and OEM microwave ovens. In addition, the organizational structure of this company had not changed since it started producing microwaves. This means that it had a centralized system that limited its ability to make decisions. It is necessary to explain that this system of management is not good for an international company because it slows decision-making and complicates issues regarding consultations. The management had adopted a three-tier system that gave few individuals the power to make decisions for its local and international branches. In addition, this company was unable to synchronize its production plans to incorporate all aspects that were considered to be important. Its products failed to achieve their sales targets because consumers wanted to pay for goods that had been custom-made to fit their description. Therefore, it was difficult to produce these products in large quantities because this lowered the production inventory and reduced profits. Moreover, the international market was saturated with product varieties, and this made it difficult for this company to invest in different products at once. In addition, the product life of most microwave ovens was short and suppliers did not want to make huge orders. Therefore, this company was forced to produce goods on demand, and this lowered its efficiency.
Most of the problems identified above can be eradicated if the management of this company considers implementing the following recommendations. First, it should decentralize its management to ensure roles are diversified. Gupta Mahesh and Boyd Lynn explain that a decentralized management system makes decisions faster than a centralized one. Their opinion is presented in the Theory of Constraints: A Theory of Operations Management, and it explains that decentralization of management, ensures people are given the power to conduct activities without fearing that they play inferior roles in an organization. In addition, they claim that employees become accountable when roles are assigned to them through the decentralization of management. It is necessary to explain that Galanz is a multinational company and thus it must know that its branches face different challenges. Therefore, decentralization of management will ensure this company adopts a customer-based approach to problems.
The company should focus on market trends and needs when producing its OBM and OEM microwave ovens. It has failed to establish appropriate quantities of these products for its markets. That is why it is unable to balance their ratios and continue to be in a dilemma when it comes to production planning. In addition, it should establish market-based approaches and boost its advertising strategies to ensure new products are received overseas without resistance. This will be possible if it brands its products to ensure consumers can identify them. The company is known for producing cheap microwaves and thus it must strengthen this aspect and cut costs in other areas to ensure it has a competitive advantage.
Galanz realized that most people in China could not afford microwaves because they were expensive. Therefore, it specialized in the production of cheap microwaves to ensure the middle and low-income earners had alternatives. Toshiba, Panasonic, and LG were selling their products at high prices, and when this company entered the market it was received by many people. The strategy used involved cutting down the prices of microwaves to ensure most people afford to buy them. This was a good way of ensuring most households were in a position to acquire microwaves. In addition, this company outsourced magnetrons at cheap prices and under agreements that their producers construct their outlets within its branches. This reduced its operating costs and ensured it had a variety of magnetrons from different suppliers. Moreover, it invested in training its technical staff and sought assistance from academic institutions to ensure it had relevant skills of producing its magnetrons. Lastly, it took advantage of the cheap source of labor available in China to get its staff. This ensured that its recurrent expenditures on salaries were minimized. This gave this company a competitive advantage over others and ensured it made profits, even by selling its products cheaply.
This company used vertical integration to improve its supply chain and ensure its products penetrated different markets. This strategy is cheap because a company markets its products through proxy. This means that it signs contracts with its suppliers like Toshiba and Panasonic that it will buy its magnetrons on the condition that they market its microwaves. In addition, it established numerous branches (52) across China; moreover, other branches were established in major exporting countries. This strategy was not successful because this company lacked the adequate technical expertise to help its OBM products to reach consumers. In addition, its competitors had already established strong international marketing strategies and were offering high-quality customer care services that were not available in this company. Moreover, cultural differences in overseas markets made it impossible for sales agents of this company to communicate with clients. Galanz was forced to train its staff on customer care services, and this became a huge unexpected expense that discouraged it from venturing into new markets.
The Decline of the Success of Low-Cost Strategies
Galanz took advantage of the readily available cheap labor in China to invest in the production of microwaves. In addition, it acquired land cheaply, and this enabled it to incur fewer expenses in setting up its initial premises. This gave it a competitive advantage over multinational companies that acquired land at high prices and were forced to recruit experts only in their operations. In addition, Galanz specialized in mass production and enjoyed the economies of scale associated with this practice. The transfer of its production line through OEM agreements maximized its production capacity and lowered expenses. The vertical integration of management enabled it to monitor its activities in different branches and develop strategies that were based on each outlet to ensure all sections performed well. However, these strategies worked for a short time, even though they boosted the performance of this company significantly. China did not have an indigenous microwave manufacturing company, and when Galanz entered this market it was received by most people. In addition, it offered employment opportunities to many people and thus the community saw it necessary to reciprocate by buying its products. Moreover, it sold its products cheaply compared to other multinational companies like Panasonic and Toshiba and this gave it a competitive advantage. However, when it invested in the international market, these strategies did not work due to the following reasons. First, the international consumer community is cosmopolitan, and this means that it has people from different cultural backgrounds. Some of them do not believe that cheap commodities are durable, and this may be a reason why its international market failed to achieve its results. In addition, its competitors like Sony and Sanyo had experience in international trade and were well equipped to manage customer care issues. This promoted their popularity and limited Galanz’s ability to denominate the international market.
However, this company can still employ low-cost strategies to penetrate the international market by doing the following. First, it has to decentralize its operations in the international market and ensure its overseas branches are managed by the local population of these countries. This will reduce the challenges experienced due to cultural differences. Secondly, it must train its support staff to ensure they have the technical and supportive skills to help consumers when they need help. Lastly, it must diversify and develop its products to meet the demands of the modern world. Modernization is pushing people to change their lifestyles and thus this company must also behave in a manner that reflects the changes in consumers’ behavior.
Liang is worried that the low-cost strategies did not produce the expected results in the international market. This company should evaluate these strategies to identify their weaknesses d correct them. In addition, there is the need to examine the strong aspects of these strategies and strengthen them to promote the international image of this company. In addition, he is worried that the company seems unable to integrate the company’s production processes with the operations configurations. He wonders whether the development and growth of the OBM business in overseas markets will have negative impacts on the OEM business or not. In addition, he does not seem to see how the R&D, marketing, and production functions can support the requirements of the three brands (ODM, OEM, and OEM). He also wonders if this company should continue to expand its production capacity through outsourcing and how it should utilize its resources and abilities to gain a competitive advantage in the international market.
The solution to his dilemma lies in the following aspects. First, it can seek tax exemption from the government on grounds that it is restructuring its production processes, this will give it time to concentrate on the international market and develop it. In addition, it should continue to expand its production through outsourcing because this is a cheap way of financing its projects. Lastly, it should decentralize its marketing strategies and develop customer-based training to ensure its staffs understand the company and its clients.
The company should not cancel any department; instead, it should establish a robust customer-care department to help customers from different regions. In addition, it should establish an international marketing department to supervise research and manage this market. This company cannot expand its international performance if it does not establish an independent department to study market trends and global issues that affect the supply and demand of this product. Decentralization of advertising roles will help this company to have solutions that are based on regions. This means that it will understand each region depending on the feedback it gets from its clients d the reports collected from its field research officers. Therefore, it is necessary for this company to seek advice from international experts to ensure its entry into the international market rewards it according to its targets. Other companies like LG, Sony, and Toshiba are doing well in the international market, and this means that even this company has equal chances of improving its global performance.
This is a business practice that involves seeking the services of other companies to boost performance. A company can outsource if it does not have adequate space-time or funds to produce a good or service. Galanz outsources some components like magnetrons from other companies and this practice should continue. It is necessary to explain that technology is not static, and companies must adjust their production lines to ensure they meet the demands of their clients. This company continues to outsource because it must use modern technology to produce its products. In addition, this allows it to know how other companies are doing regarding the technology they use to produce various components. Therefore, this company should continue to outsource to ensure it expands its production activities. Companies that do not outsource are usually disadvantaged when it comes to the quality of their services or goods. This explains why it is necessary for this company to continue outsourcing from different trade partners.