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Galanz is a Chinese company producing microwave ovens and competing with such giants as LG, Panasonic, and Toshiba. The companys success is attributed to the low-cost strategy, achieved by efficient use of capacity and process improvements, and the combination of OBM, OEM, and ODM, allowing for economies of scale. Currently, the company is unsure whether it should continue its low-cost strategy and how it can foster further growth. This paper will review the companys previous success and provide recommendations regarding its future development.
The company has employed several strategies that led to its present success. For example, through price wars, Galanz controlled the industry by hindering the growth of new entrants, especially inefficient ones. Further, due to its cost leadership, the company increased sales significantly to a point where the demand for its magnetrons was greater than the supply. As noted in the case, in 2003, the company had the capacity to produce 16 million units, while the demand was 25 million. Galanz successfully solved this problem by outsourcing its magnetron production. The company transferred from OEM to ODM in response to suppliers inability to satisfy Galanzs demand for component parts. Finally, the companys investments in R&D helped it reduce production costs and differentiate itself from competitors, while investment in customer service capabilities improved the relationship with customers and allowed for handling customers complaints.
The company developed and implemented a low-cost strategy, which allowed it to compete successfully in the market. As table 1 shows, by using this strategy, Galanz was able to reduce its prices by 30-40% compared to its competitors, who priced their products too high for the majority of Chinese consumers. It eventually allowed the company to become a leader in both the domestic and international markets.
The question arises of whether a low-cost strategy is an appropriate choice in the current situation. Research shows that a low-cost strategy is an effective way for businesses to stay profitable and outperform their competitors (Lee et al., 2021). It allows for increased flexibility in pricing, enabling companies to lower their prices while maintaining profits and competitive advantage (Lee et al., 2021). In other words, a low-cost strategy widens the possible range of prices that the firm can charge because of the low production costs. Based on the effectiveness of this strategy for business performance and Galanzs extensive experience in using it, it is recommended that the company continue using it in the future. Moreover, costs saved with this strategy can be used for developing innovative products and staff training.
Further, Galanz should develop its OBM business in the international market. One reason for this is that succeeding in the overseas market requires companies to have a strong brand image, the development of which is part of the OBM strategy (Komal et al., 2017). OBM also has the potential to produce higher profit margins and allows the company to diversify its products. While OBM would benefit Galanz in foreign markets, it may negatively affect its OEM business. This is because its current OEM and ODM customers can view Galanz as a competitor, which may undermine the companys relationships with customers. The company can respond to this threat by conducting its OEM/ODM and OEM businesses separately and building relationships with its customers. Overall, Galanz should continue using the combination of OEM, ODM, and OEM. The former two will help the company make the most of its low-cost strategy and cater to the local demand, while the latter will produce higher profit margins and increase the companys brand recognition globally.
Finally, the company can use its production, R&D, and marketing functions to support its customers. It can do so by developing innovative products meeting customers needs, creating value for customers by timely supplying high-quality products, and investing in customer service. As for outsourcing magnetrons, the company can continue to do so, but it should continuously oversee the work of the outsourced vendor to avoid a decrease in the quality in the long run.
References
Komal, B., Chengang, Y., & Bilal. (2017). Challenges in the transition from China-made to China-innovation. International Business Management, 110, 48113-48117.
Lee, C. H., HoehnWeiss, M. N., & Karim, S. (2021). Competing both ways: How combining Porters lowcost and focus strategies hurts firm performance. Strategic Management Journal, 42(12), 2218-2244.
Lee, H. H., Chang, T., Jean, K., & Kuo, C. W. (2022). Channel design and OEM growth in a multi-market setup. European Journal of Operational Research, 296(3), 862-872.
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