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Operations Strategy at Galanz

Case Analysis

Case Snapshot
Objectives for Future
Future competitive strategy for the combination of OEM, OBM and ODM businesses Conflict of interests for OBM and OEM (especially in overseas market) Effective sharing of value chain activities (such as R&D, Production, Manufacturing) Effective resource allocation for competitive advantage Vertical relationship to adopt for magnetron production

Past Growth Strategy


Opportunity sizing (domestic) and stable technology Cost arbitrage (labor and assets) Transfer of production lines and ~4X operating time Adoption of penetration pricing strategies leveraging economies of scale Actualization of R&D investments Collaboration with large retailers, such as K-Mart and WalMart Development of overseas R&D facilities

Recent Challenges
Low brand awareness in overseas markets Antitrust (Anti-monopoly) Lawsuits Prioritization of business models Conflict of interest of OBM and OEM businesses (Sales & Service networks) Centralized decision making body and compliance governance Customization production capabilities and capacity challenges for magnetron production Inefficient production planning

Case Analysis: Operations Strategy at Galanz Created by Sagar Neel De

Case Analysis Tools


Concepts Applied

Qualitative Data

Resource-based-theory

Value Chain Theory


Strategic Transformation Corporate Strategy

Business model (including Organizational Structure) Operating Process Company History Price Cutting Strategy Observations (Product, etc.)

Versus Business Strategy Dimensions: Products / Services, Value Chain, Geography Related Ratio Levels: Related, Unrelated, Single Dominant Types: Horizontal, Vertical Strategies Degree of Diversification

Diversification

Quantitative Data

Sales and Market Share Global revenue and profit Pricing Strategy

Penetration Pricing
Case Analysis: Operations Strategy at Galanz Created by Sagar Neel De

Issue Analysis
Issues of Chinese OEMs during Strategic Transformation
Neglecting R&D

Relevance in the case of Galanz


No. Galanz has built strong R&D capability and evolved as a strong ODM

Lack of Core Competency

Partial. Galanz lacks B2C marketing, efficient production planning and customized production capabilities.
No. Galanz offers efficient production lines to its clients, and utilizes the same lines for its own production. Relevant. Lack of efficient customized production capability and lack of strong international B2C sales. Relevant. In spite of R&D centre in the US, OBM business suffers from this fact evidently. Relevant. Not much investment has been made towards brand management. Also lacks effecting PR management. Partial. Although technology is stable, competition is moderate due to Galanzs cost effective production and penetration pricing strategies.
Case Analysis: Operations Strategy at Galanz Created by Sagar Neel De

Passive Position

Neglecting international demands and trans-cultural obstruction to brand identification Challenges in gaining trust of international consumers due to poor reputation of Chinese products

Lacking strategic awareness of brand management

Excessive Competition & Product Homogeneousness

Diversification and the Related Ratio


Levels and Diversification Strategies

Galanz has moderate to high levels of diversification

Because <70% of revenues are from dominant businesses *

The business model is also related constrained


Because all businesses

share activities in the value chain *

Related Diversification Strategies **

Demands and/or cost linkages between lines of business Sharing value chain activities and transferring core competencies

* Source: Robert M. Grant, Contemporary Strategy Analysis: Concepts, Techniques, Applications (5 th Edition, 2004) ** Source: Corey C. Phelps, HEC Paris Case Analysis: Operations Strategy at Galanz Created by Sagar Neel De

Diversification and Performance

Source: Palich, Cardinal, Miller, Curvilinearity in the diversification Performance Linkage, Strategic Management Journal, 2000

Case Analysis: Operations Strategy at Galanz Created by Sagar Neel De

Recommendations

Continue diversification of business to OBM, OEM and ODM Recognize differences in business models, and develop new capabilities

Develop customized production/assembly in developed markets and for developed markets Develop strong PR, legal and marketing functions

Dilute the effects of origin of manufacturing Invest on brand management to develop itself as an international brand

Develop strong service networks

Continue major investments in innovation in technology and production Implement efficient production planning systems IN THE NEXT SECTION WE DISCUSS HOW TO DEVELOP CORE COMPETENCIES FOR GALANZS BUSINESS MODEL AND CONTINUE PURSUIT OF DIVERSIFICATION
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Case Analysis: Operations Strategy at Galanz Created by Sagar Neel De

Horizontal Diversification
Identifying Cross-business shared resources
Value Chain Activities
Inbound Logistics / Purchasing R&D and Technology Production Outbound Logistics / Distribution Sales & Marketing Service

OBM

OEM

ODM

Combine to gain more leverage with suppliers

Centralized R&D, share technology, transfer technical skills

Leverage economies of scale

Maintain single network for OEM & ODM. Gain leverage from suppliers

Develop single team for OEM & ODM

Train OEM and ODM clients / train 3rd party service teams (Indirect Involvement)

Source: Robert M. Grant, Contemporary Strategy Analysis: Concepts, Techniques, Applications (5 th Edition, 2004)

Case Analysis: Operations Strategy at Galanz Created by Sagar Neel De

Horizontal Diversification
Transfer and Share of Core Competencies
Value Chain Activities
Inbound Logistics / Purchasing R&D and Technology Production Outbound Logistics / Distribution Sales & Marketing Service

OBM

OEM

ODM

OEM manages Purchasing, Inbound Logistics and Production ODM manages centralized R&D capabilities OBM manages distribution, B2C sales & marketing and service OEM & ODM jointly manages outbound logistics, B2B sales & marketing Centralized team to manage service networks for OBM and provide training to ODM & OEM clients
Case Analysis: Operations Strategy at Galanz Created by Sagar Neel De

Horizontal Diversification
Benefits & Challenges

Cost based Synergies Demand based Synergies Intangible interrelationships will be exploited among Galanz's business divisions Transfer of those activities only providing for competitive advantage Transfer skills & expertise among similar value

Diversification alone will not produce superior performance. Management skills in capturing benefits of interrelationships are key success factor The key levers are

Strong sense of corporate identity and mission Allocation of management attention Efficient allocation of capital and shared resources to the three business units Incentive system to reward greater than business unit performance

Activities at Galanz are sufficiently similar The transfer of will provide significant sources of advantage for receiving business units at Galanz

Source: Corey C. Phelps, HEC Paris

Source: Bernd Venohr, Berlin School of Economics Case Analysis: Operations Strategy at Galanz Created by Sagar Neel De

Vertical Diversification of Production

High Profitability Low Growth

Formalization

Low Profitability High Growth

Commitment

Based on the profitability and growth prospects of the product / component, vertical diversification options will be considered. Also, stability of technology will influence vertical diversification decisions. The higher stable the technology, the lower the commitment of the decision maker.

Source: Robert M. Grant, Contemporary Strategy Analysis: Concepts, Techniques, Applications (5th Edition, 2004)
Case Analysis: Operations Strategy at Galanz Created by Sagar Neel De