Galanz’s Main Problem
In a nutshell, Galanz’s main problem is finding a way how they can successfully integrate and synchronize the three segments of their business namely: their OEM (Original Equipment Manufacturing), OBM (Original Brand Manufacturing), and ODM (Original Design Manufacturing) businesses. In the past, Galanz used to manufacture microwave ovens whose components are bought from Japanese microwave oven manufacturers but after years of sustained growth and development, they were able to procure the resources as well as the technical knowhow to manufacture and sell their own microwave ovens. Part of their success was also thanks to their low cost strategies which basically involve them offering low manufacturing costs to other manufacturers who would then lend their surplus production lines (once their respective quotas are met), so that Galanz would be able to enjoy higher production efficiencies at virtually no operating costs. However, radical and frequent changes in the electronics segment of the world market, particularly in the area of low cost manufacturing, puts Galanz’s decade old strategy that made them one of the global leaders in the manufacture and sales of affordably priced microwave ovens at a challenge.
Alternatives and Recommendations
Having three lines of business (OEM, ODM, OBM); Galanz could have three alternatives, each of course, having their own set of advantages and drawbacks. The management for example, could focus more on the OEM segment more and less on the remaining two and then vice versa. But since the management wanted to expand their OBM business so much, they could of course start by focusing more of their attention and budget for expansion in this business segment. But then again, this would also lead to decreased market shares of their OEM customers and other possible adverse effects on their ODM business segment.
It would naturally be a lot harder to consider the needs of these three business segments and try to address them all without causing harm on the others than having to focus on only one business segment. In this case, we recommend that the Galanz management base their decision (on which segment to focus on) on their priorities.
Being an experienced OEM, the management fully knows that the company could realize more profit by focusing more on the OBM segment of their business because they already have all that it takes to manufacture their own microwave oven units and as a distributor, they get to sell these manufactured units to the market in their retail prices, leading to larger end-sales profits. Focusing more on the OEM segment on the other hand would make the company earn revenues by selling microwave oven units to their OEM customers in factory prices, which are generally considerably, lower than retail prices, which would theoretically equate to lower profits for Galanz.
Now, if what the company is after is higher profit, then they should focus more on their OBM business segment. However, that does not mean they should completely take the ODM and OEM business segments for granted because a significant portion of their revenue still comes from these two. They should accept that they cannot handle three plates at the table all at the same time. They have to start by working out the needs of one segment first, and from that point, work out to work on the needs of the others. This way, the company would not have to face unnecessary risks.