Liang Zhaoxian, executive president of Shunde-based Galanz Group, shocked the business world when he announced Aug. 2 that Galanz, already the world's leading microwave oven (MWO) maker, would become the largest in China's domestic air-conditioner industry within three years with an annual output value of 3 to 5 billion yuan (US$370-616 million).
Liang disclosed Galanz had two strategic aims for the next 10 years: to further beef up its position as the largest MWO producer and to make substantial progress in the air-conditioner market.
Liang was born in Shunde, Guangdong Province in 1963. After graduating from Guangzhou-based South China University of Technology in 1987, he went to Hong Kong to pursue his career and set up a trading company. In 1991, he joined Galanz — founded by his father Liang Qingde — and was put in charge of sales, before becoming vice chairman in 1992 and then taking over management of the MWO giant in 2000, succeeding his father as executive president of the company.
Under the leadership of Liang Zhaoxian, Galanz has gone from strength to strength. The company sold 18 million MWOs last year — including five million in China — and achieved a 40 percent world market share with revenue of 13 billion yuan. The company now employs 22,000 staff. Galanz's export sales were expected to exceed US$1 billion in 2005, Liang said.
Controlling the money generated from such a large business volume is no easy task. So Liang has established strict rules for the company's accounting system to better manage capital flow. Galanz has become one of the few China manufacturers to adopt a pre-paid policy for sales in 1998.
Upbeat about the China market potential for MWOs, Liang said the current rate of saturation was 47.6 percent in the country's large and medium-sized cities, although in China's vast rural areas, the figure has barely reached 1 percent.
Galanz moved into the home appliance industry with the microwave oven in 1993 and expanded its production capacity in the following years with orders from North American and European OEMs (Original Equipment Manufacturers).
In China, the company has become famous for its low pricing strategy, which has enabled it to capture more than 50 percent of the domestic market for microwave ovens. The company has promoted its own MWO brand in China with an entry-level price position of less than 600 yuan. This strategy saw Galanz' share of the China market reach an all time high of 73.5 percent in 1998 with an output of 4 million units.
How has Galanz been able to sell at such low prices? Through economies of scale and dramatically lower costs: by expanding production capacity off the back of rising orders from overseas customers outsourcing their production to China to take advantage of lower factor costs, primarily labor costs. To date, Galanz has produced MWO for over 200 companies around the world.
"When we completed orders from other manufacturers, then we produced our own products," Liang said, "The cost is very low because we need not to pay the money for production lines and we have a massive scale."
After leading wave after wave of price wars, Galanz is now focusing on developing its capabilities in technology and innovation. The company has pumped 3 percent of its revenue into R&D since 2000, creating a pool of more than 1 billion yuan for the company to spend every year on acquiring and developing product technologies, and allowing Galanz to set up and run its own U.S. R&D center.
This investment in the future has already paid off, with many popular patented products, among them the digital light-wave oven, and stainless steel and light-wave air conditioners, more than 1000 patents and proprietary applied technologies owned by the company.
Prices of fuel and raw materials have risen sharply this year, especially for steel, cuprum and plastic. At the same time, barriers have emerged in some overseas markets as countries have moved to protect their domestic industries from attack by lower-priced China-made goods. The vast potential of China's MWO market has attracted more than 30 producers to "grab a piece of the pie."
As a result of these adverse factors, many manufacturers' margins have almost completely been whittled away. Galanz has taken a hefty dent in its low-end product profits.
The Galanz response to this has been to reduce their MWO output and to retreat from the market for low-end products with sub-400 yuan price positions. Instead of chasing the low-end, Galanz will now pursue mid and high-end positions in the market, where it can leverage its R&D advantage to best effect. Liang said the company would continue and increase its investment in technology.
Although price aggression from competitors, trade barriers and rising costs have all unsettled Galanz, these factors alone are unlikely to unseat China's MWO giant, which has stolen a march and established itself as No. 1 in MWO, well-ahead of the chasing pack.
So where does Galanz go from here? Liang sees the future for Galanz in air conditioners. This started back in 2000, when Liang made a bold, some said, rash move, pouring 2 billion yuan to start air-conditioner production at a time when the air-conditioner industry was going through a period of intense competition.
Liang's market for air-conditioner was again overseas. Last year, the company exported 2.2 million units of air conditioners — surpassing Zhuhai-based Gree Group — and generated sales value of 10 billion yuan, although Galanz lagged behind the main producers in domestic sales.
Demonstrating his faith in the potential of the air-conditioner market, Liang purchased two million square meters of land in Zhongshan for the site of new facilities.
According to Liang, when finally completed, this two-million-square-meter site will be the world's largest air-conditioner manufacturing complex with an annual capacity of 12 million units.
(Shenzhen Daily August 17, 2005)
