Credit Insurance case study - Galaxy Microsystems Ltd.

 

 

Backed by trade credit insurance, a Hong Kong video graphic specialist has protected itself from client default and focussed on becoming a world leader.

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There is a serious side to the video games industry. It is a wildly popular hobby with some half a billion players worldwide. But for video graphics specialist Galaxy Microsystems Limited, it is a highly competitive business that carries a lot of risk.
 
The Hong Kong-based company began as a computer parts distributor in 1994, but it has become one of the world’s major      suppliers of high-quality VGA (Video Graphic Array) cards to ten millions of people who build their own computers and video game players.  VGA cards are hidden but essential components in a computer that enable high-quality video and onscreen graphics.
 
For many of its products, Galaxy gets a boost from its partnership with Nvidia, one of the world’s high-end graphics chip makers.    However, like video games themselves, it is a tough market where players have to do battle every day.
Gary Leong, Galaxy’s accounting supervisor, points out that the rapid evolution of technology and the rising expectations of consumers mean business is inherently uncertain.
 
“The end-users all have different needs. We have to keep coming up with new models of VGA cards every year to meet such needs,” he said. “Besides, there is no lack of competition while we have to keep up with the technology which is ever changing.”
 
Trading risk is just one of a number of risks Galaxy faces. It relies on credit insurance for peace of mind, and has been a client of Euler Hermes since 2003. “We need protection when dealing with clients who trade on open account terms, and the insurance protection from Euler Hermes is very important,” he added.
 
Galaxy’s business operations are divided between mainland China, where it has its manufacturing plants and makes most of its sales, and Hong Kong, where it manages global sales.
 
The VGA card producer makes frequent use of Euler Hermes’ credit limit services and risk analysis, which provides them with an additional insight into their customers financial position and the markets in which they operate.
 
At the height of the global financial crisis, just after he joined Galaxy in 2009, Gary was given the task of dealing with two European buyers which had failed.
 
Galaxy had the foresight to have purchased a Euler Hermes trade credit insurance policy and was able to protect themselves from this non-payment and subsequent insolvency of their trading partner. In the end, Galaxy was able to reclaim the invoice amount through Euler Hermes.
 
Gary said, “At the end of the day, we hope to get protection and coverage whenever we need it from our trade credit insurance. We are comfortable that we have an insurance provider who does not drag its feet in paying out on its claims.”

 

He stated that Galaxy had confidence in Euler Hermes – its sole trade credit insurer – because of its size and the ease of dealing with its local team. “Once we have submitted the documents, the process is quite smooth.”
 
Since those two claims, Galaxy has maintained a good record in terms of monitoring their customers’ financial status, without even a case of late payment in recent years.
 
As an add-on service, Euler Hermes keeps Galaxy updated with a weekly export risk outlook, insolvency reports and a “Traffic Light Report” that provide the latest economic and sector information and can be used to identify which clients to offer or increase open account sales to. “This is important information for our sales people,” Gary said.
 
He added that both solutions and services were the most important factors for Galaxy in choosing its insurance partner. “We will continue to buy credit insurance for all of the buyers, so we can have peace of mind and achieve sustainable growth.”