Analysis of Chinese Fireworks Industry

Student Name: xyz Analysis of Chinese Fireworks Industry

Macro-Environmental factors impinging Chinese Fireworks industry:

Economic Due to heavy competition, the market is faced with reduced prices, profit margins affecting

everyone. There has been an increase in level of income, better living standards and increased job

opportunities to the workforce in emerging markets. This is good for the industry with increased demand, but

disadvantage when skilled workers are lost to a different industry. The industry faces with constant increase

in cost of labor and raw materials.

Socio Cultural The green houses gases emitted globally is on the rise affecting our environment every day.

Lately, there is greater concern and consciousness in the world we live in towards environment. The industry

will have to deal with this due to environmental impacts. Due to advanced technology and other

improvements, there are many other alternative options. Lately there are many other outdoor activities such

as laser shows with music, water fountains with music. However the demand and usage of fireworks along

with these is still dominant. All over the world, there is safety concern for either display or consumer

consumption of fireworks. Greater safety concerns plague this industry related to injury and loss of life is in

manufacturing and making of fireworks.

Demographic The Chinese domestic market is faced with legal restrictions, cutthroat price competition, and

local protectionism and hard to penetrate distribution channels. Bad debt is an increased concern in China

which affects the whole domestic accounts receivable. The foreign direct investment has opened up in China

lately. This is good as the fireworks industry is very attractive in China for investments in technology,

automation, R&D and new factory.

Political / Legal This industry is highly regulated in most countries due to the nature of this product.

Regulation exists at all stages right from manufacturing, distribution and consumption phase. Maximum

impact to safety is during production process and quality of raw materials used. Industry faced with ever

increasing environmental impact and concerns globally. The legal system is not strong enough in China to

enforce protection of intellectual property rights, copying of brand, identity and duplicates.

Global Fireworks is manufactured not only China, but many other south East Asian countries such as

Taiwan, Japan, Korea etc. Globally emerging markets and developed markets are the primary importers of

fireworks and the demand has been steadily increasing. Increased use of fireworks across nations

traditionally has been during their major holidays such as Chinese New Year, July 4 th in US etc. There is also

evidence of additional consumption in developed and emerging markets. This is during January New Year

celebrations and major events such as Olympics.

Technological There is not much technological innovation in Fireworks production process or new kinds of

innovations in the industry. The R&D investments have been low when compared to variation in

manufacturing, mixing and process improvements.


Fireworks industry structural Analysis – Based on Porter’s Five Force Model:

Porter’s five force structural frameworks has been applied to fireworks industry and analyzed accordingly.

Potential entrants (High): The opportunity for potential entrants of fireworks industry is high. The capital

requirement for establishing a fireworks firm is very low; the economy of scale is high and the brand

identification within this industry is relatively low. All these facts provide good opportunities for firms to

enter this industry.

Bargaining power of suppliers (Low) Because of the huge number of suppliers of raw materials and just

variation in the quality, the bargaining power of suppliers is low.

Bargaining power of buyers (High) Owing to the large number of choices and low even zero switching

costs, the fireworks buyers have high bargaining power.

Substitutes (Low) Threat of substitutes of fireworks is relatively low. Although there are substitutes such as

make-believe "firecrackers", due to the heritage of tradition and culture, real fireworks are still irresistible to

most consumers. Laser shows techno music, regional songs, light shows with water etc. is currently in place,

however threat of substitutes is not an issue for fireworks industry.

Rivalry (High) Rivalry of fireworks industry is high. The possibility for new entrants is high, while exit

barrier is low; a bulk of existing firms that have little diversity and product differentiation are competing in

this industry; buyers are more powerful than suppliers.

Competitor analysis The competitors of Liuyang fireworks industry include both domestic and foreign ones.

New entrants from emerging markets such as Korea, Spain and other regions and provinces in China are a

great threat. Firms compete in price as well as product ranges including brand name and package. Imitation

exists to the core and cannot be differentiated.

Summary All these forces shape the fierce competition in fireworks industry. This analysis indicates that

rivalry of fireworks industry is extremely high and hence, if firms were to survive in competition, they

should make great effort to differentiate their strategies to achieve sustainable competitive advantages over


competitors. In such highly competitive market space where there are no ethical and business values across

firms, there has to be a technologically advanced strategy that will take greater investments and core

competency business models that needs to be established.

Competitive Strategy Recommendation for Jerry Yu:

Based on 5 force and value chain analysis from Appendix A, graphs from Appendix B & C, the industry

although faces extreme price competition, safety issues and varying demand (domestic / export), I feel that

making investments in China at this stage in 2009 is the right decision for Mr. Jerry Yu. I suggest the

following strategies to be adopted as management practices that will give strategic competitive advantage in

this highly price sensitive industry.

Competitive Strategy Although Jerry Yu’s investment costs will increase due to these management

practices, over the long run his company will gain superior competitive advantage and differentiate itself

from the rest:

Create and set up R&D facility towards technological innovations necessary for the industry. Establish

best hiring practices to attract professional talent from the industry.

Absorb foreign direct investments to improve equipment, capital and the above R&D facility for your

firm.

Hire skilled workers from the industry and establish superior human resource practices such as medical,

retirement benefits and constant training to improve knowledge and skills for the workforce.

The industry traditionally has been manual mixing of raw materials. Create a culture mindset to move

away from this to develop automated processes that will certainly give competitive strategy for some

parts of the fireworks making process for Jerry Yu.

Establish relationships with Chinese universities and develop prototypes for new fireworks etc. and lead

this innovation.

Establish strategic alliance and joint ventures with other firms including suppliers, government agencies,

distributors etc. Such relationships develop synergy that thrives in the industry and help to gain access to

high quality raw materials to be used all the time at cheapest price.

Establish TQM best practices and focus on Quality for fireworks products.


Launch an industry-wide advertising campaign to change consumers' perception and attitude toward

fireworks.

Eliminate dependency of sales to only one market segment or region. Invest in Sales Force and CRM

best practices that will gain access to new markets and maintain existing customers.

APPENDIX A Value Chain Analysis for Fireworks Industry:

APPENDIX B

Raw Material

Producers

Gun Powder,

color ingredients, paper, fuse,

clay soil

Fireworks making & packaging (Includes,

plant, employees

etc.)

Distribution

Channels and

networkOutlets

for Fireworks, local

& Internat

ional

End Customers


APPENDIX C

Analysis of Chinese Fireworks Industry

Documents

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