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Case Analysis #1: Chinese Fireworks Lilly Howard Dr. Jacobs BUAD 453 January 15, 2020

Executive Summary: Liuyang, China is considered to be the hometown of firecrackers and fireworks for more than 1,000 years, dating back to 618 AD. The city’s industry of firecrackers and fireworks employed more than 400,000 people and created more than 500 firework manufacturers, making Liuyang the top fireworks exporter in the world. However, the elements used to make fireworks caused major safety issues in both the production process and in using them after purchase. Regulations were put into place to decrease injuries of children, workers, and others caused by fireworks. However, regulations have put a setback on the fireworks industry. Purchases are limited because of the dangers, and fireworks are now only popular for certain seasons. The potential harm fireworks can have on the environment and safety of others is killing the industry. New and advance technology is at times replacing the tradition of firework shows, which is having a major effect. If current strategies are not changed, the firework business will not be worth investing in. Problem Statement: Due to intense regulations on fireworks and firecrackers, the industry may be at a decline. Alternatives to fireworks are being created, and could potentially replace the need for fireworks all together. Analysis: Porter’s 5 Forces 1. Risk of entry by potential competitors - I see this factor as a high threat due to the ancient history of the Chinese industry. China’s fireworks 2. Rivalry among established firms - This force could be considered a high threat, due to the endless innovative discoveries involving fireworks to gain a competitive advantage. Even though China has kept up the reputation for high variety, low cost, and lower whole sale prices, they lack in other areas. China has at times failed to ensure their brand equity. Other countries can and have purchased Chinese firework products to only repackage and sell for a higher price. If this continues, this will lead to a huge threat. 3. Substitutes - In recent years, there have been more substitutions created due to the risks and injuries fireworks can sometimes cause. These substitutions are known to be called “make-believe firecrackers” in China. Some include various lights and laser beams, accompanied with sound effects that can give the same entertainment that fireworks can. However, this is only a moderate threat simply because of the sense of tradition that fireworks bring to people all over the world. 4. Bargaining Power of Suppliers - The ancient history of Chinese fireworks proves there is more than enough supply of labor in the industry. Fireworks are described to be a part of Chinese culture and many families have passed down these skills for generations. Due to China’s expertise in the field and their dominance in the global market of fireworks and firecrackers, there is a high bargaining power of suppliers. 5. Bargaining Power of Buyers - Considering the abundance of regulations on the use of fireworks, many people are reluctant to purchase such explosive these days. Injuries caused by fireworks and

destruction to the environment due to explosives have given a moderate to low bargaining power of buyers. PESTEL 1. Political - Regulations on fireworks and explosives are area based. Local governments can have differentiating concerns with the use of fireworks. 2. Economic - The market shows that the desire for fireworks is at a direct correlation with the economy. If the economy is in good standing, so are the means to celebrate and purchase fireworks. Depending on the area, firework industries can create more jobs for individuals. 3. Social - Fireworks come with culture and a social influence on people. Fireworks are normally used to celebrate a multitude of social occasions such as holidays, weddings etc. However, social factors also include the harmful effects explosives can have on the environment and people’s health. 4. Technological - To stay competitive in this industry, innovation is necessary. New technology has been discovered and created to not only assist in the use of fireworks but potentially replace them as well. 5. Environmental - This is a huge factor, due to the state of our environment currently. Anything that could potential harm or influence the environment is questioned and taken very seriously. Climate change and seasons must be considered when purchasing or using fireworks or explosives. 6. Legal - The strict laws and regulations that are put on the use of fireworks and explosives will have a major effect on the firework industry. Safety issues have major potential to out the firework industry at a decline. Recommendation: To move forward with plans of investing in the fireworks industry, Mr. Yu can choose to excel in the areas that other companies have fallen short in, due to the lack of change with their current strategies. Researching safer alternatives of the ingredients used to make fireworks, along with speaking with a legislative representative in the area to understand better the reasoning behind some regulations would set his business apart from the rest. Next Steps/Action Plan: As stated before, if Mr. Yu can put more effort into finding safer supplies that have less of an effect on the environment and the health and safety of others, his business will turn into a front runner within the industry. If Mr. Yu analyzes current legislative regulations that have put restrictions on the use of fireworks, he could possibly work on ways of making his more usable in all areas. Another aspect that fireworks have that Mr. Yu can use to his advantage is the factor of tradition. As stated, laser beams with sound effects will never be the same as a true firework show that people have been celebrating for centuries....