Case 3 Chinese Fireworks Industry PDF

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Chinese Firework Industry Case #3 Overview Fireworks is the livelihood of people in the province of Liyuang. 60% of what’s produced is exported Fireworks two categories – display and consumer based Liuyang makes 13 kinds with 3k varieties Market Over the past 50 years there has been a shift from this industry. There are legal restrictions, cut throat price competition due to high privatization (devalues brand equity). PEST Analysis Political Factors 1. Local govts have their own regulations regarding consumption of fireworks Economic Factors 1. Low capital investment 2. Low labor costs because the people know how to make fireworks and firecrackers 3. Low profit margin since there are no price regulations set by the govt regarding export of firecrackers/works Social Factors 1. 2. 3. 4. 5.

Majority of workers were farmers who have learned how to make fireworks from their elders Fireworks used to ward off evil or used for major celebrations There is increasing concerns about safety People are also becoming more concerned about environment pollution Even though competition is fierce, Liuyang has high number of skilled workers since they are a firework producing community that has lasted for generations.

Technological factors 1. Very less R&D is being done 2. Machines are rarely used. Manual labor is cheap and is used intensively Strengths 1. Low capital investment (1,250,000 RWB for a factory and less than 125,000 for a small workshop) 2. Low priced raw materials 3. Low labor costs (but increasing because of the danger involved in work) 4. Customer appeal 5. Availability of raw materials

Weaknesses 1. 2. 3. 4.

Less R and D Slow production cause you’re using manual labor Environmental and safety concerns Low quality products

Opportunities 1. Rise in foreign importers 2. Increasing economic development 3. Regulations not too stringent in the west Threats 1. 2. 3. 4.

Safety and security standards and legs Low barrier to entry Piracy problems Price competition

Porters 5 forces 1. -

Substitutes Use balloons instead of firecrackers New technology with laser beams etc Make believe fireworks

2. -

Threat of entrants Low labor cost in liuyang Low set up costs Easy to access labor force, materials and suppliers Licensing is easy

3. Suppliers - Raw materials are very standard. Nothing special with bells and whistles - May potential suppliers 4. Buyers - 70% of fireworks produced are consumed by the Chinese population Bargaining power of buyers: - There is bidding and bulk buying by the govt for national celebrations etc Foreigners has high bargaining power too: They have agents who know the market and how to deal with factories

Decision: He should invest. How to make this work? 1. Purchase high quality material to lessen the possibility of tragic accidents. Quality control is important 2. It’ll help his company pass the quality standards and regulations set by other countries 3. He should implement health and safety standards by having a health and safety committee at the factory which can save him from high class action lawsuits 4. He should have training programs for new hires as well as experienced workers to brush up their skills and get them up to date with safety protocol 5. He should focus on product differentiation that can set him apart from the competitors (try adding bells and whistles to your product)...