Chinese firework industry Essay

1. IntroductionObjective and anatomical structure of this reportThe Chinese fireworks push has go through signifi gouget change since chinaw atomic number 18 pick out open door policy, to a greater extent thanover, it has ample trade place sh ar in the populaces fireworks market. But on the another(prenominal)(a) hand, the Chinese fireworks exertion besides has calamitous weaknesses. Therefore, whether to cloak in this pains is simmer down a considerable challenge to c pull backly embellishors. The objective of this report is to give near suggestions to Jerry Yu on his decision of the investment on Liuyang fireworks manufacturing. Furthermore, few proposals on how to correct the attraction and the war-riddenness of Chinese fireworks patience at a long-run level atomic number 18 worked out from personal level, there atomic number 18 some strategic plectrums to Jerry Yu in ground of handling an individual fireworks firm. To carry out this objective, an effort analysis and a market canvass are carried out and a raw conclusion is drawn based on the analyses and suggestions.2. Industrial analysisThe aim of this industrial analysis is to outline the situation of the Chinese fireworks diligence in conjunction with analyzing the arguing within this persistence through gatekeepers five forces model (please impact to Appendix).2.1 The Chinese fireworks persistence overviewThe general printing was that mainland mainland China-made fireworks actually made up close to 80% to 90% of the introductions fireworks market. But although Chinese fireworks account for nearly of the worlds market, it can be said as a relati totally messy application in name of its quality, package and timing arrest and dissemination channels. As the most best-selling(predicate) name in Chinese fireworks industry is family-run workshop, which is ordinarily lamentablely funded and lacking of R&D and managerial input, the upstanding industry is fundamentally labor-intensive and the scientific transformations are too restricted.The tilt is intensified by the proceeds of small companies. These private workshops are whippy and quick in responding to market request. They would transcript any popular growth picture and sell it for much little(prenominal) equipment casualtys than judicature-owned or some collectively owned accompanimentories. This fact results in cost drop which has change state a serious problem for the unit of measurement industry. Besides, immaterial con die harders such as Nipponese and Korea companies also threaten the Chinese fireworks industry.2.2 market place trendThe fireworks market can be divided into domestic and exportation market. In the past years, the requirement of domestic market is declining while export gross r eveningue is rising. Since China opened its door in 1979, export market has become a study market of Chinese fireworks. invention 1 indicates the growth of e xport market during the geological period of 1994-1998. figure 1 Export sales of Chinese fireworks industry in 1994-1998From foresee 1, its clear that the demand of export market is increasing stably. Un suspectedly its a respectable gene for Chinese fireworks industry. Another market trend is that the demand for display fireworks is increasing at a fast speed due to the amplify of public fireworks shows, whereas the demand for consumer fireworks is expected to winnow out owing to the more restricted regulations.2.3 gatekeepers Five Forces Model (Appendix). ostiariuss five forces model aims at examining the competitive status of the whole industry.2.3.1 electromotive force entrants (High)The opportunity for potential entrants of fireworks industry is juicy. The superior requirement for establishing a fireworks firm is really little the economy of scale is high and the smear identification within this industry is relatively low. two these facts provide cracking opport unities for firms to enter this industry.2.3.2 Bargaining index number of suppliers ( subaltern)Beca delectation of the extensive number of suppliers of fireworks and little product distinction among fireworks products, the bargaining power of suppliers is low.2.3.3. Bargaining power of buyers (High)Owing to the big number of choices and low even zero switching costs, the fireworks buyers pee-pee high bargaining power.2.3.4 Substitutes (Low)The threat of substitutes of fireworks is relatively low. Although there are substitutes such as brighten-believe firecrackers, due to the heritage of customs and culture, real fireworks are still irresistible to most consumers.2.3.5 Rivalry (High)Rivalry of fireworks industry is high. The supposition for freshistic entrants is high, while pass away barrier is low a good deal of existing firms that assimilate little vicissitude and product differentiation are competing in this industry buyers are more brawny than suppliers All the se forces shape the furious contender in fireworks industry.What is indicated through the analysis of ostiarys five forces model is that the controversy of fireworks industry is high. Therefore, if firms were to survive in aspiration, they should make great effort to differentiate their strategies to achieve sustainable competitive advantages over competitors.3. food market Audit of Liuyang fireworks industryThe market audited account foc manipulations on the Liuyang fireworks markets sic through the identification of its domestic and conflicting competitors and a pulverisationanalysis. The goal of this market audit is to assist Jerry Yu to determine whether to invest in Liuyang fireworks industry or not.3.1 contest analysisThe competitors of Liuyang fireworks industry include some(prenominal) domestic and foreign ones. The competitors and their main competitive aspects of Liuyang fireworks industry are delivered in remit 1.Table 1 The competitors of Liuyang fireworks in dustryCompetitors domestic help oneself ForeignLiling Pingxiang,Wanzai Dongguan Other small establishments Japan,Korea and SpainmilitantAspects Price competition Both price and quality, in particular in low- and medium-priced markets More sophisticate management and marketing practices Copy popular design and sell much less Better quality and timing rig, better packaging.From Table 1, its clear that the Liuyang fireworks industry has been facing fierce competition from both domestic and foreign competitors though its still the largest and most salubrious cognise place for making fireworks in China. All of them have their own competitiveness versus Liuyang fireworks. Thus, if Liuyang fireworks industry were to sustain in the intense competition and beat these competitors, its needful for it to characterise strategy to ontogeny its competitiveness relative to its competitors. anatomy 2 shows the competitive aim amid Liuyang fireworks industry and its competitors on a s ituation map.Figure 2 agonistical dappleing map of Liuyang fireworks industry and its competitorsFrom the positioning map, it can be demonstrated that although Liuyang fireworks industry has strong competitiveness in wrong of reputation, it is seriously lacking of management capabilities compared with Dongguan and foreign competitors, which could be a disastrous factor in the future. Therefore, to improve the management of Liuyang fireworks industry is crucial for each individual investors success as well as the whole industrys sustainability.3.2 SWOT analysis of Liuyang fireworks industryLiuyang fireworks industry does sell certain similar characteristics in terms of Strengths, Weaknesses, Opportunities and Threats with other Chinese fireworks manufacturers, but it also has its own features.3.2.1 Strengths* Long reputation and product transformationLiuyang has been the most well cognize place for making fireworks in China for a long time. It has the strongest reputation in C hina and even in the world market it also occupies an influential position in terms of product variety and reputation.* Huge market shareAs the largest manufacture community of fireworks in China, Liuyang has been make whoopieing great market share in both domestic and export market.* Liuyang governments offensive strategyIn 1997, Liuyang government adopted offensive strategy responding to the set of its fireworks sales. This has been proven to be very usefulone year later, Liuyang fireworks sales change magnitude.* Low labor costLocated in Hunan province, Liuyang is a relatively small and less developed city. Furthermore, most of the manufacture factories are located in rural places, where the labor cost is very low. This is a beneficial factor for manufacturers because with low cost, they could gain more derive.3.2.2 Weaknesses* Poor management input and capabilitiesAs identified in competitor analysis, Liuyang fireworks industry has little management input and poor manageme nt capabilities. Since most of them are family-run workshops, they have no capital to fund management. Whats more, as most workers are farmers who are not well educated, they have no intellectual resource for marketing capabilities.* untidy dispersion channelsThe overall distribution system of fireworks industry is rather break and messy. Neither the old government-run channels nor the crude distribution channels are cost-effective and effective. On the contrary, they are rather chaotic.3.2.3 Opportunities* increase revenue and demandAs shown in Figure 3, the total revenue of Liuyang fireworks industry increased substantially in 1992-1996. instanter the demand is still increasing in particular in display fireworks category. This represents an opportunity to investors.Figure 3 The total revenue of Liuyang fireworks industry in 1992-1996 blood Liuyang Firecrackers and Fireworks uncoverion ( refer to Exhibit 1 in this case)* Technological innovation appealing to consumersTechno logy development triggers the technological innovations. Fireworks can be combined with modern technologies like laser beams, computerized firing and melodic accompaniment to cater for customers.* Increased rubber of fireworksActually, the fireworks are not as vulnerable as usually perceived by people. Technological innovation such as smokeless fireworks makes fireworks safer and as long as people can use fireworks properly, its not so dangerous. This can be demonstrated from Figure 4.Figure 4 The increased consumption(millions of pounds) versus decreased injuries(per 100,000 pounds) of fireworks in 1990-98Source American Pyrotechnics Association (please refer to Exhibit 2 in this case)What is indicated in this chart is that within 1990-98, the consumption of fireworks increased whereas the injuries decreased. The increased safety can help to prepare consumers confidence toward fireworks.3.2.4 Threats* Intensified competition and local protectionismAs illustrated in competitor a nalysis, more and more competitors including existing firms and new entrants are competing with Liuyang fireworksindustry. The direct consequence is the price drop which leads to the deduction of profit margin. some(prenominal) small manufacturers even copy designs and corrupt inferior raw materials to gain profit in competition, which worsens the quality and reputation of Liuyang fireworks industry. In addition, some local Chinese governments tend to protect local manufacturers when purchasing fireworks.* jural restrictionAs fireworks has made some tragedies among users, most countries and Chinese cities more or less inhibit the sell and use of fireworks. Some places even banned the use of fireworks. This fact is undermining the fireworks industry.* Credit crisisDue to the frightful debt control and lacking of respect for line of business contracts in China, the transaction costs are increased while cash descend are slowed down, which is a serious release for fireworks indus try.* Poor profit margin and privation of brand identitiesThis threat exists especially in export market. The importers buy the fireworks at very low price from Chinese manufacturers and because resell at much high prices. This is indicated in Figure 5 the simile between FOB import prices from China and wholesale prices of four types of Chinese display fireworks in US. There is a capacious gap between them. The American importers enjoy huge profit whilst Chinese manufacturers get together from low profit margin. Furthermore, some large western fireworks manufacturers and dealers started to outsource the making of their brand-name fireworks. The Chinese fireworks manufacturers are facing the problem of losing their brand identities.Figure 5 The comparison between FOB import prices from China and wholesale prices of four types of Chinese display fireworks in USSource China Sunsong Fireworks Corp. and Websites of fireworks wholesalers in U.S.4. Suggestions for Jerry YuChinese fi reworks industry is a super competitive industry, however, it still presents opportunities for investors. Based on the analysis of Liuyang fireworks industry, the suggestion for Jerry Yu is to take the opportunitiesto invest in Liuyang fireworks industry. Nonetheless, to win in the fierce competition, its also recommended that Jerry Yu should integrate the advantages he has into the opportunities to create competitive advantages versus his competitors. Therefore, there are some strategic options proposed for him. Furthermore, some recommendations for Chinese fireworks industry as a whole are also worked out in order to increase its competitiveness and attractiveness.5. Proposed strategic options5.1 Options for Chinese fireworks industry (Options 1-4)5.1.1 Strategic option 1 Launch an industry-wide advertize stir to change consumers perception and attitude toward fireworks.As interpreted before, most consumers regard fireworks as a very dangerous product, especially for youth. But in fact, its not as dangerous as consumers perception. Figure 6 shows the comparison of the dangerousness between fireworks and other products. From the discussion quantities its rather sheer that the treatment for youth caused by fireworks is the least(prenominal) among these eleven consumer products. Furthermore, as the technology of fireworks is improving, the dangerousness pass on be less than before. Therefore, its necessary for the manufacturers within this industry to launch an advertizing campaign to change consumers perception, attitude and to build consumers positive belieffireworks is much safer than what they think.Figure 6 Estimated emergency room treatment per 100,000 youth (ages 5 to 14)Source American Pyrotechnics Association (refer to Exhibition 3 in this case)Advantages To build consumers confidence toward fireworks can somehow prevent the decline of demand of consumer fireworks from consumers perspective. If consumers know fireworks are virtually much safer t han their perception, probably they will purchase fireworks more actively than before in violate of the restriction of government regulations.Disadvantages To launch an industry-wide denote campaign requires competent capital. But as most fireworks manufacturers are family-run small workshop, its hard for them to afford the cost for this advertising campaign.5.1.2 Strategic option 2 nominate TQM at an industry-wide level.Lacking of quality control is a serious weakness of Chinese fireworks industry. Therefore, its necessary to build TQM (Total tone Management) industry-wide to regulate and guarantee the quality of Chinese fireworks to compete with foreign competitors and to attain pull from consumers.AdvantageThe advantage is obviousincrease Chinese fireworks industrys competitiveness with foreign competitors and in doing so, to maintain and even increase its market share in the worlds market.Disadvantage The only problem TQM might face is the muckle of Chinese fireworks manu facturers. TQM requires fund as well as regulations, but for smallworkshops, its difficult to achieve.5.1.3 Strategic option 3 To absorb foreign investments actively to improve both hardware (equipment, capital, etc) and software (management capabilities, etc) of Chinese fireworks industry.AdvantagesForeign investment can conciliate one weakness of Chinese fireworks industrylack of capital. If Chinese manufacturers have sufficient fund, they can improve their equipment, the products quality and packaging and their management resource such as R&D, etc. No doubt that these facets can greatly promote Chinese fireworks competitive position, through which, Chinese fireworks industry could prosper.Disadvantages There is a latent possibility that these foreign investments might finally control the Chinese fireworks industry. If this happens, Chinese fireworks industry would lose its identity.5.1.4 Strategic option 4 hold strong brand awareness and characterisation of Chinese fireworks i ndustry. This can be use by advertising campaign or aggressive promotional activities.