CHINESE FIREWORKS INDUSTRY

PRESENTED BYSakshi Gupta (34)

Sathi Paul (35)Barkha Vig (12)

Nikhil Rawat (26)Shitiz Gupta (36)

INTRODUCTION• Liuyang, a city in Hunan Provinces, is known as “the home of firecrackers

and fireworks”.

• It was the top fireworks exporter in the world, covering 60% of the global production. It export to Japan, Korea, India, Iran, Russia, etc.

• Liuyang makes 13 different types of firecrackers with more than 3000 varieties.

• Due to legal restriction, cut throat price competition, hard to penetrate distribution channels and bad debts were negatively impact the domestic sales of Liuyang fireworks.

• Jerry Yu was running a small chain of gift stores in New York, was asked to invest in a fireworks factory during his visit to Liuyang.

QUESTION 1

 If you were Jerry Yu, would you in invest in a Liuyang fireworks factory? Why?

In short run, he can invest in Liuyang fireworks factory.

His business experience in running a chain of gift stores in New York. His MBA education and his knowledge of both oriental and western business thinking.

Through the help from his hometown relatives, Mr. Yu can obtain the specific knowledge, technique and networking needed to break into in the Liuyang fireworks industry.

The capital requirement for starting business is low. Small family workshop 125,000 RMB Fatory 1,250,000

The labour costs are very low as majority of the workers are

regular farmer. He will also get sufficient and skilled labour force and.

There is no real substitutes

It is their traditional way to celebrate function which would not die easily.

There was higher profit margin than in the export market .

QUESTION 2

Apply Porter’s 5 forces model and evaluate the attractiveness of the Chinese Fireworks Industry.

COMPETING FIREWORKS INDUSTRIES

SUPPLIERS BUYERS

POTENTIAL NEW

ENTRANTS

SUBSTITUTE PRODUCTS

FACTORS DETAILS ANALYSIS

Substitute Products • Use of balloons in celebrations instead of firecrackers• Use of laser beams with audio- visual effects

Moderate

Threat of Potential New Entrants

• Low capital requirement Low labor cost available in Liuyang• Easy access of labor force, materials and supplies• Licensing EasyThus, low entry barriers

Unfavorable

Competing Fireworks Industry

• Other firework industries in Liuyang• Jiangxi Province, Pingxiang & Wanzai fireworks; in terms of price and quality• Dongguan in Guangdong Province near Hong Kong• Liling fireworks; interms of price and variety

Unfavorable

Suppliers • Standard raw-materials• Many potential suppliers•Low bargaining power

Favorable

Buyers • High bargaining power of buyers• Customer is highly sensitive to price• No switching cost is involved

Unfavorable

• The fireworks industry has high potential. Thus, there are high opportunities to invest in this industry.

• Since, there are low barriers to entry. Thus, it is a great industry for new entrants, but is highly competitive.

• Since, cut and throat competition is there in the industry, thus product differentiation can result in high margin of profits.

QUESTION 3

 Is the fireworks industry a "sunset" industry or an industry still worth being in for the long run?

The fireworks industry is definitely a “sunset” industry because-

Fireworks usage is restricted in many cities of china.

Issue related to safety of labor while manufacturing firework.

Fireworks facing a stiff competition from the technology (use of laser beam combination with sound effects, computerized firing).

Hardly any money is invested to carried out Research & Development.

Use of out-dated technology and traditional strategy.

QUESTION 4

 If you were Jerry Yu, and decided to make the investment, what would you do to succeed?

Enhance R&D to develop more Environment – Friendly fireworks

Marketing and selling through Internet domestically as well as for exporting

Investing in High Quality Raw Materials

Bring Product Differentiation or Cost Leadership

Invest in Modern Technologies equipments like Laser

beams, computerized firing and musical accompaniment

Enforce Training Program such as enhancing working safety classes and machinery in factory

Create High Demand in International market

Skilled Factory workers should hired & abide by strict safety measure

Quality of the Ingredients also significant important

Enhance the Varieties of fireworks

QUESTION 5

If you were asked to provide advice to the Liuyang Firecrackers and Fireworks Industry Department, as Jerry Yu.

what would you say?

• Should hired skilled workers so that there should be proper utilisation of resources and workers should strictly follows safety measures.

• Should invest in latest technology equipment .

• Should use high quality raw materials ( gun powder, colour ingredients, paper, fuse and clay soil) in producing the fireworks to lessen the possibility of accidents and also to improve the exploration of Chinese fireworks.

• Should also ask the government to impose penalties to pirates in order to protect the brand name and the intellectual properties.

• Should take well trained professional engineers ( out of 4,00,000 people working there were very few engineers with advanced professional training)

• Should take measures to check the quality of ingredients (potassium nitrate, charcoal, sulfur, gunpowder) because of impure ingredients, there are high possibility of accidents.

• Continuous training programs should be conducted in order to incorporate innovations in the new products, that the research and development department section comes up with (for example, the old day crackers could reach no more than 20m into the sky, while the new ones could go as high as 400m)

THANK YOU !!!