3. Case Study: The Chinese Fireworks Industry By: 亓文杰 张艳艳 张敏 邹爱丽 杨立超 张安冬 罗喻

4. Outline 1. Synopsis 2.Problem Statement 3.Analysis 3.1 PEST Analysis of the General Environment 3.2 Five Forces Analysis of the Fireworks Industry 4. Conclusion and Recommendations

8. 2. Problem Statement 2.1 Should Jerry invest the Liuyang fireworks industry? 2.2 What was the best way to capitalize on the potential that remained unexploited in the industry?

9. Economic Environment Social Power Political Policies Technology Suppliers New entrant Suppliers Industry competitors Buyers Substitutes

13. Economic Advs: Climbing demands which are driven by economical growth, increasing income level and living standard Disadvs: shrinkage of profit margins for many small manufacturers Constant increasing costs of labor and raw materials 1 Intensified competition ： set-ups of private workshops 2

16. Small family-owned-and-operated workshops Lack of professional training Lack of investment into R & D No initiative or professional human resources for technological innovation

18. Advs Disadvs In recent years, foreign investments are funneled into the Chinese firework industry, especially Liuyang. 1)the industry’s status in foreign market ■ a lower reputation in quality, packaging and timing control ■ fierce competition ， limited profitability 2)Foreign competitors ■ Japanese and Korean products are superior ■ foreign companies try to control more of the value chain ■ foreign manufacturers outsource their brand-name to china, Chinese industry losing brand identity. 3 ） Foreign buyers powerful E

19. 3.2 Five Forces Analysis of the Fireworks Industry

20. 3.2.1 The Competitive Rivalry Liling,Huan:uncompetitive in reputation&variety,but competitive in price Dongguan: closeness to Hong Kong and sophisticated marketing and practices and management Pingxiang&Wanzai, Jiangxi: competitive in both price and quality, low and medium-priced market. Liuyang: “the home of firecrackers and fireworks”. South Korea &Japan: Quality, innovation and brand identity

21. Domestic Competition Private Workshops Flexibility Cost Copying Quick and flexible response to market demands Low cost of labor, production, administration, etc, which contribute to a lower selling price Negligence to intellectual property protection and plagiarizing of popular design, which also lowered the cost

23. Entry barrier 2 3 1 Capital requirement Labor forces and costs Distribution channel 3.2.2 The threat of new entrants According to Porter’s five forces model, easier for market entry, more competition ; On the contrary, more barriers to entry means less threat of new entrants.

24. Capital requirement : The initial capital requirement for starting fireworks manufacturing facility is low . Setting up a small family workshop , < RMB125 , 000 a well-equipped factory , only RMB1 , 250 , 000 Labor forces and labor cost: The majority of the workers are regular farmers . Only a few places (like Liuyang ) have a large pool of skilled fireworks-makers. Besides, the labor costs are still very low , though they are steadily increasing.

29. Domestic Customers Foreign Customers 3.2.4 The Bargaining Power of Customers Common customers Governments

30. Common customers Increasing economic development and living standards Rising in the past three decades Lifted Restriction Explosion Low

31. High Inviting bidding to decide on suppliers Large quantity —100,000 to several million Governments

32. Foreign Customers High Hiring agents Dealing directly with the factories No switching costs Very well informed

33. Low The raw materials are not difficult to procure. 3.4.5 The Bargaining Power of Suppliers

34. 4.Conclusion and recommendations PEST 4.1 Conclusion Foreign market Domestic market Restrictive regulations Fierce competit ion Easy foreign investments Diversified cultures Popular on-line selling Stringent regulations Eased legal restriction of foreign direct investment low initial capital Increasing costs, fierce competition Increasing demand Environmental consciousness, safety concern Wide varieties Inadequate innovation Low reputation in quality, packaging…

35. Five F orces Analysis Competition : fierce Threat of new entrants: small Threat from the substitutes: small Bargaining power common customers: low governments and foreign customers : high Bargaining power of suppliers:low All in all, it will be profitable for Jerry to invest the Liuyang fireworks industry.

37. Thank you !