1.

Introduction---Objective and structure of this report The Chinese fireworks industry has experienced significant change since China adopted "open door policy", moreover, it has huge market share in the world's fireworks market. But on the other hand, the Chinese fireworks industry also has fatal weaknesses. Therefore, whether to invest in this industry is still a considerable challenge to most investors. The objective of this report is to give some suggestions to Jerry Yu on his decision of the investment on Liuyang fireworks industry. Furthermore, some proposals on how to improve the attractiveness and the competitiveness of Chinese fireworks industry at a long-run level are worked out; from personal level, there are some strategic options to Jerry Yu in terms of handling an individual fireworks firm. To achieve this objective, an industry analysis and a market audit are carried out and a gross conclusion is drawn based on the analyses and suggestions. 2. Industrial analysis The aim of this industrial analysis is to outline the situation of the Chinese fireworks industry in conjunction with analyzing the rivalry within this industry through Porter's five forces model (please refer to Appendix). 2.1 The Chinese fireworks industry overview The general belief was that China-made fireworks actually made up about 80% to 90% of the world's fireworks market. But although Chinese fireworks account for most of the world's market, it can be said as a relatively messy industry in terms of its quality, packaging and timing control and distribution channels. As the most popular form in Chinese fireworks industry is family-run workshop, which is usually poorly funded and lacking of R&D and managerial input, the whole industry is basically labor-intensive and the technological innovations are also restricted. The competition is intensified by the emergence of small companies. These private workshops are flexible and quick in responding to market demand. They would copy any popular product design and sell it for much less prices than government-owned or some collectively owned factories. This fact results in price drop which has become a serious problem for the whole industry. Besides, foreign competitors such as Japanese and Korea companies also threaten the Chinese fireworks industry. 2.2 Market trend The fireworks' market can be divided into domestic and export market. In the past years, the demand of domestic market is declining while export sales is rising. Since China opened its door in 1979, export market has become a major market of Chinese fireworks. Figure 1 indicates the growth of export market during the period of 1994-1998. Figure 1: Export sales of Chinese fireworks industry in 1994-1998 From Figure 1, it's clear that the demand of export market is increasing stably. Undoubtedly it's a beneficial factor for Chinese fireworks industry. Another market trend is that the demand for display fireworks is increasing at a fast speed due to the increase of public fireworks shows, whereas the demand for consumer fireworks is expected to decline owing to the more restricted regulations. 2.3 Porter's Five Forces Model (Appendix). Porter's five forces model aims at examining the competitive status of the whole industry. 2.3.1 Potential entrants (High) The opportunity for potential entrants of fireworks industry is high. The capital requirement for establishing a fireworks firm is very low; the economy of scale is high and the brand identification within this industry is relatively low. All these facts provide good opportunities for firms to enter this industry. 2.3.2 Bargaining power of suppliers (Low) Because of the huge number of suppliers of fireworks and little product differentiation among fireworks products, the bargaining power of suppliers is low. 2.3.3. Bargaining power of buyers (High) Owing to the large number of choices and low even zero switching costs, the fireworks buyers have high bargaining power. 2.3.4 Substitutes (Low) The threat of substitutes of fireworks is relatively low. Although there are substitutes such as make-believe "firecrackers", due to the heritage of tradition and culture, real fireworks are still irresistible to most consumers. 2.3.5Rivalry (High) Rivalry of fireworks industry is high. The possibility for new entrants is high, while exit barrier is low; a bulk of existing

What is indicated through the analysis of Porter's five forces model is that the rivalry of fireworks industry is high.. WanzaiDongguanOther small establishmentsJapan. if Liuyang fireworks industry were to sustain in the intense competition and "beat" these competitors.firms that have little diversity and product differentiation are competing in this industry. All of them have their own competitiveness versus Liuyang fireworks. Table 1: The competitors of Liuyang fireworks industry Competitors Domestic Foreign LilingPingxiang. All these forces shape the fierce competition in fireworks industry. it's necessary for it to modify strategy to increase its competitiveness relative to its competitors. Korea and Spain Competitive AspectsPrice competitionBoth price and quality. they should make great effort to differentiate their strategies to achieve sustainable competitive advantages over competitors. Figure 2 shows the competitive position between Liuyang fireworks industry and its competitors on a positioning map. Thus. better packaging. buyers are more powerful than suppliers. especially in low... 3. Market Audit of Liuyang fireworks industry The market audit focuses on the Liuyang fireworks market's position through the identification of its domestic and foreign competitors and a SWOT analysis. if firms were to survive in competition.. Figure 2: Competitive positioning map of Liuyang fireworks industry and its competitors .and medium-priced marketsMore sophisticated management and marketing practicesCopy popular design and sell much lessBetter quality and timing control. 3. The goal of this market audit is to assist Jerry Yu to determine whether to invest in Liuyang fireworks industry or not. it's clear that the Liuyang fireworks industry has been facing fierce competition from both domestic and foreign competitors though it's still the largest and most well known place for making fireworks in China.1 Competitor analysis The competitors of Liuyang fireworks industry include both domestic and foreign ones. The competitors and their main competitive aspects of Liuyang fireworks industry are delivered in Table 1. From Table 1. Therefore..

Now the demand is still increasing especially in display fireworks category. This represents an opportunity to investors. it can be demonstrated that although Liuyang fireworks industry has strong competitiveness in terms of reputation. .2 SWOT analysis of Liuyang fireworks industry Liuyang fireworks industry does share certain similar characteristics in terms of Strengths. This has been proven to be very useful---one year later. It has the strongest reputation in China and even in the world market it also occupies an influential position in terms of product variety and reputation. Liuyang fireworks sales increased. Furthermore.2 Weaknesses * Poor management input and capabilities As identified in competitor analysis. Weaknesses. 3. * Liuyang government's offensive strategy In 1997. * Low labor cost Located in Hunan province. they could gain more profit.2. most of the manufacture factories are located in rural places.3Opportunities * Increasing revenue and demand As shown in Figure 3.From the positioning map. 3. * Messy distribution channels The overall distribution system of fireworks industry is rather fragmented and messy. to improve the management of Liuyang fireworks industry is crucial for each individual investor's success as well as the whole industry's sustainability. On the contrary. 3. but it also has its own features. What's more. they have no intellectual resource for marketing capabilities. Neither the old government-run channels nor the new distribution channels are efficient and effective. Therefore. Liuyang is a relatively small and less developed city.1 Strengths * Long reputation and product variety Liuyang has been the most well known place for making fireworks in China for a long time. the total revenue of Liuyang fireworks industry increased substantially in 1992-1996. Opportunities and Threats with other Chinese fireworks manufacturers.2. * Huge market share As the largest manufacture community of fireworks in China. 3. Since most of them are family-run workshops. it is seriously lacking of management capabilities compared with Dongguan and foreign competitors. Liuyang government adopted offensive strategy responding to the decline of its fireworks sales. This is a beneficial factor for manufacturers because with low cost. they have no capital to fund management. Liuyang has been enjoying huge market share in both domestic and export market.2. Liuyang fireworks industry has little management input and poor management capabilities. as most workers are farmers who are not well educated. where the labor cost is very low. they are rather chaotic. which could be a disastrous factor in the future.

Some places even banned the use of fireworks.000 pounds) of fireworks in 1990-98 Source: American Pyrotechnics Association (please refer to Exhibit 2 in this case) What is indicated in this chart is that within 1990-98. some large western fireworks manufacturers and dealers started to outsource the making of their brand-name fireworks. Technological innovation such as smokeless fireworks makes fireworks safer and as long as people can use fireworks properly. it's also recommended that Jerry Yu should integrate the advantages he has into the opportunities to create competitive advantages versus his competitors. it's not so dangerous.4Threats * Intensified competition and local protectionism As illustrated in competitor analysis. This fact is undermining the fireworks industry. the suggestion for Jerry Yu is to take the opportunities--to invest in Liuyang fireworks industry. which worsens the quality and reputation of Liuyang fireworks industry. 4. some local Chinese governments tend to protect local manufacturers when purchasing fireworks. Figure 4: The increased consumption(millions of pounds) versus decreased injuries(per 100. There is a huge gap between them. it still presents opportunities for investors. which is a serious issue for fireworks industry.2. The American importers enjoy huge profit whilst Chinese manufacturers suffer from low profit margin. This can be demonstrated from Figure 4. there are some strategic options proposed for him. Figure 5: The comparison between FOB import prices from China and wholesale prices of four types of Chinese display fireworks in US Source: China Sunsong Fireworks Corp. to win in the fierce competition. * Legal restriction As fireworks has made some tragedies among users.Figure 3: The total revenue of Liuyang fireworks industry in 1992-1996 Source: Liuyang Firecrackers and Fireworks Exhibition (refer to Exhibit 1 in this case) * Technological innovation appealing to consumers Technology development triggers the technological innovations. The Chinese fireworks manufacturers are facing the problem of losing their brand identities. Some small manufacturers even copy designs and purchase inferior raw materials to gain profit in competition. 3. some recommendations for Chinese fireworks industry as a whole are also . Suggestions for Jerry Yu Chinese fireworks industry is a highly competitive industry. and Websites of fireworks wholesalers in U. Fireworks can be combined with modern technologies like laser beams. Based on the analysis of Liuyang fireworks industry. however. the fireworks are not as dangerous as usually perceived by people. Nonetheless. Furthermore. The increased safety can help to build consumers' confidence toward fireworks. This is indicated in Figure 5: the comparison between FOB import prices from China and wholesale prices of four types of Chinese display fireworks in US. Therefore. the consumption of fireworks increased whereas the injuries decreased. The importers buy the fireworks at very low price from Chinese manufacturers and then resell at much higher prices. * Poor profit margin and loss of brand identities This threat exists especially in export market. more and more competitors including existing firms and new entrants are competing with Liuyang fireworks industry. * Credit crisis Due to the bad debt control and lacking of respect for business contracts in China. In addition. The direct consequence is the price drop which leads to the deduction of profit margin.S. most countries and Chinese cities more or less inhibit the sell and use of fireworks. the transaction costs are increased while cash flow are slowed down. * Increased safety of fireworks Actually. Furthermore. computerized firing and musical accompaniment to cater for customers.

5. But as most fireworks manufacturers are family-run small workshop. Advantages: &#9658.2 Strategic option 2: Build TQM at an industry-wide level.1. most consumers regard fireworks as a very dangerous product. Figure 6 shows the comparison of the dangerousness between fireworks and other products. Furthermore. probably they will purchase fireworks more actively than before in spite of the restriction of government regulations. If consumers know fireworks are virtually much safer than their perception. as the technology of fireworks is improving. it's hard for them to afford the cost for this advertising campaign. Chinese fireworks industry would lose its identity. the dangerousness will be less than before. Chinese fireworks industry could prosper. attitude and to build consumers' positive belief--fireworks is much safer than what they think. This can be implemented by advertising campaign or aggressive promotional activities.As mentioned earlier. 5. 5.4 Strategic option 4: Build strong brand awareness and image of Chinese fireworks industry. 5.3 Strategic option 3: To absorb foreign investments actively to improve both hardware (equipment. Disadvantages: &#9642. it's difficult to achieve. some foreign manufacturers started to outsource their brand-name fireworks. Advantages: &#9658. Therefore. but for small workshops. through which. From the treatment quantities it's rather manifest that the treatment for youth caused by fireworks is the least among these eleven consumer products. to maintain and even increase its market share in the world's market.1.The advantage is obvious--increase Chinese fireworks industry's competitiveness with foreign competitors and in doing so.1 Strategic option 1: Launch an industry-wide advertising campaign to change consumers' perception and attitude toward fireworks. Disadvantage: &#9642. especially for youth. Therefore. the products' quality and packaging and their management resource such as R&D. To launch an industry-wide advertising campaign requires sufficient capital. TQM requires fund as well as regulations. Lacking of quality control is a serious weakness of Chinese fireworks industry. Disadvantages: &#9642.1 Options for Chinese fireworks industry (Options 1-4) 5.worked out in order to increase its competitiveness and attractiveness.1. it's not as dangerous as consumers' perception. they can improve their equipment. to retrieve and even strengthen their brand identity is . it's necessary for the manufacturers within this industry to launch an advertising campaign to change consumers' perception. it's necessary to build TQM (Total Quality Management) industry-wide to regulate and guarantee the quality of Chinese fireworks to compete with foreign competitors and to attain trust from consumers. Therefore. etc. and some Chinese manufacturers began to lose their brand identity. As interpreted before.Foreign investment can compensate one weakness of Chinese fireworks industry---lack of capital. etc) of Chinese fireworks industry. capital.1. To build consumers' confidence toward fireworks can somehow prevent the decline of demand of consumer fireworks from consumers' perspective. There is a latent possibility that these foreign investments might finally control the Chinese fireworks industry. But in fact. Figure 6: Estimated emergency room treatment per 100. The only problem TQM might face is the messiness of Chinese fireworks manufacturers. Advantage: &#9658. No doubt that these facets can greatly promote Chinese fireworks competitive position. If this happens. etc) and software (management capabilities. Proposed strategic options 5. If Chinese manufacturers have sufficient fund.000 youth (ages 5 to 14) Source: American Pyrotechnics Association (refer to Exhibition 3 in this case) Advantages: &#9658.

1 Strategic option 5: Targeting and Positioning---Target display fireworks market in both domestic and export market. 5. For instance. Disadvantages: &#9642. CRM enables a firm to better satisfy its customers' needs and wants. Especially in display fireworks market. which small workshops are not able to afford. Therefore. But this doesn't mean to give up consumer fireworks market. and finally. Thus.Choosing a target market allows a company to better allocate its resources to produce right products to its potential consumers. Disadvantages: &#9642.S. 5. High quality products also require high input. he can take advantage of his own management knowledge and his partner's manufacturing experience. Small workshops don't care about brand and they even don't have their own brands.3 Strategic option 7: To form strategic alliance or joint venture with other firms. Advantages: &#9658. These recommendations are proposed for Jerry Yu for his individual investment. American consumer market is also a huge market for a company to target. Furthermore. In some regions such as Europe.or medium. a company can deploy its resources more efficiently and effectively as well as to maximize its market potential. Therefore. both of them can benefit from this. Disadvantages: &#9642.Relationship marketing plays a vital role for a firm's successfulness.2 Options for Jerry Yu (Options 5-8) According to the former suggestion. if Jerry forms a joint venture with a Chinese manufacturer. 5. some Chinese manufacturers don't respect contract.Strategic alliance can create synergy. Jerry Yu will invest in Liuyang fireworks industry.2. yet it can't guarantee success. It is recommended that Jerry could position his company's products at high-end level. both capital and managerial resources.instrumental for Chinese fireworks industry to sustain in competition. which could lead to the unstableness of the relationship. build CRM (Customer Relationship Management). either domestic or foreign ones. high quality and relatively premium price. therefore. Create and maintain good relationship with his suppliers.size fireworks manufacturer. Keep goodwill with suppliers can achieve efficient and cost-effective procurement.2 Strategic option 6: Develop relationship marketing. Also. since display fireworks market is expanding fast. Advantages: &#9658. while joint venture can reduce costs and risk by sharing with partners. as he lives in U.2. it can be assumed that he can produce high quality fireworks and position these products at premium-end market level. Advantages: &#9658. 5. Disadvantages: &#9642. Cost might be the only disadvantage of Relationship Marketing for a start-up firm. Since Jerry is a "freshman" in fireworks industry. As a result. Messy manufacturers place a hamper on Chinese fireworks industry's way to brand building. European consumer fireworks market should be the company's target as well. With this synergy. Jerry has good management knowledge. what's more. . hopefully Jerry can compete with foreign competitors in terms of packaging. he can be in charge of management and marketing activities while his partner can concentrate on production. quality control and management capabilities. Another way is to form a joint venture with another firm. this strategy can generate profit for him. It's suggested that Jerry could build strategic alliance with another large. i. as most buyers are governments. As analyzed before. Relationship Marketing involves both financial and managerial input. Jerry's firm can focus on manufacturing display fireworks while his partner puts stress on consumer fireworks. In this way. the regulations are less stringent and orders are larger quantities and better prices.2. Build brand awareness needs capital and management resource as well. There might be some possibilities of inequitable share of responsibilities in a strategic alliance or joint venture. there are lots of potential in this market. this might be a bit risky for him between the distance of his input and the result.e. he has plenty of technology experience. to keep good rapport with them is critical for a firm to win in competition.

Internet provides "Clicks-and-Mortar" synergy and great opportunities for firms.5. Marketing: Concepts and Strategies. J. it's a time-consuming job. Advantages: &#9658. 2001 Evans.6 and 7 are prior to option 8 in the implementation process. as the detail information of Jerry Yu are not provided. Moreover.Internet has a significant impact on business process. As a manufacturer. If these strategies could be integrated they would be the most efficient and effective. Although these strategies can't ensure success. Macmillan Press. Butterworth-Heinemann. REFERENCES BAKER. This threatens a company's brand image and markup as well. O. For Chinese fireworks industry. One point should be emphasized is that the strategies for Chinese fireworks industry and recommendations for Jerry Yu are not absolutely separated but interrelated. Therefore. Fourth ed. it is recommended that options 2. Fourth European ed. Another viewpoint to be addressed is that not only Jerry Yu but also other investors should be aware of the weaknesses of the Chinese fireworks industry. it's better for it to become a "clicks-and-mortar" after it has a solid foundation. M and Moutinho. Jerry can also capitalize on E-business. But the successfulness depends on the extent to which he uses the strategies to differentiate from competitors.4 Strategic option 8: To capitalize on Internet as a tool for the business process. Internet can be utilized when Jerry carries out other strategies and could acquire profit. Price transparency on Internet worsens price competition. Market is dynamic and no strategy can guarantee success. hopefully it will increase the competitiveness for Jerry as well as the whole industry. as long as both Jerry Yu and Chinese fireworks industry can fulfill these solutions. such as procurement and SCM (Supply Chain Management) become more efficient and cost-effective via Internet. Some processes. Another threat of Internet is the commoditisation of brands. S. there are some recommendations for both Chinese fireworks industry and Jerry.3 and 4 are essential for Chinese fireworks industry's viability while option 1 is a more selective one because to change consumer's attitude toward an industry is a complex and tough process which demands great effort of the whole industry. PRIDE. Disadvantages: &#9642. To increase the attractiveness and competitiveness of an industry. therefore. Boston: Houghton Mifflin.2. 2001 DIBB. only one individual's effort is not enough. L. W. First ed. SIMKIN L. Jerry also can utilize the strategies proposed for the whole industry. L Contemporary Issues in Marketing. 6.M The Marketing Book. 1999 . and FERELL.C. Recommendations on the proposed strategic options Corresponding to the judgment of each option. the suggestions are based on a relatively ideal circumstance--providing he has adequate capital to implement these strategies. Nevertheless. Conclusion What we can conclude from the analysis and suggestions is that although Chinese industry has some huge weaknesses. However. the suggestion is that options 5.M. Conducting on-line research also costs less but more efficient. Therefore. hopefully he can achieve competitive advantages meanwhile the competitiveness and attractiveness of Chinese fireworks industry will be improved. it still provides opportunities for Jerry Yu. which will result in the decrease of profit margin. Internet is also a good way for a company to sell its products directly to its customers bypassing intermediaries in order to increase profit margin and to develop eCRM(Customer Relationship Management). 7. For Jerry.

L. Butterworth-Heinimann. P. P. J and WONG. Prentice Hall. M and Clark.G. Christopher. M Relationship Marketing: Strategy and Implementation.V Principles of Marketing. 141 STECKEL. G. SAUNDERS. First ed. ARMSTRONG. A. 1999 KOTLER. 2001 Peck. V.D. New Jersey: Prentice Hall. Planning. First ed.E (1979)." Harvard Business Review 57 (March-April). J. Implementation and Control. H.H and RAO. 1998 . Third ed. 1999 PORTER. and FRAZIER G. M. Addison Wesley Longman. Payne. Marketing: connecting with customers. 1997 KOTLER. "How Competitive Forces Shape Strategy. First ed.R Analysis for Strategic Marketing. New Jersey: Prentice Hall.HARRELL. Marketing Management-Analysis.

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