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KELOMPOK I

Robeth Jabbar, Rio Bramantio, Doddy Ahmad,


Linda Kusumawati, Sylvia Hayuning P.

Outline
1. Synopsis
2.Problem Statement
3.Analysis
a. PEST Analysis of the General Environment
b. Five Forces Analysis of the Fireworks Industry

4. Conclusion and Recommendations

About Jerry Yu
Jerry Yu, who was running a
small chain of gift stores in
NewYork, was asked to
invest in a fireworks factory
during his visit to Liuyang.
He was impressed by the
extravagant fireworks
shows he had seen during
the spring festivals. Hed
like to know more about the
development background
and specific situation of the
Chinese fireworks industry
before his investment.

About Liuyang, a city in Hunan Province, is


known as the the home of firecrackers and
fireworks. The fireworks making in Liuyang
has a long history and tradition in China, and
enjoys high reputation in the domestic market.
In addition, it was the top fireworks exporter in
the world, covering 60% of the global
production.

Should Jerry invest the


Liuyang fireworks
industry?

What was the best way to


capitalize on the
potential that remained
unexploited in the industry?

PEST Analysis

a. PEST Analysis of General Domestic


Environment
b. PEST Analysis of General Foreign
Environment
Five Force Analysis

Technology

Political Policies
New
entrant

Suppliers
Suppliers

Industry
competitors

Buyers

Substitutes

Economic
Environment

Social
Power

Political
Advantages: (Advs)
Eased legal restriction of foreign direct
investment
Chinese fireworks market is a magnet
for foreign investors

Disadvantages: (Disadvs)
1

Stringent Government Restrictions

More regulations on cost-driven firms


Environmental concern
2

Unordered Fireworks Market

Discretionary copying of popular design regardless of


intellectual property protection
3

Local Protectionism

Government purchases are apt to local companies

Economic
Advs:
Climbing demands which are driven by economical
growth, increasing income level and living standard

Disadvs:
1
2

Constant increasing costs of labor and raw


materials
Intensified competition set-ups of private
workshops

shrinkage of profit margins for many small


manufacturers

Increased environmental consciousness

Abundant diversities of means of modern


entertainment

Safety Concern

inherent explosive nature


low quality stuffing materials

Advs:

Novelties on product varieties


Disadvs:

Inadequate innovation & stagnation of process technology

Reasons?

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

P
Many fireworks-related injuries
many countries make
restrictive regulations on fireworks
Esp. USA more complex

S
The diversity of the cultures in foreign countries
reduce the seasonality of the fireworks production and sales

T
The Internet become a marketing outlet for Chinese
fireworks, 20%--25% of the worldwide sales

Advs
In recent years, foreign investments are funneled into the
Chinese firework industry, especially Liuyang.

Disadvs
1)the industrys status in foreign market
a lower reputation in quality, packaging and
fierce competition limited profitability

timing control

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

Five Forces Analysis of the Fireworks Industry

Liuyang: the home


of firecrackers and
fireworks.

South Korea &Japan:


Quality, innovation and
brand identity
Pingxiang&Wanzai,
Liling,Huan:uncompetitive
Jiangxi: competitive in
in reputation&variety,but
both price and quality,
competitive in price
low and medium-priced
market.
Dongguan: closeness to Hong
Kong and sophisticated
marketing and practices and
management

Flexibility

Private
Workshops

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

Products made in Japan and Korea


are superior in quality

Foreign companies try to control


more of the value chain, high
markup

Foreign manufacturer outsource


some manufacturing activities to
China

2 The Threat of New Entrants


According to Porters five forces model, easier for market
entry, more competition; On the contrary, more barriers to
entry means less threat of new entrants.

Entry
barrier

Capital
requirement

Labor forces
and costs

Distribution
channel

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.

Distribution channel:
manufacturers

wholesalers

street peddlers and convenient stores

consumers

Evaluation
capital
requirement

low

labor cost

low

labor force

sufficient

distribution
channel

relatively
effective

Conclusion:

easy entry

Due to the increasing environmentalconsciousness and more diversities of modern


entertainments, some substitute products have
appeared. For instance:
1. laser beams with
sound effect
2.make-believe
firecrackers
3. The use of ballons
instead of firecrackers
in weddings

Chinese tradition determines its

uniqueness
Although some substitute products have
appeared, no real substitutes could replace
fireworks in China, because it is in the
national character for Chinese to celebrate
with an atmosphere of noisy happiness.
So, the threat from the substitutes of
fireworks is small.

4 The Bargaining Power of Customers

Domestic Customers
Common
Customers

Governmen
t

Foreign Customers

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

Explosion
Low

Governments
Inviting bidding to
decide on suppliers

High
Large quantity
100,000 to several
million

Foreign Customers
High

Very well
informed

Hiring
agents

Dealing
directly
with the
factories

No
switching
costs

5 The Bargaining Power of Suppliers

The raw
materials are
not difficult
to procure.

Low

Conclusion
Domestic market

Foreign market
Restrictive
regulations

Easy foreign
investments

Fierce Diversified
competition cultures
Low reputation
in quality,
packaging

Popular online selling

PEST

Eased legal
Stringent
restriction
regulations of foreign
direct investment
Increasing
low initial
costs, fierce
competition capital
Environmental Increasing
consciousness, demand
safety concern
Inadequate Wide varieties
innovation

Competition: fierce
Threat from the
substitutes: small
Bargaining power
of suppliers:low

Five
Forces
Analysis

Threat of new entrants:


small
Bargaining power
common customers: low
governments and foreign
customers: high

All in all, it will be profitable for Jerry to invest the


Liuyang fireworks industry.

Recommendations
1. Yes, he should invest.
2. Issues for him to consider when capitalizing: 1. Brand-building strategy
(I P)

2. Foreign expansion
1. Product differetiation
2. Quality control;
packaging upgrading;
timing control...

Corporate strategy

Business strategy

Functional
strategy

esp. European market

1. R&D strategy (E C)
2. Innovation of
products
3. Staff training