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Chinese fireworks case

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  • The highest possible score for IFE matrix is 4.0 and lowest is 1.0. the score obtained is 2.0, it means that is relatively weak internally
  • It means that Liuyang fireworks industry had adequately positioned itself to take advantage of opportunities which arise as well as ability to handle and cope with threats which may aso arise.

Chinese fireworks case Chinese fireworks case Presentation Transcript

  • The Chinese Fireworks Industry (Case Analysis) Written by: Ruihua Jiang Subject- Strategic Management Presented By: Bishnu Neupane MBA VI Trimester(2012/01) School of Business Pokhara University 02/01/12 Copy right@ www.bishnuneupane.com.np
  • Presentation Overview
    • Case Summary
    • Problem: Invest or not?
    • Environmental Analysis
      • PEST Analysis
      • EFE matrix
      • Porter’s five forces model (Analysis)
    • Conclusion
    • Recommendations
    • Questions and answers
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • Case Summary
    • Fireworks referred to any devices designed to produce visual or audible effects through combustion or explosion.
    • Invented by a Chinese cook, while toiling in a field kitchen, happened to mix together Sulphur, charcoal and Saltpetre.
    • In a thousand years modern design is developed.
    • First exported to Arabia in 7 th century, Europe in 13 th century, widely used for religious festivals and public entertainment by 15 th century.
    • Liuyang is known as the hometown of fire crackers and fireworks of china.
    • Export started by 1875 to Japan, Korea, India, Iran , Russia, Australia, US, UK etc.
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • Cont…
    • Liuyang made firecrackers and fireworks won numerous awards over its long history.
    • Fireworks is more than just a livelihood for the Liuyang people.
    • Liuyang produced 60% of the global production.
    • Fireworks- two categories: display and consumer fireworks.
    • Liuyang makes 13 different types with more than 3000 varities.
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • Market
    • Over the past 50 years there had been a shift away from firecrackers to fireworks.
    • In 2009, firecrackers made a less than 20% of the total sales.
    • In china there are significant numbers of small family –owned and – operated workshops with low tech and highly labor intensive industry.
    • After 1949 gov. run factories replaced the family owned workshops.
    • In 1979 most of the factories were broken up and became family run units of production again( privatization/ Low R & D).
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • Cont…
    • Legal restriction , local protectionism, cut throat price competition, hard to penetrate distribution channel and bad debts were negatively the domestic sales of Liuyang fireworks.
    • Offensive strategies set by the government.
    • “ make believe firecrackers” already appeared a substitutes in China.
    • Fireworks are now combined with modern technologies like laser beams, computerized firing and musical accompaniment that makes more appealing.(Beijing Olympic).
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • PEST Analysis
    • Political factors
    • Local governments have their own different regulations regarding fireworks consumption.
    • 1/3 rd had partially banned and allowed only in designated places in China.
    • B2G & G2G contracts for large public displays
    • No pricing regulation, cut throat price competition was abundant.
    02/01/12 Copy right@ www.bishnuneupane.com.np
    • Economic Factors
    • Low initial capital requirements for staring a fireworks.
    • Low labor cost and everybody know how to make fireworks and firecrackers
    • Improvements in the living standard of the people
    • Low profit margin because of improper regulation regarding export policies.
    02/01/12 Copy right@ www.bishnuneupane.com.np
    • Social factors
    • Diversity of cultures reduces the seasonality of production.
    • Majority of the workers were regular farmers who had learned how to make fireworks just by watching and following their elders.
    • Cultural sentiments- used fireworks for frightening off evil spirits and celebrating good news at various occasions.
    • Concerns over environmental pollution and safety to human life and property were necessary.
    02/01/12 Copy right@ www.bishnuneupane.com.np
    • Technological factors
    • There were hardly any R&D and improvements never reached beyond product variation.
    • No initiative or professional human resources for technological innovation.
    • Machines were rarely used because the work can be done manually and labor cost is cheaper than in investing in machines.
    • Emerging electronic marketing.
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • Internal Factor Evaluation(IFE) matrix
    • Internal Strength
    • First to make varied and low priced products
    • Low cost operating structure
    • Availability of raw materials
    • Customer appeal
    • Broad geographic coverage
    • Internal weakness
    • 1. Slow production
    • 2. Low R&D
    • 3. Safety issues and environmental concerns
    • 4. Low quality products
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • 02/01/12 Copy right@ www.bishnuneupane.com.np Factors Wt Rt WS Strength- 1. First to make varied and low priced products 0.1 3 0.3 2. Low cost operating structure 0.1 3 0.3 3. Availability of raw materials 0.1 2 0.2 4. Customer appeal 0.1 2 0.2 5. Broad geographic coverage 0.1 3 0.3 Weakness- 1. Slow production 0.1 2 0.2 2. Low R&D 0.1 1 0.1 3. Safety issues and environmental concerns 0.1 1 0.1 4. Low quality products 0.1 1 0.1 5. Sub par profitability 0.1 2 0.2 Total 1.0 2.0
  • External Factor Evaluation (EFE) Matrix
    • Opportunities-
    • 1. offensive strategies of the govt.
    • 2. Not to stringent in the west
    • 3. Rise in foreign importers
    • 4. Internet
    • 5. Increasing economic development
    • Threats-
    • 1. Standards and safety regulations
    • 2. Low barrier to entry
    • 3. Intense price competition
    • 4. Abundance of piracy
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • 02/01/12 Copy right@ www.bishnuneupane.com.np Factors Wt Rt WS Opportunities- 1. offensive strategies of the govt. 0.1 4 0.4 2. Not to stringent in the west 0.15 3 0.45 3. Rise in foreign importers 0.1 4 0.4 4. Internet 0.1 3 0.45 5. Increasing economic development 0.1 2 0.2 Threats- 1. Standards and safety regulations 0.05 2 0.`1 2. Low barrier to entry 0.1 2 0.2 3. Intense price competition 0.1 3 0.3 4. Customers lack respect for contracts 0.1 2 0.2 5. Abundance of piracy 0.05 2 0.1 Total 1.0 2.8
  • Five force model 02/01/12 Copy right@ www.bishnuneupane.com.np Substitute Products Competing Fireworks Industries Potential New Entrants Suppliers Buyers
  • 1.Substitute Products
    • Use of balloons in celebrations instead of firecrackers
    • Use of laser beams with audio-visual effects
    • Make believe firecrackers
    • { Due to increasing concern of environmental issues and innovations of new technologies }
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • 2.Threats of Potential New Entrants
    • Low capital requirement for starting fireworks business.
    • Low labor cost available in Liuyang.
    • Distribution channels.
    • Easy access of labor force, materials and supplies.
    • Licensing easy.
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • 3.Competing Fireworks Industries
    • Growing industry
    • Intense price competition
    • Competitors:
      • Other industries in Liuyang
      • Donggaun: near to Hongkong
      • Liling, Huan: Price competition, variety
      • S. Korea & Japan: Price, quality, innovations, branding
      • Pingxiang&Wanzai, Jiangxi: low and medium-priced market.
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • 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 02/01/12 Copy right@ www.bishnuneupane.com.np
  • 4.Suppliers
    • Standard raw materials
    • Many potential suppliers
    • Substitutable inputs (material suppliers, labor, suppliers, services, etc.)
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • 5. Buyers 02/01/12 Copy right@ www.bishnuneupane.com.np
  • Cont… Bargaining Power of Buyers
    • Domestic:
      • Increasing living standard of Chinese people
      • Government: (high bargaining power)
        • Bidding
        • Large scale buying (Bulk purchase)
    • Foreign: (High bargaining power)
      • Hiring agents
      • Very well informed
      • Dealing directly with the factories
      • No switching cost
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • Worksheet on industry structure 02/01/12 Copy right@ www.bishnuneupane.com.np Favorable Moderate Unfavorable Threat of New entrants √ Bargaining power or buyers √ Threat of substitutes √ Bargaining power of suppliers √ Intensity of rivalry among competitors √
  • Jerry Yu must invest in Liuyang
    • The fireworks industry has potential. He just has to make sure that the factory he is investing in would use high quality raw materials in producing the fireworks to lessen the possibility of accidents and to pass the standards and regulations for safety consideration in other countries, thus, improving the exportation of Chinese fireworks.
    • Skilled factory workers should be hired and abide by strict safety measures. The company should also invest in high technology equipments and in research and development in order to cope up with and to exceed the improvements in the safety and style of the fireworks that are being undertaken by competitors.
    • The workers should undergo continuous training programs in order to incorporate in the products the innovations that the research and development section comes up with. The company should also ask the government to impose penalties to pirates in order to protect the brand name and the intellectual properties of all the companies in the country.
    • It must also encourage the government to make and impose policies in pricing to put a stop to cutthroat price competition and to protect the manufacturers.
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • Current Business Environment in China
    • Based on a report by IMF
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • Recommendations
    • Use high quality raw materials in producing the fireworks to lessen the possibility of accidents and to improve the exportation of Chinese fireworks.
    • Skilled factory workers should be hired and abide by strict safety measures.
    • should also invest in high technology equipments and in research and development.
    02/01/12 Copy right@ www.bishnuneupane.com.np
    • continuous training programs in order to incorporate in the products the innovations that the research and development section comes up with.
    • The company should also ask the government to impose penalties to pirates in order to protect the brand name and the intellectual properties.
    • It must also encourage the government to make and impose policies in pricing to put a stop to cutthroat price competition and to protect the manufacturers.
    Recommendations 02/01/12 Copy right@ www.bishnuneupane.com.np
    • Product differetiation
    • Quality control;
    • packaging upgrading;
    • timing control...
    Corporate strategy Business strategy Functional strategy
    • Brand-building strategy (I P)
    • Foreign expansion
    • esp. European market
    • R&D strategy (E C)
    • Innovation of products
    • Staff training
    • Yes, he should invest.
    • Issues for him to consider when capitalizing:
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • Strategies
    • Strength-opportunities
    • Product innovation through R & D.
    • Invest in technology.
    • Hire skilled pyrotechnicians.
    • Weakness-opportunities
    • Invest in high technology equipments.
    • Invest in R & D.
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • Strategy
    • Strength-threats
    • Use high quality materials.
    • Hire skilled workers
    • Ask the government to improve penalties to pirates and pricing regulations.
    • Assess credit worthiness of clients.
    • Weakness-threats
    • Employee continuous training program.
    • Induce price regulations from the government.
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • Ref
    • http://www.netmba.com/strategy/
    • David, Fred R. Strategic Management, 8th Ed. New Jersey 2007
    • Ease of doing business in China, a report by IMF, http://wenku.baidu.com/view/4eb39e44b307e87101f69696.html?from=rec&pos=4&weight=4
    02/01/12 Copy right@ www.bishnuneupane.com.np
  • Thank you ! 02/01/12 Copy right@ www.bishnuneupane.com.np