The document discusses investing in the Chinese fireworks industry. It provides background on the industry in Liuyang, China including key statistics. It then analyzes the external environment through a PEST analysis, SWOT analysis, five forces model, and Hambrick diamond model. The recommendations are that the MBA graduate should invest in the industry focusing on brand building, quality control, product differentiation, and staff training to gain a competitive advantage in a crowded market.

1. The Chinese Fireworks Industry
Presented by
Sita Chhetri
MBA 6th Trimester
Pokhara University
School of Business

2. Outline
Synopsis
Decision
External Environment Analysis
PEST Analysis
SWOT Analysis
Five Force Analysis
External Factor Analysis Matrix
Hambrick Diamond Model
Conclusion And Recommendations

3. Synopsis
ABC Jerry Yu, with an MBA is in holidays in his home town
Liuyang, China. He got an offer to invest in Chinese
Fireworks Industry. He is in dilemma-
„Whether to Invest or not in the Industry’
Chinese were the first makers of fireworks. It is incorporated
in there culture .
About Liuyang
Liuyang “the home of firecrackers and fireworks”
The fireworks making in Liuyang enjoys high reputation in
the domestic market and was the top fireworks exporter in
the world, covering 60% of the global production.

4. Liuyang-Hometown of
Fireworks
Fireworks was more than just a livelihood
of the Liuyang people.
Features Liuyang China
No. of 2702(city)+2144(n 6458
Manufacturers earby)
Global export 60% 89%
Branded Red Lantern Red Lantern
Trademark
Domestic to Domestic International
Export Ratio
6:4 60% 40%

5. Decision
Whether to invest in the fire
work industry or not?
If he invest, what was the best
way to capitalize on the potential
that remained unexploited in the
industry?

6. POLITICAL & legal
Favorable
• Government interference ( fireworks industries were
Completely banned in Year 1998). But begin to change
in mid 2000s and till 2010 all lead to an explosion.
• Government prime purchaser .
• Trade and Tariffs( only 2.4% import duty in USA).
• Eased legal restriction of foreign direct investment
Chinese fireworks market
- a magnet for foreign investors

7. Unfavorable
• Stringent Government Restrictions
 More regulations on cost-driven firms
 Environmental concern
• Unordered Fireworks Market
 Discretionary copying of popular design regardless of
intellectual property protection
• Local Protectionism
 Industrial safety regulations (Government concern over environmental
pollutions and safety of Human Life).
• Local governments have their own different regulations
regarding fireworks consumption.
• No pricing regulation, cut throat price competition was
abundant.

8. economical
Favorable
• Low labor cost and everybody know how to make fireworks and
firecrackers
• Climbing demands which are driven by economical growth,
increasing income level and living standard
• Foreign buyers are powerful
Unfavourable
• Low profit margin because of improper regulation regarding
export policies.
• Constant increasing costs of labor and raw materials
• Intensified competition：set-ups of private workshops
- More FDI flow in Fireworks Industry (Liberal policies by China)
- Rising number Foreign Competitors
-Low status of quality of the product and low profitability due to
fierce competition
• Climbing demands which are driven by economical
• growth, increasing income level and living standard

9. Socio-cultural
Unfavorable
• Increased environmental consciousness
• Abundant diversities of means of modern
entertainment
• Safety Concern
Favorable
• Diversity of cultures reduces the seasonality of
production. (no Seasonal)
• Use of fireworks in festival and entertainment.
• Cultural sentiments- used fireworks for
frightening off evil spirits and celebrating good
news at various occasions.

10. Technological
Unfavorable
• No initiative or professional human resources for
technological innovation
• There were hardly any R&D and improvements
never reached beyond product variation.
• A low- tech ,highly Labor intensive.
• Machines were rarely used because the work can
be done manually and labor cost is cheaper than
in investing in machines.
Favorable
• Novelties on product varieties
• Internet Based Companies are increasing (20%-
25% of the worldwide sales)
• Emerging electronic marketing.

11. SWOT ANALYSIS
Strengths
• Low initial capital investment
• Low labor cost
• Easy procurement of raw materials
• Several accolades which created market
goodwill
• More than 3000 varieties of fireworks
• No pure substitutes available
• High price flexibility of product due to
low cost

12. Weaknesses
• Lack of trained labor
• Low R & D investment
• Lack of technological and managerial
input
• Decline in domestic market due to
various regulations ( example: ban on
usage on fireworks)
• Fierce domestic competition leading to
under pricing which eventually led to
declining profitability
• Distribution channels were fragmented.

13. Opportunities
• High demand in international market
• Improve on Quality (environmental
issues)
• Scope to increase the product type
range
• Use of internet to increase market
share
• Educating masses about the usage of
fireworks to reduce accidents and hold
on to the existing domestic market
• Canada can be a new market

14. Threats
• Increasing concerns over environment
• Safety of human life & property
• Dilution of brand image due to cheap
ingredients
• Substitutes in market
• Changing life styles of people
• Repackaging and selling the same goods
at premium prices by other countries

15. External Environment Analysis (EEA)
Weighted
S.N Key Factors Weight Score Score
1 Oportunity
Growing demand in domestic & foreign
a
market 0.15 4 0.6
b Eased of legal restriction 0.10 3 0.3
c Use of internet 0.05 3 0.15
d Low capital requirement 0.15 4 0.6
e Diverse culture in the world 0.05 3 0.15
2 Threats
a Increased environmental consiousness 0.10 2 0.2
b Safety concern 0.15 1 0.15
Increasing costs of labour and raw
c
material 0.05 2 0.1
d Large no. of competitors 0.15 2 0.3
e Lack of R & D 0.05 2 0.1
Total 1.00 2.65

16. Five Force Analysis

17. Five Forces Model
Competitive analysis Key variables situation
1) Threat of new entrants -FDI
-Small Capital Requirement
-Protection from State
government unfavorable
-economies of scale
2)Threat of substitute products -make belief fire crackers
-laser beam and sound effects
-diversion through modern
entertainment Favorable
3) Bargaining power of -Large no of fireworks
suppliers manufacturer Favorable
4) Bargaining power of buyers -ease of internet
-hiring of agents Moderate
-Zero switching cost
5) Rivalry -large no of competitors
-fierce price competition
-safety regulation Unfavorable

18. Hambrick Diamond Model
Economic
logic Arenas
•Premium •Display fireworks (1.3 explosive)
price due to class B
better •Government agencies
quality & •European market
•Timing control
proprietary
product
feature
Economic
Exconomic Vehicles
logic
•Skilled and
trained labors
•Joint venture
Staging
•Domestic market
penetration
•Image building & Differentiators
brand creation •Brand creation
•Entering in European •Image building
market •Quality product
•World market •Better Packing

19. Recommendations
1. Yes, he should invest.
2. Issues for him to consider when capitalizing were –
Corporate strategy
Brand-building strategy (I P)
Foreign expansion esp. European
market
Business strategy
Product differentiation
Quality control; packaging upgrading;
timing control.
Functional strategy
R&D strategy (E C)
Innovation of products
Staff training

20. conclusion
• There is high opportunities to invest in
Chinese Firework Industry.
likewise, the less bargaining power of
suppliers and less threats from
substitute products creates a favorable
condition to invest in Chinese Firework
Industry.
• But the less threats of new entrants and
high rivalry among the industry could
be problem to gain sustainable
competitive advantage.