Professional Documents
Culture Documents
Outline
1. Synopsis
2.Problem Statement
3.Analysis
a. PEST Analysis of the General Environment
b. Five Forces Analysis of the Fireworks Industry
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.
PEST 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
Local Protectionism
Economic
Advs:
Climbing demands which are driven by economical
growth, increasing income level and living standard
Disadvs:
1
2
Safety Concern
Advs:
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.
Flexibility
Private
Workshops
Cost
Copying
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
Distribution channel:
manufacturers
wholesalers
consumers
Evaluation
capital
requirement
low
labor cost
low
labor force
sufficient
distribution
channel
relatively
effective
Conclusion:
easy entry
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.
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
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
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
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
1. R&D strategy (E C)
2. Innovation of
products
3. Staff training