Chinese Fireworks – to Invest or Not to Invest

Question 1: Is the fireworks industry a “sunset” industry or still worth being in for the long run? Answer: The fireworks industry is certainly a “sunset” industry and it is not worth to be in this industry for the long run. Following are the reasons that would solidify this claim: Firstly, this industry and the use of fireworks are highly regulated across the globe. For example: Canadian market is virtually closed to Chinese fireworks due to its regulations pertaining to health and safety issues.

Although Europe and the US have comparatively less stringent regulations but growing concerns over environmental pollution and safety of human life and property could lead to increase in uncertainties revolving around government regulations and that hampers the growth of this industry. Secondly, Fireworks are facing tough competition from substitutes known as “make-believe firecrackers” that are now being used at weddings and grand openings where earlier fireworks were used. New technologies such as laser beams combined with sound effects are also substituting fireworks.

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Also, in recent years there has been a sharp rise in the number of fireworks manufacturers who all produce undifferentiated products and pricing of these products is the sole competitive criteria for the manufacturers. Because the fireworks manufacturers often work on limited profitability there is no added incentive for new research and development of new products and manufacturing technologies. Hence, fireworks on the whole lose out to new and attractive substitutes like laser beams.

No doubt there is an optimistic view as well that suggests that fireworks are here to stay and the industry could grow further but given the current of market conditions like strict regulations, increased competition because of various factors, unfavorable trading practices like lack of respect for business contracts and no investment in research and development makes the industry very unfavorable for investing and it is not difficult to conclude that the fireworks industry is dying a “slow death”.

Question 2: If you were Jerry Wu, and you decide to make the investment, what would you do to win out in the competition? Answer: Although it not advisable to make an investment in a “sunset” industry but still if any investment has to be made steps should be taken that the investment is secure and gives the required return on investment. Following steps should be taken that would help in achieving the goals: •Research and development is the key to success in any industry and fireworks industry is no different. This industry has lacked investment in developing new products that would differentiate manufacturers.

Hence, emphasis should be given on product development as this will allow approaching the market with new and differentiated products that could be sold at higher profits. •Traditionally, US and European markets have been the biggest customers of Chinese firework manufacturers but given the fact that other economies around the world like that of India, Brazil, Russia and other developing nations would be growing going forward and there would be a substantial increase in the disposable income of people residing in these countries; this brings with itself an opportunity to explore these markets.

It is very important to take the first-movers advantage in these countries. •It is highly recommended that market trends should not be ignored and changes in product line-up should be made to keep up with the changing trends. As noted, 80% of the fireworks exported from China were display fireworks and the demand for display fireworks is expected to grow. Introducing new and improved types of display fireworks would make sense as it would help cater to a growing segment of fireworks. Also, there has been a change in how customers are placing their orders.

They conduct thorough research and place orders using internet. This changing trend should not be ignored and efforts should be made to develop an online marketing strategy. •It is also necessary to partner either with brand-name fireworks who are looking to outsource their manufacturing or with importers who have high trade volumes. No doubt this involves the risk of losing the brand identity or compromising with importers but this would make sure that there are enough orders in hand so that the fixed costs of the manufacturing unit can be met.

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Chinese Fireworks – to Invest or Not to Invest. (2017, Mar 15). Retrieved from https://graduateway.com/chinese-fireworks-to-invest-or-not-to-invest/