The Chinese Fireworks Industry While the Liuyang fireworks industry dominated the worldwide industry, Jerry had to decide whether he should invest in the industry. If he did invest, what was the best way to capitalize on the potential that remained unexploited in this industry? He wondered whether he could apply the industry analysis framework he had studied in his MBA program.
Facts: Total revenue increased in China from 2007 to 2009 by 36% Total revenue in Liuyang increased by almost 68% from 750k to 1,26 MM Low cost of entry as traditional fireworks industry in China are antiquated and old ashioned High concentration of family run businesses with local population as workers Below is an estimation of SWOT analysis on Mr. Yu Strengths 1. MBA 2. Chinese Background 3. Business experience in USA Weakness 1 . No experience in Firework Industry or in the manufacturing sector 2. Distance factor ” Mr. Yu is based in USA Opportunities 1.
United States is the number 1 importer of Chinese Fireworks 2. High demand for Chinese Fireworks 3. Scope for improvement and exploration in new technology Th reats 1 . Age old industry with many competitors 2. Chinese regulations are completely different than American regulations 3. Business with family Below is an estimation of SWOT analysis on the F-ireworks Industry Strengths 1. Labor Cost 2. Variety 3. Cost of material 4. Brand perception 1. Existing Competition 2. Lack of well-trained labor 3. Lack of technology 1. Internet Sales 2. New designs 3. Destination based marketing 1.
Regulations 2. Competition 3. Environmental Issues Porters Five Force Analysis Bargaining power of su ppliers Diverse distribution channel – The more diverse distribution channels become the less bargaining power a single distributor will have. This positively affects Chinese Firework Industry. Diverse Distribution Channel (Chinese Firework Industry)” has a significant impact, so an analyst should put more weight into it. “Diverse Distribution Channel (Chinese Firework Industry)” will have a long- term negative impact on this entity, which subtracts from the entity’s value.
Low concentration of suppliers – A low concentration of suppliers means there are many suppliers with limited bargaining power. Low concentration of suppliers positively affects Chinese Firework Industry Bargaining Power of Customers – When customers require special customizations, they are less ikely to switch to producers who have difficulty meeting their demands. Buyer customization positively affects Chinese Firework Industry Buyers require special customization – Large industries allow multiple firms and produces to prosper without having to steal market share from each other.
Large industry size is a positive for Chinese Firework Industry. “Large Industry Size (Chinese Firework Industry)” has a significant impact, so an analyst should put more weight into it. “Large Industry Size (Chinese Firework Industry)” will have a long-term positive impact on this entity, which adds to ts value. Threat of new entrants Strong distribution network required – Weak distribution networks mean goods are more expensive to move around and some goods don t get to the end customer. The expense of building a strong distribution network positively affects Chinese Firework Industry. Strong Distribution Network Required (Chinese Firework Industry)” has a significant impact, so an analyst should put more weight into it. High capital requirements – High capital requirements mean a company must spend a lot of money in order to compete in the market. High capital requirements positively affect Chinese Firework Industry. “High Capital Requirements (Chinese Firework Industry)’ is an easily defendable qualitative factor, so competing institutions will have a difficult time overcoming it. High Capital Requirements (Chinese Firework Industry)” is an easy qualitative factor to overcome, so the investment will not have to spend much time trying to overcome this issue. Strong brand names are important – If strong brands are critical to compete, then new competitors will have to improve their brand value in order to effectively compete. Strong rands positively affect Chinese Firework Industry Advanced technologies are required – Advanced technologies make it difficult for new competitors to enter the market because they have to develop those tech nologies before effectively competing.
The requirement for advanced technologies positively affects Chinese Firework Industry Industry requires economies Of scale Economies of scale help producers to lower their cost by producing the next unit of output at lower costs. When new competitors enter the market, they will have a higher cost of production, because they have smaller economies of scale. Economies of scale positively affect Chinese Firework Industry High switching costs for customers – High switching costs make it difficult for customers to change which products they normally purchase, due to costs.
High switching costs positively affect Chinese Firework Industry. Geographic factors limit competition – If existing competitors have the best geographical locations, new competitors will have a competitive disadvantage. Limiting geographic factors positively affect Chinese Firework Industry. This qualitative factor will lead to an increase in costs. Threat of substitute products or services Substitute product is inferior – When products and services are very different, customers are less likely to find comparable product or services that meet their needs.
This is a positive for Chinese Firework Industry Substantial product differentiation – When products and services are very different, their needs. This is a positive for Chinese Firework Industry Bargaining power Of customers (buyers) Intensity of competitive rivalry Large Industry Size – When industries are growing revenue quickly, they are less likely to compete, because the total industry size is also growing. The only ay to grow in slow growth industries is to steal market-share from competitors.
Fast industry growth positively affects Chinese Firework Industry. “Fast Industry Growth Rate (Chinese Firework Industry)” will have a long-term positive impact on this entity, which adds to its value. Fast Industry Growth Rate – An inferior product means a customer is less likely to switch from Chinese Firework Industry to another product or service. Conclusion: Investing time and money in China is not a good idea as Jerry lives in the United States and it will be difficult for him to monitor and make decisions long distance.
