Chinese Fireworks: A Case Study
Composed by:
On
17th Day of the 10th Month 2013

Table of Contents

Problem Identification Page 1

Environment Analysis Page 3

Porters Five Forces Model Page 6

S.W.O.T Analysis Page 9

Stakeholders Analysis Page 12

Conclusion Page 14

Chinese Fireworks Problem Analysis

The Chinese firework industry has an immense amount of problems. In my opinion the primary problem is the lack of regulation. This branches too many secondary problems including high competition caused by oversupply in the market place, labour intensive; high turnover rate, health and safety issues, and quality issues. Amongst the basic issues there are also problems that are unfavorable to the industry such as threat of new entrants, bargaining power of buyers, threat of substitutes, as well as there is a slight rivalry amongst competitors.

The Chinese government does little to regulate the manufacturing of the fireworks. This enables anyone with the slightest idea of how to make fireworks. This encourages the production thru cottage industries; products being produced by families and friends in an unregulated facility as well as causes an oversupply in the marketplace. An oversupply can kill an industry; it is basic economics. Because the quantity demanded in lower than the quantity supplied then it can be incredibly hard to find a reasonable market clearing price. Even worse oversupply creates massive competition. This causes an accelerated decline of the “slippery slope” or one negative event causing sequential negative events such as competitor rivalry, corner cutting, and lower quality (product and labour). With cottage production the regulation of labour, health and safety is incredibly hard to regulate.

Most of the production is done on farms therefore it is hard to regulate the labour force. Even in large corporations there are no real regulations. In essence it is the ethics of the owner to decide working conditions and safety. As well the labour force is limited in resources; there is no real skilled labour. With an unskilled labour force there is a limited amount the industry can grow because usually there is no innovation and new technology. With the cost of living and wages increasing in China, a new threat is posed to the business owners large and small. This decreases the margins because the labour is 20-30% of the total final product cost. With margins lowering business people need to cut corners in order to attempt to keep costs down. This begins to affect the quality of the product. With the cost of labour increasing the raw material costs increase as well. In China, it is not uncommon to see street venders selling a variety of goods on the street. With the production of the fireworks being unregulated then it is easy to have the sale of fireworks unregulated. This means it is up to the ethics of the seller to decide what proper grounds for sale are. Example age, price, etc. As well the product quality can be extremely low and you may not be able to realize it. This is also unfavorable for corporations attempting to attract foreign buyers.

To become a new competitor in the fireworks industry is nearly impossible. There is so much competition that if you did not know the industry your competitors would run you over. You could have your own product however variant of product is so low, the chances of having it copied are extremely high. As well substitutes run ramped.it is hard to differentiate one product from the next. To sum it up, it is a buyer’s market.

A buyers’ market does bring incredible amounts of foreign buyers however the bargaining power of suppliers is low. Buyers will come to buy however all have different objectives. For most they expect the cost to be cheap and the quality to be high. This is unfavorable to the corporations producing for export because this means the margins are razor thin and