China%2BFireworks%2BInd.%2BALAI (3)

7/28/2019 China%2BFireworks%2BInd.%2BALAI (3)

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AL RIGHTS RESERVED BY TEAMALAI

2011

THE CHINESE

INDUSTRIES

APPLIED MANAGEMENT

SUPERVISOR: MA. CECILIA MORENO

PREPARED BY:

VCTOR ARVALO

JENIFFER GANCINO

MA. ALEJANDRA RUANO


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CONTENT1. HISTORY OF THE COMPANY ........................................................................................................ 2

2. MISION ........................................................................................................................................ 3

3. VISION ......................................................................................................................................... 3

4. FRAMING ..................................................................................................................................... 3

a) KEY QUESTION ......................................................................................................................... 3

b) FLIPPING AND SKIMMING ....................................................................................................... 3

c) BEGINNING OF THE CASE ........................................................................................................ 4

d) ENDING OF THE CASE .............................................................................................................. 5

5. LABELING ..................................................................................................................................... 5

a) GENERAL ENVIRONMENT ........................................................................................................ 5

b) INDUSTRY ................................................................................................................................ 5

c) COMPETITION ......................................................................................................................... 6

d) ECONOMICAL .......................................................................................................................... 6

e) LEGAL ....................................................................................................................................... 6

f) TECHNOLOGY .......................................................................................................................... 6

g) STRENGHTS.............................................................................................................................. 6

h) WEAKNESSES ........................................................................................................................... 76. SYNTHESIZING ............................................................................................................................. 7

7. PORTER ANALYSIS ....................................................................................................................... 8

8. SWOT ........................................................................................................................................... 9

9. TOWS ......................................................................................................................................... 10

10. IFE-MATRIX ............................................................................................................................ 11

11. EFE-MATRIX ........................................................................................................................... 12

12. SPACE-MATRIX ...................................................................................................................... 14

13. FINANCIAL RATIOS ................................................................................................................. 16

14. SUMMARY ............................................................................................................................. 17

15. ALTERNATIVES ....................................................................................................................... 18

16. RECOMMENDATION .............................................................................................................. 19


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1. HISTORY OF THE COMPANY It was generally believed that the Chinese were the first makers of fireworks. The Chinese made war rockets and explosives as early as the sixth century. Firecrackers were a special kind of fireworks, usually in the form of a noisemaking cylinder. Firecrackers were often strung together and fused consecutively, a staple of Chinese New

year celebrations.

One legend said:

The Chinese word for firecrackersbaozhu-literally means exploded bamboo.

CHRONOLOGYAccording to historical records in China:

618-907 AD Firecrackers and fireworks emerged during the Tang dynasty.

960-1279 AD Flourished during the Song Dynasty.

1723 Liuyang(the hometown of firecrackers and fireworks) were chosen

as official tributes to the imperial family and were sold all over

country.

1875 Exports started early, firecrackers and fireworks were being

shipped to Japan, Korea, India, Iran, Russia, Australia, England, theU.S. and the other countries.

1929 Liuyang fireworks won first place in the China National

Commodity.

1933 They won an Award of Excellence at the Chicago Worlds Fair.

A Chinese cook, while toiling in a field kitchen, hapened

to mix together sulfur, charcoal, and salpetre, andnoticed that the pile burned with a combustible force

when ignited. He further discovered that when these

ingredients were enclosed in a length of bamboo sealed

at both ends, it would explode rather than burn,


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1986 they won the first price in the 21st Monaco International Music-

Fireworks Competition.

1995 Liuyang had been known as the Hometown of firecrackersand

fireworks of China was officially conferred to Liuyang by the State

Council of China.

2. MISIONLiuyang Fireworks Limited is committed to becoming a socially responsible

leading enterprise in the Chinese fireworks industry.

3. VISIONLiuyang Fireworks Limiteds vision is to be the worlds most recognizable fireworks company by

implementing several two-pronged strategies:

Expanding international and domestic market share, Developing consumer products and display businesses, Improving supply chain and value chain efficiencies, Combining business expansion with capital markets, Integrating traditional industry with modern information technology.

4. FRAMINGa)KEY QUESTION

Should Jerry invest in the fireworks industry? What should the Chinese fireworks industry do to stay viable and profitable player?

b)FLIPPING AND SKIMMINGThe Chinese Fireworks Industry


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Autor: Ruihua Jiang The University of Western Ontario.

Paul Beamish The University of Western Ontario.

Number of Pages: 12Cases Content:

History of Fireworks and Firecrackers. Liuyang The Hometown of Firecrackers and Fireworks?

o The Product.o Safety Issues.

The Firecrackers and Fireworks Industry in China. The Domestic Market. The Export Market.

o The future of the fireworks industry in China. The Decision

4 Exhibitso Exhibit 1: Liuyang Firecrackers and Fireworks: Total Revenue and Export Sales

(In U.S. $ 000).

o Exhibit 2: Total Fireworks Consumption and Estimated Fireworks RelatedInjuries in the U.S.: 1990 to 1998.

o Exhibit 3: Estimated Emergency Room Treatment per 100,000 Youths (Ages 5to 14).

o Exhibit 4:Comparision of FOB Import Price from China and Wholesale Prices ofChinese Fireworks in the U.S.

c) BEGINNING OF THE CASE In february 1999, Jerry Yu was spending the Chinese New Year holidays in Liuyang, a small

city known as the home offirecrackers and fiereworks.

Jerry was an ABC (America-Born-Chinese).


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Jerry has a MBA. He was now running a small family-owned chain if gift stores in Brooklyn,New York.

Liuyang was his mothers hometown. Mr. Yu had been impressed by the extravagant fireworks shows he had seen during the

festival.

He wanted to assess how attractive the Chinese fireworks industry was before he evenlooked at the financial details of the factory.

d)ENDING OF THE CASE The internet was gradually becoming a marketing outlet for Chinese fireworks- In recent years, foreign investments were also funneled into the fireworks industry. Fireworks shows were increasingly being used in promotional campaigns, and were finding

customers among amusement parks, sports teams and retailers. The managers of the Chinese fireworks companies that Jery Yu talked to expressed mixed

feelings toward the future outlook of their industry.

The safety problem was not really as serious as people were made to believe, and wouldonly improve with new technological inovations like smokeless fireworks.

Chinese fireworks industry would have to change its strtegy, specially in internationalcompetition, to stay a viable and profitable player.

5. LABELINGa)GENERAL ENVIRONMENT Most than 400.000 people in peak season One own was a stated-owned with more than 1000 workers There were very small workshops with 10 to 50 workers Liuyang was the top fireworks exporter in the world According to the manufacturers fireworks were the most dangerous

b)INDUSTRY Liuyang claimed an impressive pool of Skilled labor. Fireworks is the pillar industry of Liuyang More than 500 fireworks manufactures


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As the most popular form in Chinese fireworks industry is family-run workshop,which is usually poorly funded and lacking of R&D and managerial input, the whole

industry is basically labor-intensive and the technological innovations are also

restricted.

The competition is intensified by the emergence of small companies. These privateworkshops are flexible and quick in responding to market demand.

They would copy any popular product design and sell it for much less prices thangovernment-owned or some collectivelyowned factories.

c) COMPETITION Japan market Korea market

d)ECONOMICAL The capital requirement was relatively low. The labor cost was low Price Competition

e)LEGAL CPSC Injury Surveillence Report The Bureau of Alcohol Tobacco and Firearms In USA, 10 states would not allow any fireworks, 5 would allow novelty, 18 would allow

safe and sane fireworks and 17 would allow essentially all consumers fireworks.

f) TECHNOLOGY The manufacturing was done manually The distribution system was rather fragmented and messy Lack of technology and management imputs

g)STRENGHTS Geographical position Customer appeal Availability of raw materials Variety Low price


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h)WEAKNESSES Lack of R & D Lack of professional training Deficient Distribution Channel Dangerous production processes Little overall coordination of export sales

6. SYNTHESIZINGa) International Expansion

Through internet and taking advantage of the increase in foreign imports of fireworks


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b) Improve the quality of product.They should focus on product quality, and they could improve it if they invest in high-tech.

c) Work on the innovation of new productsThey should take advantage of the technologies available to innovateand offer better

products

PROS CONS

Technologicalleadership Competitors imitation: The second moverscan become free riders.

Attract more customersIncrease sales and market share

7. PORTER ANALYSIS

PROS CONS

It allows them to increase their market share. Growthrisk

It reduces thecompetition Lack of understanding this new market: sinceits a new market we might struggle forleadership in the beginning, we will start low inthe learning curve.

Increaserevenue Additionalinvestment

Exchange rateproblems

PROS CONS

Improve their image Financial investment

Increase sales Financial Risk

More market share


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8. SWOT

Bargaining power of Suppliers: LOW

Because of the huge number of suppliers offireworks and little product differentiationamongfireworks products, the bargaining

power of suppliers is low.

Bargaining power of Buyers: HIGH

Owing to the large number of choices andlow even zero switching costs, the fireworks

buyershave high bargaining power.

Threats of new entrants: HIGH

The capital requirement for establishing afireworks firm is very low; the economy ofscale is high and the brandidentification

within this industry is relatively low. All thesefacts provide good opportunities for firms to

enter this industry.

Rivalry: HIGH

Exit barrier is low; a bulk of existing firmsthat have little diversity and productdifferentiation are competingin this industry;buyers are more powerful than suppliers......All these forces shape the fiercecompetition

in fireworks industry.

Threat of Substitute Products: LOW

Although there are substitutes such asmake-believe "firecrackers", due to the heritage of

tradition and culture, real fireworks arestillirresistible to most consumers.


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9. TOWS

S

Geographical position

Dominant Market Share

Availability of raw materials

Variety

Low price

W

Lack of R & D

Lack of professional training

Deficient Distribution Channel

Dangerous production processes

Little overall coordination of export sales

O

Increasing demand

Labor Cost

Increase in economic development and living standards

Rise of foreign importers

The Internet

T

Underpricing

Competition

Government Regulations

Piracy

Ease of entry


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10.IFE-MATRIX

STRENGHTS

A) GEOGRAPHICALPOSITION

B) DOMINANT MARKETSHARE

C) AVAILABILITY OFRAW MATERIALS

D) VARIETYE) LOW PRICE

WEAKNESSES

A) LACK OF R & DB) LACK OF PROFESSIONAL

TRAININGC) DEFICIENT DISTRIBUTION

CHANNELD) DANGEROUS

PRODUCTION PROCESSESE) LITTLE OVERALL

COORDINATION OFEXPORT SALES

OPPORTUNITIES

1) INCREASINGDEMAND2) LABOR COST

3) INCREASE INECONOMICDEVELOPMENTAND LIVINGSTANDARDS

4) RISE OF FOREIGNIMPORTERS

5) THE INTERNET

SO Strategies:A.1Take advantage of

geographical position in

order to increase thedemand.D.E.2Take advantage of labor

cost in order tomanufacture manyproducts maintaining thevariety of products andthe low price.

B.4.1 Expand InternationallyB.5 Expand market through

internet

WO Strategies:

A.1Invest in Research and

Development to improve theproduction in the companyand to take advantage of theincreasing demand.

C.4 Improve the distributionchannel in order to can havebetter production to satisfythe needs of our potentialconsumers of a way morequickly and take advantage ofeconomic development and

living standards.

THREATS

1) UNDERPRICING2) COMPETITION3) GOVERNMENT

REGULATIONS4) PIRACY5) EASE OF ENTRY

ST Strategies:

E.2Maintain the low price asa competitive advantageface to competitors.

C.D.4 Take advantage of theavailability of rawmaterials and the varietyproduction to

manufacture productsthat are difficult ofimitate.

WT Strategies:

E.2Improve the coordination ofexport sales to reach marketswhere the competitors havenot been able to satisfy theneeds.

D.3 Improve the productionprocess to avoid legal

problems according togovernment regulations.


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11.EFE-MATRIX

WEIGHT RATING SCORESTRENGHTS

Geographical Position 0.05 4 0.2

Dominant MarketShare

0.1 4 0.4

Availability of rawmaterials

0.15 4 0.6

Variety 0.1 3 0.3

Low Price 0.2 4 0.8

WEAKNESSES

R & D 0.1 2 0.2

Professional training 0.05 2 0.1

Distribution Channel 0.1 2 0.20

Dangerous productionprocesses

0.05 2 0.1

Coordination ofexport sales

0.1 1 0.1

1.00 3


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WEIGHT RATING SCORE

OPPORTUNITIES

Increasing demand 0.10 4 0.40

Labor Cost 0.15 4 0.60

Increase in economicdevelopment andliving standards

0.10 3 0.30

Rise of foreignimporters

0.15 4 0.60

The Internet 0.10 4 0.40

THREATS

Under pricing 0.10 2 0.20

Competition 0.10 2 0.20

GovernmentRegulations

0.10 2 0.20

Piracy 0.05 1 0.05

Ease of entry 0.05 1 0.05

1.00 3


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China is a strong firework industry that should implement a grow and build strategy, they have to

take advantage of their global market share position and the increase of foreign importers to grow

and expand internationally, also they could improve and innovate, offering more products of

better quality and in this way improve their image and become the leaders in the industryworldwide.

12.SPACE-MATRIXINTERNAL

STRATEGIC

POSITION

EXTERNAL

STRATEGIC

POSITION


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YA

XIS

FINANCIAL (FS)

+6 best, +1 worst

(+4) Market Share(+2) Debt

(+6) Total Revenue(+5) Export Sales

Avg. = 4.25

ENVIRONMENTAL (ES)

-1 Best, -6 Worst(-5) DemandVariability(-5) Competitive

pressure(-1) Competition Price(-6) Barriers to entry(-1) Growing demandAvg. = -3.6

XA

XIS

COMPETITIVE

ADVANTAGE (CA)

-1 best, -6 worst(-1) Low Price(-2) Variety(-1) Market Share(-5) DistributionChannel(-5) Product Quality

Avg. = -2.8

INDUSTRY STRENGTH

(IS)

+6 best, +1 worst

(+5) Growth potential(+4) Profit potential(+6) Ease of entry(+5) Productivity(+2) Financial Stability

Avg. = 4.4

Y-AXIS= FS + ES = 4.25 + (-3.6) = 0.65

X-AXIS= CA + IS = -2.8 + 4.4 = 1.6

Y-AXIS= FS + ES = 4.25 + (-3.6) = 0.65X-AXIS= CA + IS = -2.8 + 4.4 = 1.6


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Theyshould pursuit an aggressive strategy, using all of their resources to continue growing in the

search of becoming the strongest fireworks industry, using all of their resources to expand

internationally, taking advantage on the raise of the foreign imports, creating and exploring new

markets like the internet to increase even further their market share, innovating constantly to

improve their image and reputation in quality.

13.FINANCIAL RATIOS

AGGRESSIVECONSERVATIVE

COMPETITIVEDEFENSIVE

0.65

1.6

% REVENUES

45.83%

6.67%

56.18%

9

9


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The percentage of revenues has increased in very big quantities through the first years, and even

though it continues to increase we can see that from 1995 to 1996 this rate has slow down.

The variation of the export sales show us that throughout the years this rate is decreasing.

14.SUMMARY

Improve the distribution channelTOWS

% EXPORT SALES

63.99%

1.82%

69.67%

9

9

9


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Invest in research and development Expand internationally through internet

Strong Company Grow and Build Theyhave to take advantage of the internet and expand through that market and also of

the increase of foreign importers to expand internationally.

The Chinese fireworks industry is strong and should implement and aggressive strategy,using all of their resources to continue growing in the search of becoming the strongest

and most preferred industry worldwide.

The aggressive strategy can be improving their quality, explore new markets like theInternet, and constant innovation.

15.ALTERNATIVESa) International Expansion

Through internet and taking advantage of the increase in foreign imports of fireworks

IFE-EFE

SPACE


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b) Explore new marketsThey should explore new market opportunities like the Internet

c) Work on research and developmentThey should take advantage of the technologies available to innovateand offer betterproducts, improving the distribution channel and production processes.

PROS CONS

Technologicalleadership Competitors imitation: The second moverscan become free riders.

Attract more customersIncrease sales and market share

16.RECOMMENDATIONOur recommendation is that in order to capitalize the potential of the industry; some strategic

changes must be done, such as explore new markets like the Internet sales and the international

expansion taking advantage of the customer appeal for fireworks and also the increase of foreign

imports, also the industry should work more on research and development, innovating and

creating new products as well as improving their existing production processes and their

distribution channel

PROS CONS

It allows them to increase their market share. Growthrisk

It reduces thecompetition Lack of understanding this new market: sinceits a new market we might struggle for

leadership in the beginning, we will start low inthe learning curve.

Increaserevenue Additionalinvestment

Exchange rateproblems

PROS CONS

Increase sales Financial investment

More market share Financial risk

Brand Recognition


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Considering this opportunities and growing potential of the market, we consider that it is viable

for Jerry to invest in the fireworks industry.

China%2BFireworks%2BInd.%2BALAI (3)

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