Chinese Fire Cracker Market-Liuyang Province, China

Overview and Central Question

Mr.Jerry Yu was American-born-Chinese; he had a visit to his mother’s hometown, Liuyang, during Chinese New Year, which he was invited to invest in firework business owned by village, so he had to assess the attractiveness of this industry in order to make a decision; if he wanted to join, what way he should do to capitalize and exploited this industry.

Chinese firework manufacturer is a dominant player (especially manufacturer from Liuyang) in both Chinese and Global market. There were high competitions in the market through price-cutting, variety of products, also the emergence of new player. Furthermore, due to risk in production process and danger of firework, Governments all over the world strengthens their regulation regarding the safety standard, and even banned firework products in some cities. At the positive side, Liuyang was a city where had pool of skilled worker with variety of product knowledge, also had the supports from Liuyang Government such as regulating price, long-term sales contract, also R&D supports. Besides, Chinese’s fire cracker was very well-known in foreign market.

Case analysis

Five forces Analysis

Threat of new Entry (High)

* Low barrier of entry because low initial capital requirement, so it’s easy for new companies to enter the market. In order to set up the factory for large display shell, required only 1.25 million RMB, and for small company required 125 thousand RMB.

* New entries can copy the existing/latest product from other company and re-sell at lower price due to lower R&D cost which leading to price-cutting competition.

* But Government regulated the selling price to reduce price-cutting that damaged firework/cracker manufacturers, in order to promote Liuyang firework which attract new player to enter the market.

Firework industry was attractive so there still had new companies emerged in the market, even Government regulated strong legal in both...