Chinese Fireworks Industry

Liuyang, a city in Hunan Province, is known as the "the home of firecrackers and fireworks". The fireworks making in Liuyang has a long history and tradition in China, and enjoys high reputation in the domestic market. In addition, it was the top fireworks exporter in the world, covering 60% of the global production. Firework factories are often small and locally owned, employing young people and often outsourcing production to small workshops in closely packed residential areas. Firework production is frequently organized around village-level enterprises that subcontract assembly work to local village residents who work at home

This case illustrates an industry that is experiencing intensifying competition and regulation. The Chinese fireworks industry has experienced significant change since China adopted "open door policy" in the late 1970s and grew to make up 90% of the world's fireworks export sales. Moreover, it has huge market share in the world's fireworks market. However, starting from the mid-1990s, safety concerns led governments both in China and abroad to set up stricter regulations. At the same time, there was rapid growth in the number of small, family-run fireworks workshops, whose relentless price cutting drove down profit margins. But on the other hand, the Chinese fireworks industry also has fatal weaknesses.

Jerry Yu, who was running a small chain of gift stores in New York, was asked to invest in a fireworks factory during his visit to Liuyang. He was impressed by the extravagant fireworks shows he had seen during the spring festivals. He'd like to know more about the development background and specific situation of the Chinese fireworks industry before his investment whether to invest in this industry is still a considerable challenge to most investors. The objective of this report is to give some suggestions to Jerry Yu on his decision of the investment on Liuyang fireworks industry. Furthermore, some proposals on how to improve the attractiveness and the competitiveness of Chinese fireworks industry at a long-run level are worked out; from personal level, there are some strategic options to Jerry Yu in terms of handling an individual fireworks firm. To achieve this objective, an industry analysis and a market audit are carried out and a gross conclusion is drawn based on the analyses and suggestions.