The Chinese Fireworks Industry

The Chinese Fireworks Industry

Case Title: The Chinese Fireworks Industry

Executive Summary

An organization can only improve its functioning, if it makes itself aware of its weaknesses and then acts to correct those deficiencies. The purpose of this case is to help Jerry Yu asses how attractive the fireworks industry is and to aid in his decision-makings of investment. This case is also conducted to diagnose the key issues that the company needs to address and to suggest alternative courses of action or give recommendations.

Jerry Yu is challenged to decide whether it is worthwhile to invest in the fireworks industry considering the threats it is facing and the weaknesses of the industry.

There are only two alternative courses of action. These are to invest or not to invest in the fireworks industry.

The fireworks industry has potential. Jerry Yu may invest in this industry. He just has to make sure that the factory he is investing in would use high quality raw materials in producing the fireworks to lessen the possibility of accidents and to pass the standards and regulations for safety consideration in other countries, thus, improving the exportation of Chinese fireworks. Skilled factory workers should be hired and abide by strict safety measures. The company should also invest in high technology equipments and in research and development in order to cope up with and to exceed the improvements in the safety and style of the fireworks that are being undertaken by competitors. The workers should undergo continuous training programs in order to incorporate in the products the innovations that the research and development section comes up with.

The competition in the Chinese fireworks industry is fierce with "cutthroat price competition" and "hard-to-penetrate distribution channels" with the entrance of small companies; competition intensified, driving the price, and ultimately the profitability of each company, to the floor. Companies were forced to hire cheap labor, which consequently led to poor production practices and quality materials. This resulted in "low-quality-fireworks-related damages and injuries"; and, pushed increased stricter regulation regarding fireworks. As competition grew more intense, companies began to copy any new or popular product that came out to the market and under priced each other just to create sales. The resulting rule of competitive forces in thefireworks industry, which states that "the stronger the collective impact of competitive forces, the lower the combined profitability of participating firms", (p.92), was shrinking and obliviating the profit margin of the industry.

Of the five competitive forces, the case portrays that the strongest in