Jerry Yu Case Study

1. Issue identification：

Jerry Yu is considering whether to invest in Liuyang fireworks factory, so he made an evaluation of the Chinese firework industry. Here is a brief identification of the issue:

1.1 History of fireworks:

There is an old-line of the Chinese fireworks, which is tightly combined with varieties of celebrations and festivals in China. Especially, Liuyang is known as “the home of fireworks and firecrackers” and good at making varieties of fireworks. And fireworks and firecrackers has become the pillar industry of Liuyang.

1.2 Product:

Fireworks mainly include two categories: display fireworks and consumer fireworks, which are displayed respectively in large public display shows and consumers’ backyards, with different pyrotechnicians and visual effects.

Although the varieties and skill levels of fireworks are increasing, innovation in fireworks-making (e.g. Ingredients, manual processes) is shortcoming.

1.3Industry:

The fireworks and firecrackers industry in China was dominated by small family-owned-and-operated workshops. The problems with it are: lack of skilled worker and engineers with advanced professional training; safety issues and quality problems; lack of product innovation; no consolidation and fierce price competition.

Besides, external and internal and inside environment are becoming severe: growing cost of row material and labor force, intense competition especially on price, lack of intellectual property protection…

1.4 Market :

The domestic market is large and stable in demand, and the market demand is becoming higher, meaning more profit opportunities.

However, many problems exist: cutthroat price competition, legal restrictions on fireworks displays in many cities, local protectionism hard-to-penetrate distribution channels, and receivables and bad debt control.

Fortunately, government of Liuyang took out offensive strategy aiming at these issues and made big achievements on market share and attracting foreign investors.

The export market has growing dramatically, featured with low price, many varieties, low reputation in quality control, compared to the products of Japan and Korea. Low profit margin, competition, high markup of the importers, the risk of Chinese fireworks makers losing their brand identities are bottlenecks of export.

Characteristics of export are: popular in Europe and large in North America, better prices, weak seasonality in demand. Distribution channels are mainly foreign trade companies or agents.

1.5Future:

Pessimistic one: legal restrictions, fierce competition and changes in consumer preference make fireworks a dying