The Chinese Fireworks Industry

Background

The Chinese fireworks industry has been undergoing some significant growth since China, in an effort to transform into a market economy, initiated opening up and reform policy in 1979. It is world's largest fireworks exporter accounting for 89% of worldwide fireworks export sales. However 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 minimum.

Jerry Yu is an American-born Chinese with an MBA degree, living in New York and running a small family-owned chain of gift stores in Brooklyn. His Chinese relatives are urging him to invest in the Liuyang fireworks industry through buying a factory there. Liuyang is considered the top fireworks exporter worldwide, making up 60% of global production. The following analysis is to justify Jerry Yu's decision to invest in Liuyang's fireworks industry.

Decision Justification

As an American-born-Chinese, Jerry Yu could be regarded as an ideal candidate to invest in the Liuyang fireworks factory given that he knows the Mandarin and American cultures. He also possesses some other critical assets to facilitate in this new venture and break into the new market: his business experience in running a chain of gift stores in Brooklyn, New York; his MBA education; his knowledge of both oriental and western business thinking. Through the help from his hometown relatives, Mr. Yu also has access the specific knowledge, technique and networking needed to break into in the Liuyang fireworks industry. From an investor's perspective, Liuyang, a city boasts 60% of the global production as well as a historic tradition of fireworks manufacturing and investment, is a perfect place to start such business.

To analyze the case by