Chinese Fireworks Industry - Porter's Five Force Analysis

In consideration of industry attractiveness for the future investment in the Chinese fireworks industry, the Porter’s five forces model is a helpful tool to identify four factors influencing competition and profitability of the industry. By the analysis of existing rivalry, competition from new entrants, treat of substitutes, bargaining power from suppliers and buyer power, this essay will be able to examine the attractiveness of the firework business in China. Potential limitations for the five forces model will be explained at last.

The perfect competition of established rivals in China is now causing a price war. This is from the difficulty in pricing coordination of the concentrated 5,000 local producers who are sticking to traditional production methods and indifferent ingredients. Domestic competitors tend to imitate each others’ design and offer a lower price to grasp more customers. Some efforts in marketing development are only seen in Dongguan and Guangdong province targeting export markets. However, various existing overseas competitors such as Japan, Korea and Spain enjoy more profitable margins by using better branding, repackaging and outsourcing strategy. Although Chinese fireworks controlled 89 percent of global exports, they are priced 80 percent lower than the neighbouring countries. Additionally, Local workshops have no difficulties in dealing with the excess capacity when there is no firework order since most workers can be easily transferred to nearby farms. These low operational costs also pose no risk for the exit from the industry.Potential competitors can easily enter to the industry. Despites stringent control of fireworks safety from clients’ countries, there is less legal barriers to establish a new factory in China since there is less effective government regulation. Public license and intellectual law are also rarely executed in Chinese firework industry. Experiencing some production procedures from a fireworks factory