Chinese Fireworks Pest Analysis Political Factors 1) Local Government have their own different regulations regarding firework consumption. 2) 1/3rd had partially banned and allowed only in designated places in china. 3) No pricing regulation, cut throat price competition was abundant. Economic Factors 1) Low initial capital requirements staring a firework. 2) Low labor cost. 3) Low profit margin. 4) Improvement in living standards of people. Social Factors 1) Diversity of cultures reduces the seasonality of production 2) Cultural sentiments used fireworks for frightening off evil spirits and celebrating good news at various occasions. 3) Concerns over environmental pollution and safety to human life and property were necessary. Technological Factors 1) There were hardly any R&D and improvements never reached beyond product variation. 2) Machines were rarely used because the work can be done manually and labor cost is cheaper than investing in machines. SWOT ANALYSIS Strengths 1) Long reputation and product variety Liuyang has the strongest reputation in China and even in the world market it also occupies an influential position in terms of product variety and reputation. 2) Huge market share As the largest manufacture community of fireworks in China Liuyang has been enjoying huge market share both in domestic and export market. 3) Low Labor Cost Most of the manufacture factories are located in rural places, where the labor cost is very low. Weaknesses 1) 2) 3) 4) Slow production Low R&D Low quality products Safety issues and environmental concerns Opportunities 1) Increasing revenue and demand 2) Technological innovation appealing to customers Fireworks can be combined with modern technologies, like laser beams, computerized firing and musical accompaniment to cater for customers. Threats 1) Intensified competition More and more competitors including existing firms and new entrants are competing with Liuyang fireworks industry. The direct consequence is the price drop which leads to the deduction of profit margin. 2) Low barriers to entry 3) Intense price competition Porter’s Five Forces Model Threat of new entrants The threat of new entrants in the firework industry is high. As capital required initially for starting this business is very low which makes easy entry in this industry. Another thing which is increasing threat of new entrants in firework industry is labor cost. Majority of labor is unskilled so it becomes easy for new entrants to higher labor at low wages. After summarizing the above factors, we can say that entry for the new entrants is easy and it is not considered favorable for the industry. Bargaining power of buyers The bargaining power of buyers is high in the firework industry as buyers have the advantage of having large number of choices and low switching costs. Furthermore, they have the power to deal directly with factories to take the lower end price. In addition to this, the presence of strong competition derived from price wars has created a huge sensitivity to prices in the market of fireworks that can be easily substituted from many different vendors with a similar quality. Threat of new substitutes Substitutes products are available in this industry like laser beam with sound effect, make-believe firecrackers, use of ballons instead of firework in the wedding. Threat of substitutes products increasing due to changing environment. Although substitutes are appeared in the industry but these substitutes are not real substitutes because of culture. As people prefer to celebrate with atmosphere of noisy happiness. So, on the basis of this argument we can say that threat of substitute products is small. And this is would go in favor of this industry. Bargaining Power of Suppliers Firecracker suppliers have low bargaining power to drive up firecracker costs on the grounds that there are huge number of supplier, that ultimately reduces the switching cost. This further proves that there is no association between sellers and suppliers so that would result in a weak competitive pressure to increase the profit margin. Furthermore, the supply of resources is balanced and there are no major differences in the product. Rivalry Among Existing Competitors The rivalry among the competitors in the firework industry is high and the exit barriers are low. Moreover, the competitors are all about the same size - mostly small, family-run businesses. There is established brand competition in Liling, Pingxiang, Wanzai. These were all strong competitors in both price and quality. Neutral to benefit is that the fixed expenses of the business counts a very low portion of the total cost of the company. A bulk of existing firms having little diversity and product differentiation are competing in this industry, the possibility of new entrants is high and buyers are more powerful than suppliers. All these factors shape the fierce competition in the firework industry.
