Chinese Fireworks Industry The purpose of this analysis is to provide Jerry Yu with a recommendation on weather or not he should take his family up on their offer to invest in the village’s fireworks factory. The aim will be to conduct a Porter’s Five Forces analysis in order to determine the attractiveness of the industry. In addition, I will conclude weather this industry is in fact a “sunset” industry that is unlikely to return on Mr Yu’s investment in the long term.
There is a vast threat from potential new entrants in the industry Jerry Yu is considering investing in. A fundamental reason for this are the excessively low capital requirements to establish a new enterprise. In addition to the low capital requirements, the crucial ingredients …show more content…
There is huge rivalry in this industry and it is something that Yu must be aware of. As there is little to no differentiation between competition manufacturers it ultimately boils down to competition regarding price. This is evident as we can very clearly see that it states there is a cutthroat price competition evident in the industry. In addition, the sheer amount of manufacturers in Liuyang (75% of Production) and other provinces across the country only add to the competitiveness of the industry in terms of both price and quality.
The analysis above clearly shows that the Chinese fireworks industry is one that is extremely competitive. With the majority of the forces showing un-favourable outcomes one must come to the conclusion that this industry will be a difficult one to succeed in. However we must also decide weather this industry will continue to be prominent in the coming years or is it in fact in decline and petering …show more content…
Export sales have clearly risen drastically between the opening of the Chinese economy and 2009. The independent research provided states that sales have risen by US$532 million between the years of 1994 and 2009.
The information above reinforces the argument that the Chinese fireworks industry is not in fact a “sunset” industry. A sunset industry is an industry that is past its peak or in decline and I believe I have clearly shown evidence to the contrary. While undoubtedly the industry is facing some problematic issues these have not yet forced the industry into a decline and they are issues that the industry as a whole can overcome.
In conclusion should Mr Yu invest in the factory in his local village? I believe there are two answers to this question. Firstly, to invest solely in the factory itself I believe would not be a wise investment and would lead Mr Yu struggling to make a ROI, due to the sheer competitiveness and un-attractiveness of the industry as I have pointed to above. However, if Mr Yu is willing to make a sizeable investment from production to retail, thus controlling more of the value chain the investment could be very profitable. The information provided clearly states that importers enjoy a healthy mark-up even after paying the import duty. The only major issue they were having related to inventory costs as they needed to hold the stock for three to four months
There is a vast threat from potential new entrants in the industry Jerry Yu is considering investing in. A fundamental reason for this are the excessively low capital requirements to establish a new enterprise. In addition to the low capital requirements, the crucial ingredients …show more content…
There is huge rivalry in this industry and it is something that Yu must be aware of. As there is little to no differentiation between competition manufacturers it ultimately boils down to competition regarding price. This is evident as we can very clearly see that it states there is a cutthroat price competition evident in the industry. In addition, the sheer amount of manufacturers in Liuyang (75% of Production) and other provinces across the country only add to the competitiveness of the industry in terms of both price and quality.
The analysis above clearly shows that the Chinese fireworks industry is one that is extremely competitive. With the majority of the forces showing un-favourable outcomes one must come to the conclusion that this industry will be a difficult one to succeed in. However we must also decide weather this industry will continue to be prominent in the coming years or is it in fact in decline and petering …show more content…
Export sales have clearly risen drastically between the opening of the Chinese economy and 2009. The independent research provided states that sales have risen by US$532 million between the years of 1994 and 2009.
The information above reinforces the argument that the Chinese fireworks industry is not in fact a “sunset” industry. A sunset industry is an industry that is past its peak or in decline and I believe I have clearly shown evidence to the contrary. While undoubtedly the industry is facing some problematic issues these have not yet forced the industry into a decline and they are issues that the industry as a whole can overcome.
In conclusion should Mr Yu invest in the factory in his local village? I believe there are two answers to this question. Firstly, to invest solely in the factory itself I believe would not be a wise investment and would lead Mr Yu struggling to make a ROI, due to the sheer competitiveness and un-attractiveness of the industry as I have pointed to above. However, if Mr Yu is willing to make a sizeable investment from production to retail, thus controlling more of the value chain the investment could be very profitable. The information provided clearly states that importers enjoy a healthy mark-up even after paying the import duty. The only major issue they were having related to inventory costs as they needed to hold the stock for three to four months