The increase in demand for fireworks has intensified the domestic and foreign competition (Jiang and Beamish, 2011). As Peng (2014:36) states, ‘competitors of a similar size, market influence and product offerings’ often compete intensely with one another. This, together with rising labour and raw materials cost, has caused profit margins to decrease for many of the small, locally-owned manufacturers in Liuyang. The fact that designs are easily copied with no legal consequences, also lowers the selling cost and reduces profit margins. With multiple competitors in the region, the market for fireworks remains a perfect competition, with companies having little market power. Fireworks companies in Liuyang have competitors on many fronts. They
…show more content…
The entry barriers that may influence potential entrants to the Chinese fireworks market will now be discussed. Firstly, the capital requirement for starting a small fireworks workshop is low at less than RMB 125,000, while establishing a well-equipped factory only costs RMB 1,250,000. Labour costs are low, although they are increasing. The raw materials required to manufacture fireworks are easily procured, though the cost of these materials is also increasing. There is also a well-established distribution channel. Economies of scale refer to the cost advantage that can result from increased output of a product (Mankiw, 2012). Distributing to a large customer base, both foreign and domestic, may offset the cost of labour, procuring raw materials, and maintaining technology. However, the economies of scale may be limited due to inefficiencies within the industry. In order to gain economies of scale, a potential entrant would have to invest heavily in a R&D to differentiate from its competitors and build brand identity. These limited barriers to entry are further evidence that these factories are operating within a perfectly competitive market. In conclusion, the Chinese fireworks industry is a relatively easy market to …show more content…
The fireworks industry is considered by some to be a sunset industry. This term refers to an industry that holds little promise of future development. In the past decade, the fireworks industry has seen tumultuous times, struggling with increased competition, substitute products, incoherent patency laws, stringent safety regulations, and restrictive export policies. However, with the easing of regulations, the fireworks industry has seen improved growth and increased revenues. Though it is an older industry, it is one that is still important to the Chinese economy. It would seem that the fireworks industry is not quite a sunset industry but it requires innovative strategic management with investment in research and development to ensure a successful
The entry barriers that may influence potential entrants to the Chinese fireworks market will now be discussed. Firstly, the capital requirement for starting a small fireworks workshop is low at less than RMB 125,000, while establishing a well-equipped factory only costs RMB 1,250,000. Labour costs are low, although they are increasing. The raw materials required to manufacture fireworks are easily procured, though the cost of these materials is also increasing. There is also a well-established distribution channel. Economies of scale refer to the cost advantage that can result from increased output of a product (Mankiw, 2012). Distributing to a large customer base, both foreign and domestic, may offset the cost of labour, procuring raw materials, and maintaining technology. However, the economies of scale may be limited due to inefficiencies within the industry. In order to gain economies of scale, a potential entrant would have to invest heavily in a R&D to differentiate from its competitors and build brand identity. These limited barriers to entry are further evidence that these factories are operating within a perfectly competitive market. In conclusion, the Chinese fireworks industry is a relatively easy market to …show more content…
The fireworks industry is considered by some to be a sunset industry. This term refers to an industry that holds little promise of future development. In the past decade, the fireworks industry has seen tumultuous times, struggling with increased competition, substitute products, incoherent patency laws, stringent safety regulations, and restrictive export policies. However, with the easing of regulations, the fireworks industry has seen improved growth and increased revenues. Though it is an older industry, it is one that is still important to the Chinese economy. It would seem that the fireworks industry is not quite a sunset industry but it requires innovative strategic management with investment in research and development to ensure a successful