Is the Chinese Fireworks Industry a Sunset Industry?
Chinese Fireworks Industry Case Write-up
(1) Is the fireworks industry a “sunset” industry (i.e., mature or declining industry), or is it an industry still worth being in for the long run?
From what the case discusses, it seems to me that the industry is dying. The future looks pretty gloom with the price wars, quality disputes, and intense overseas competition. Could the industry make a comeback? Yes, I believe that with China’s recent economic growth that domestic sales could drastically increase. With China’s growth comes more opportunity in the way of celebrations as well.
Regulations need to be put into place to mitigate fraudulent activities and price wars. The price wars are eating away at the Chinese markets credibility. It seems to me that the market is demanding a higher quality firework that China cannot currently meet, because of price wars enabling producers to afford appropriate materials. With price floors put into place the quality would increase and China could earn back some of the market share that they lost to Korea and Japan. At the same time it is not necessary for China to match the level of quality that Japan and Korea are producing at, but China still has some improvement to do in order to be trusted in the industry again.
(2) If you were Jerry Yu, would you invest in a Liuyang fireworks factory? Why?
If I were Jerry Yu I would not invest in the fireworks industry because it would take a lot of government intervention to sort out patent infringement and pricing wars. I am a slightly conservative investor and this kind of investment is just too risky for me because even if I have great intentions people will still my ideas and force me to maintain low levels of quality in my product lines.
I also have an issue with the growth potential in the firework market. When considering investment opportunities I prefer new industries with high expected growth. While looking at China, it seems that there is little growth. Although, looking at
(1) Is the fireworks industry a “sunset” industry (i.e., mature or declining industry), or is it an industry still worth being in for the long run?
From what the case discusses, it seems to me that the industry is dying. The future looks pretty gloom with the price wars, quality disputes, and intense overseas competition. Could the industry make a comeback? Yes, I believe that with China’s recent economic growth that domestic sales could drastically increase. With China’s growth comes more opportunity in the way of celebrations as well.
Regulations need to be put into place to mitigate fraudulent activities and price wars. The price wars are eating away at the Chinese markets credibility. It seems to me that the market is demanding a higher quality firework that China cannot currently meet, because of price wars enabling producers to afford appropriate materials. With price floors put into place the quality would increase and China could earn back some of the market share that they lost to Korea and Japan. At the same time it is not necessary for China to match the level of quality that Japan and Korea are producing at, but China still has some improvement to do in order to be trusted in the industry again.
(2) If you were Jerry Yu, would you invest in a Liuyang fireworks factory? Why?
If I were Jerry Yu I would not invest in the fireworks industry because it would take a lot of government intervention to sort out patent infringement and pricing wars. I am a slightly conservative investor and this kind of investment is just too risky for me because even if I have great intentions people will still my ideas and force me to maintain low levels of quality in my product lines.
I also have an issue with the growth potential in the firework market. When considering investment opportunities I prefer new industries with high expected growth. While looking at China, it seems that there is little growth. Although, looking at