The Chinese Fireworks Industry

The Chinese Fireworks Industry Liuyang, a city in Hunan Province in China, is known as “the home of firecrackers and fireworks”. The fireworks making in Liuyang has a long history and tradition in China, and enjoys a high reputation in the domestic market. It was also the top fireworks exporter in the world, covering 60% of the global production. However, the fireworks market in China faced an intensified competition and several legal restrictions. Jerry Yu, who was running a small family-owned chain of gift stores in New York, was asked to invest in a fireworks factory. He has management experience and global insight with an MBA, but he is challenged to decide whether it is worthwhile to invest in it considering the threats it is facing and the weaknesses of the industry. As far as I am concerned, although the downward trend of fireworks consumption (see Exhibit 1) made the whole firework industry seem like a sunset industry, there are still some opportunities for investing this industry and make profit out of it.

PEST Analysis
Political Factors In the domestic market, local governments have different regulations regarding fireworks consumption. By 1998, one-third of the cities in China had completely banned the use of firecrackers and fireworks. Another one-third only allowed fireworks in designated places. However, in the mid 2000s, several cities eased restrictions on fireworks. In the meantime, the domestic market still lacks pricing regulation and intellectual property protection, which caused cutthroat price competition and discretionary copying of popular design. Fortunately, Liuyang Firecrackers and Fireworks Industry Department implemented an offensive strategy to revive fireworks industry. In the foreign market, many countries made restrictive and complex regulations on fireworks. Although fireworks from China were rich in variety and low in price, they had a low reputation in quality control, packaging and timing control. Nevertheless,