Substitute | * Fireworks and firecrackers cannot be replaced * | Competition | | New Entrants | | Supplier | | Buyer | |

Threat of Substitutes * Fireworks and firecrackers still cannot be replaced especially in traditional occasions like New Year and Fourth of July. No real substitute can really replace fireworks * What some did was to combine laser beams and fireworks * Added sounds to fireworks
Threat of Competition * In 1979, there was a reform towards a market economy. The privatization of these workshops resulted to more fireworks workshop popping up. More competition. * Number of small manufacturers increased after the government started encouraging private business venturees * In China, the total revenue of firecrackers and fireworks increased from 2007 to 2009 * Liuyang, as the capital of fireworks, had an increase in revenue. Give the price here. * BUT more workshops were set up = competition * Also in the Hunan Province, Liling became another major manufacturing community. They werent as famous and their products were not as impressive as those from Liuyang but they were fierce in price competition * Jiangxi Province, Piangxing and Wanzai were competitors for price and quality, especially on the low-and-medium priced market * Dongguan in Guangdong Province had taken advantage of its closeness to Hong Kong and exported their products though * Still, 60% of the all Chinese production remained in Liuyang * All over the world, fireworks made in China have a bad reputation because of quality compared to those manufactured in Japan or Korea.

Threat of New Entrants * The initial capital needed for starting a fireworks manufacturing company is relatively low. * There are more or less 27000 manufacturers in Liuyang alone and an additional 2144 in surrounding towns. * These factories are run by small family-owned and operated workshops so most of the employees aren’t trained professionals –most of them are farmers who only go to the factories if the factory needs them
Bargaining Power of Suppliers * It’s not that big a problem since most

WHAT HE CAN DO!!!
Hire trained professionals People can only manufacture, not design. What he can do is to hire people with artistic backgrounds and firework engineers (is there such a thing?) so that they can come up with nicer designs for fireworks. This way, people will buy their products since they are better for fireworks shows they hold in any occasion they might want (like New Year’s or Fourth of July). These professionals, then can teach the other employees how to produce these fireworks. * In 2009, only 6 colors were used for fireworks. Why not produce more colors? * Although most everyone in Liuyang knew something about fireworks making, or had made it before but out of the 400,000 workers, only very few were engineers with advanced professional training * Innovate! Consumer fireworks have bigger profits than Display fireworks so what he can do is to improve the quality of these consumer fireworks (make them safer and make them more impressive). Make them safer since mpst fireworks-related accidents occur during private parties
Invest in Research and Development Focus on R&D to produce fireworks to produce products that are safer for both manufacturer (when actually manufacturing the product) and the consumer. Research and Development might also lead him to finding ways to make fireworks more environmentally friendly (by maybe looking for other raw materials? Smokeless fireworks?) so that they won’t have the problem of heavy government regulations for safety and pollution.
Most processes are still done manually. Research and Development might lead to alternate ways on how to make fireworks (automation?) Really needed since fireworks were most dangerous during the production process.
Establish a brand identity (I don’t know how to word this) This is hard because it’ll definitely take time and a lot of money (money spent on differentiation) and but if he’s successful, once the brand gains recognition not just in China but in the whole world, consumers will prefer to buy his company’s fireworks because they trust the brand. * Endorse the product * Think Red Lantern
Threat of Substitutes * Fireworks and firecrackers still cannot be replaced especially in traditional occasions like New Year and Fourth of July. No real substitute can really replace fireworks * What some did was to combine laser beams and fireworks * Added sounds to fireworks
Threat of Competition * In 1979, there was a reform towards a market economy. The privatization of these workshops resulted to more fireworks workshop popping up. More competition. * Number of small manufacturers increased after the government started encouraging private business ventures * In China, the total revenue of firecrackers and fireworks increased from 2007 to 2009 * Liuyang, as the capital of fireworks, had an increase in revenue. Give the price here. * BUT more workshops were set up = competition * Also in the Hunan Province, Liling became another major manufacturing community. They weren’t as famous and their products were not as impressive as those from Liuyang but they were fierce in price competition * Jiangxi Province, Piangxing and Wanzai were competitors for price and quality, especially on the low-and-medium priced market * Dongguan in Guangdong Province had taken advantage of its closeness to Hong Kong and exported their products though * Still, 60% of the all Chinese production remained in Liuyang * All over the world, fireworks made in China have a bad reputation because of quality compared to those manufactured in Japan or Korea.
Threat of New Entrants * The initial capital needed for starting a fireworks manufacturing company is relatively low. * There are more or less 27000 manufacturers in Liuyang alone and an additional 2144 in surrounding towns. * These factories are run by small family-owned and operated workshops so most of the employees aren’t trained professionals –most of them are farmers who only go to the factories if the factory needs them

The decision Jerry Yu wants to make is whether or not he should invest in the fireworks industry, specifically the village-owned fireworks workshop in Liuyang and if he decides to invest, what would his strategy be in order to capitalize on the potential that remained unexploited in that industry.
The hesitation of Jerry Yu on whether or not he should invest on the industry is entirely rational since the future of the fireworks industry is pretty uncertain. When he asked around, he learned that many managers of Chinese Fireworks companies had mixed feelings towards the future of their industry. One manager claims that the fierce competition and strict safety regulations were bound to kill the industry. As the economy advanced, so did the standard of living which entailed raising factory employees’ wages. The government was also forcing more manufacturing regulations for which tended to drive up the costs of production. Another claims that as people become more environmentally conscious, they are more likely to forego using fireworks and instead resort to using alternatives such as laser beams or forms of entertainment that are not as damaging to the environment. Fireworks and firecrackers are used in special occasions and sometimes, fireworks are deeply embedded in traditions. However, in the past years, Chinese couples opt to go for a more western style so the traditional noisy way of celebrating was replaced for one that is quiet and serene. These managers believe that very much like fireworks, despite its bright flare when it was first created and developed, the industry is doomed to fade off into history.
Not all managers shared this bleak outlook, though. Some claim that the industry might not even die at all. If the right moves are made, the industry might even grow. Tradition, they claim, would not and could not die so easily. For the Chinese, at least, it is entrenched in their culture to celebrate with an atmosphere of noisy happiness. Fireworks, as mentioned earlier, are practically ingrained in tradition and since there is no exact substitute for fireworks, the industry will most definitely survive. This can also be seen in the Fourth of July celebrations in the United States. Fireworks were first used in the festivities in 1777 and were used ever since. In 1963, the US congressional decided to use bells to replace fireworks but they (bells) weren’t really appreciated by the people and so it never really caught on. Exporting, specifically in Western countries, won’t necessarily be a huge problem since the popularity of fireworks was not suffering from all the regulations being set up by their respective governments. As was mentioned, no real substitutes can ever take the place of fireworks. Some managers even believe that the industry might even grow through innovation. Fireworks are currently being combined with modern technologies like laser beams, computerized firing and musical accompaniment to make fireworks more appealing. With these new innovations, safety won’t be such a serious problem since these new technologies won’t involve much human interaction since they will replace the process of both producing and using them.
Firework making or pyrotechnics has been around for centuries. Believed to originate from Liuyang in the Hunan Province of China in the Tang Dynasty, fireworks specifically from Liuyang were sold all over the country and accepted as official tributes to the imperial family during the Song Dynasty. By 1875, fireworks were exported to foreign markets such as Japan, Korea, Australia, England and the United States. Liuyang-made firecrackers and fireworks have won numerous awards over its long history of firework making. The word Liuyang itself even became almost synonymous with firecrackers and fireworks. In 1995, the State Council of China named Liuyang as the hometown of firecrackers and fireworks.
In the late 2000s, out of more than 6,000 fireworks manufacturers in China, Liuyang claimed 2702 firework makers with an additional 2144 in the sorrounding areas. Liuyang is also the top fireworks exporter in the world, making up to 60% of global production. Over the past 10 years, China became the largest market for fireworks with 89% of d fireworks exports coming from Liuyang. The famous fireworks brand 'Red Lantern" actually originated from Liuyang.
Although Liuyang is the most well-known place for fireworks production in China, it is facing increasing competition within the country. Liling, which is another town in Hunan Province, although not as well-known and does not really produce varied products, is Liuyang's fierce competitor in terms of pricing. Other provinces such as Jiangxi, Pingxiang anf Wanzai are also competitors for price and quality, especially on the low- and medium-priced market. Still, Liuyang remains China's highest earning town for fireworks production. Although it is risky, Jerry Yu should definitely invest in the fireworks warehouse. Yes, the future for the industry is very unclear and yes, there is a chance that investing in it might not be profitable. But then again, there is a chance that it might be. Regardless of whether or not they think the industry has a promising future in the years to come, managers believe that the Chinese fireworks industry would have to change its strategies in order to stay relevant. With an MBA with an experience in running a business, he can apply the knowledge he attained during his studies and through his experiences in order to form new and efficient strategies that can help in the management the village-owned factory to guarantee that the money he spent in investing in the factory was not put to waste.

Hire trained professionals People can only manufacture, not design. What he can do is to hire people with artistic backgrounds and firework engineers (is there such a thing?) so that they can come up with nicer designs for fireworks. This way, people will buy their products since they are better for fireworks shows they hold in any occasion they might want (like New Year’s or Fourth of July). These professionals, then can teach the other employees how to produce these fireworks.
· In 2009, only 6 colors were used for fireworks. Why not produce more colors?
· Although most everyone in Liuyang knew something about fireworks making, or had made it before but out of the 400,000 workers, only very few were engineers with advanced professional training
· Innovate! Consumer fireworks have bigger profits than Display fireworks so what he can do is to improve the quality of these consumer fireworks (make them safer and make them more impressive). Make them safer since mpst fireworks-related accidents occur during private parties
Invest in Research and Development

Focus on R&D to produce fireworks to produce products that are safer for both manufacturer (when actually manufacturing the product) and the consumer. Research and Development might also lead him to finding ways to make fireworks more environmentally friendly (by maybe looking for other raw materials? Smokeless fireworks?) so that they won’t have the problem of heavy government regulations for safety and pollution.
Most processes are still done manually. Research and Development might lead to alternate ways on how to make fireworks (automation?) Really needed since fireworks were most dangerous during the production process.
Establish a brand identity (I don’t know how to word this) This is hard because it’ll definitely take time and a lot of money (money spent on differentiation) and but if he’s successful, once the brand gains recognition not just in China but in the whole world, consumers will prefer to buy his company’s fireworks because they trust the brand.
· Endorse the product
· Think Red Lantern

The first step Jerry Yu must do once he invests in the company is to hire people who have higher knowledge in fireworks engineering so that they can come up with ones that are better and more visually appealing when fired in the sky than those already in the market. In short, what Jerry Yu must do is to differentiate the company’s fireworks from those produced by other workshops and factories. Along with this, he should really invest in research and development to find more ways to manufacture the product. According to workers, fireworks are most dangerous during the production process. Through research and development, the technology to automate more processes in fireworks production can be discovered and created, therefore strengthening the goal of product differentiation. In addition, research and development might also lead to finding ways to make fireworks more environmentally friendly. Who knows? Maybe raw materials that will lead to smokeless fireworks might just be discovered.
His next step should be to work to establish a brand identity. Much like Red Lantern, a fellow Hunan based firework manufacturing business known to fireworks-lovers both in and outside China, Jerry Yu should work on building up the reputation of the company so that consumers, Chinese, and non-Chinese alike, will prefer to buy the company’s products simply because they trust the brand and believe it to be the best, at least in terms of fireworks manufacturing. This might take some time and a lot of money on research and development but the benefits of successfully setting up a brand identity will make the effort worth it.
However, in the past decade, the profit margins for many small fireworks manufacturers had shrunk instead of seeing increased margins. To retaliate, workshops employed cost cutting efforts which unfortunately, came at the expense of workers' safety. In 2007, a factory explosion which left 11 workers dead was blamed on low safety standards. In effect, the government and company officials from Liuyang and the surrounding areas agreed to regulate the price of fireworks with the hope of increasing profit margins. With higher profit margins, these company officials vowed to increase their workers' safety.

Historically, 90% of the total production and sales was made up from firecrackers but over the past 50 years, there was a shift from firecrackers to fireworks. In 2009, only 20% of total sales was dedicated to firecrackers. Liuyang has made 13 different types of fireworks with more than 2000 varieties. Not much has changed in fireworks making. Ingredients remain the same and process technology hasnt changed save for some manual processes that were replaced by machines like cutting paper, rolling cylinders and mixing powder.

According to manufacturers, fireworks are most dangerous during the production process. In Liuyang alone, there would be one or more accidents that resulted in deaths and damages almost every year. With an ever increasing number of firms entering the industry, safety is an ongoing concern