The Chinese Fireworks Industry

Case Title: The Chinese Fireworks Industry

Executive Summary

An organization can only improve its functioning, if it makes itself aware of its weaknesses and then acts to correct those deficiencies. The purpose of this case is to help Jerry Yu asses how attractive the fireworks industry is and to aid in his decision-makings of investment. This case is also conducted to diagnose the key issues that the company needs to address and to suggest alternative courses of action or give recommendations.

Jerry Yu is challenged to decide whether it is worthwhile to invest in the fireworks industry considering the threats it is facing and the weaknesses of the industry.

There are only two alternative courses of action. These are to invest or not to invest in the fireworks industry.

The tools that helped me analyze this case and led me to certain recommendations are the PEST Analysis, the Internal Factor Evaluation (IFE) Matrix, the External Factor Evaluation (EFE) Matrix, the Internal-External Matrix, and the Threats-Opportunities-Weaknesses-Strengths Matrix.

The fireworks industry has potential. Jerry Yu may invest in this industry. He just has to make sure that the factory he is investing in would use high quality raw materials in producing the fireworks to lessen the possibility of accidents and to pass the standards and regulations for safety consideration in other countries, thus, improving the exportation of Chinese fireworks. Skilled factory workers should be hired and abide by strict safety measures. The company should also invest in high technology equipments and in research and development in order to cope up with and to exceed the improvements in the safety and style of the fireworks that are being undertaken by competitors. The workers should undergo continuous training programs in order to incorporate in the products the innovations that the research and development section comes up with. The company should also ask the government to impose penalties to pirates in order to protect the brand name and the intellectual properties of all the companies in the country. It must also encourage the government to make and impose policies in pricing to put a stop to cutthroat price competition and to protect the manufacturers. The company must have a policy to asses the creditworthiness of their clients before doing business with them.

With the implementation of the aforementioned recommendations, high-quality products will be produced by Liuyang. The peopleÐŽ¦s perception of the danger that fireworks bring will gradually lessen. A strong brand name will be established and doors will open for the industry in places, domestic and foreign, that do not allow the entry of Chinese fireworks and those that totally or partially prohibit the use of them. Therefore, Jerry Yu should invest in the fireworks industry of Liuyang.

Methods of Analysis

PEST Analysis:

A PEST analysis is an analysis of the external macro-environment that affects all firms. P.E.S.T. is an acronym for the Political, Economic, Social, and Technological factors of the external macro-environment. Such external factors usually are beyond the firmÐŽ¦s control and sometimes present themselves as threats. For this reason, some say that ÐŽ§pestЎЁ is an appropriate term for these factors. However, changes in the external environment also create new opportunities and the letters sometimes are arranged to construct the more optimistic term of STEP analysis.

Many macro-environmental factors are country-specific and a PEST analysis will need to be performed for all countries of interest. The following are examples of some of the factors that might be considered in a PEST analysis.

Political Analysis

Political stability

Risk of military invasion

Legal framework for contract enforcement

Intellectual property protection

Trade regulations & tariffs

Favored trading partners

Anti-trust laws

Pricing regulations

Taxation - tax rates and incentives

Wage legislation - minimum wage and overtime

Work week

Mandatory employee benefits

Industrial safety regulations

Product labeling requirements

Economic Analysis

Type of economic system in countries of operation

Government intervention in the free market

Comparative advantages of host country

Exchange rates & stability of host country currency

Efficiency of financial markets

Infrastructure quality

Skill level of workforce

Labor costs

Business cycle stage (e.g. prosperity, recession, recovery)

Economic growth rate

Discretionary income

Unemployment rate

Inflation rate

Interest rates

Social Analysis

Demographics

Class structure

Education

Culture (gender roles, etc.)

Entrepreneurial spirit

Attitudes (health, environmental consciousness, etc.)

Leisure interests

Technological Analysis

Recent technological developments

Technology's impact on product offering