Five- Model analysis
Source:
http://tonylamb.wordpress.com/2011/04/17/the-collapse-of-porter%E2%80%99s-five-forces-model/
Threat of New Competition
& Intensity of Competitive
Rivalry
Domestic competitors: According to exhibit one in the
case, firecrackers and fireworks total revenue in China increased 36.01 percent
from 2007 to 2009. As the hometown of firecrackers and fireworks in China, Liuyang
naturally had increased revenue in firecrackers and fireworks. The revenue went
up 68.33 percent from 750,000,000 USD to 1,262,500,000 USD. Moreover, fireworks industry is a low-
technology and traditional industry. The initial capital requirement for
starting a fireworks- manufacturing facility was relatively low, less than
20,000 USD. Those reasons contribute that there are 2,702 fireworks manufacturers
in the Liuyang District with an additional 2,144 in the surrounding areas.
Fortunately, most factories were dominated by small family-owned –and –operated
workshops and most of the employees in the factories were regular farmers who
had learned how to make fireworks just by watching and following their
elders. As a result, those factories
only manufactured fireworks instead of designing fireworks.
Strategy: I
believe there still have opportunities in this sunset industry only the company
can focus on the product diverseness
and SOP control to have more
competitiveness to their rivals. First, I will concentrate on R&D to produce the fireworks that can
shoot with long distance and with much safety no matter during the process of
manufacturing or launching. R&D department also has to develop more
environment-friendly fireworks by changing the materials making fireworks.
Every new year eve, most of the big cities in the world including London,
Sydney, Dubai, Rio de Janeiro, Las Vegas, Taipei, Paris, Hong Kong, Prague
will schedule the large-scale
fireworks display events. (1) Those displays all are high altitude fireworks. Second, traditionally, fireworks are
used in specific occasions such as Chinese new years, or the religious events. People
launch fireworks and firecrackers to expel misfortune. However, more and more cities regulate the
consumption and launch the fireworks and firecrackers because of increased
concerns over environmental pollution and safety of human life and property.
Launching wireworks becomes a luxury business program to attract domestic and
international tourists. For example, the fireworks in Disneyland. (2) As a
result, I will recruit more young employees with art and design background to
arrange fireworks displays not only have simple symbols but also are brilliant
shows. Furthermore, I will enforce training programs such as enhancing
working safety classes and machining in factory. Experienced employees also
need to learn new skills and learn how to produce more effect by machine.
International competition: Although the trademarked
brand “Red Lantern” had become
well known to fireworks-lovers around the world, China-made fireworks have
lower reputation in quality control, packing and timing control comparing to the
products made m Korea and Japan. In addition, some fireworks merchants in
Korea, Japan or Spain will buy the products from China and repackage them, or
replace the fuses with better quality ones, then resell them for much higher
price. Moreover, U.S. always plays the main role to import fireworks from
China, but the growth rate in 2010 went down 8.5 percent. Is the lower price
not the main reason to sell the products? (Table 1)
Table 1. The change of U.S import market for
Fireworks in 2010
Source: http://pierstransportation.wordpress.com/tag/exports/
Strategy: Those predicaments result from that Chinese
companies don’t know the importance of brand
identities. Creating a brand identity costs long period of time and money.
However, once the brand becomes famous and international one, customers will
trust the quality of the produces from the company and the value of company
will also increase because of brand value. For example, the brand value of Apple
is worth $153 billion or Google is $111.5 billion. As a result, I will reorganized
my company structure and improve the equipment in my company to pass
international identification such as ISO and put more budgets in marketing to
enlarge the popularity of company. Company can sponsor the international events
such as Olympic to advertise itself. Moreover, I will focus on the fireworks
display design. What my company sells is not only the fireworks themselves but
also the ideas how to present more colorful and plentiful modeling during
the displays. We will put more creativity into the display to make impossible
turn to possible and make all audiences impressed. For example, Black Ceremony, which is a
fireworks event at Mathaf, Arab Museum of Modern Art in Qatar on December 5,
2011 and was designed by the Chinese artist Cai Guo-Qiang (3). Most fireworks
displays are launched at night. However, this event is a daytime fireworks
show. Another example is the celebration for 100 years in Taiwan (4). The
designer used fireworks to draw the picture of first Taiwanese president and
number 100. Those are totally different with the stereotype of fireworks.
Threat of Substitute
Products or Services
Although several modern technologies like laser
beam or computerized firing already were applied in some performances,
firecrackers still cannot be replaced especially in certain religious occasion
such as in some Buddhism festivals because firecrackers present certain
meanings and culture. Furthermore, fireworks can create several kinds of
patterns in the air such as peony, ground bloom flower, ring…
and so on. (5) It also can present different colors individually or entirely.
As a result, No real substitutes could replace fireworks.
Strategy:However, fireworks and firecrackers displays can
still combine with laser beam, computerized firing and music accompaniment to
strengthen the visual, audio and emotional effects because fireworks
cannot originate abounding sounds.
Customers
The customers in fireworks and firecrackers market
can divided into individuals and business units such as government
institutions, private associations or general companies. Every country has
different regulations about manufacturing, selling and using fireworks and
firecrackers. (5) Because more and more countries prohibit the public launching
fireworks and firecrackers, the individuals market declined dramatically. In
the contrast, the business units market went up because in the display
fireworks market, the buyers were often central and local governments who
purchase product for public shows on national holidays or special celebrations.
The amount of fireworks used could range from 15,000 USD to millions USD,
depending on the scale of a fireworks show.
Strategy: Doing business with the China government is not an easy
thing. First, interpersonal relationship is a very important element. Company
should know someone who works in the government or has to have very good Guanxi
with government institution. Sometimes businessmen already are accustomed to
give commissions to the person who introduces the business. Second, the regulations
in China government are changeable in policy and will be carried out completely
or not depending on the executors. Bureaucracy is also a serious problem. In
contrast, the export market is not an easy thing, either. The reputation from
China is not very good. Jerry have to reverse the company imagine. First,
company can attend more international exhibition to get popularity. Second,
company should focus on quality control and time control. No company will
continue doing business with a company which always delay deliver products even
though the company got the good price in the beginning.
Supplier
Since most of the factories in Liuyang are focus on manufacturing the
fireworks, supplier will not be a problem if Jerry decides to have a design
company of fireworks displays instead of a manufacturing factory. Jerry can implement
vertical integration by investing in the purchase of suppliers and make every
supplier with the same quality. Moreover, the costs of manufacturing fireworks
are so low, one third of the sale price. (6) Jerry’s company can sale fireworks
instead of manufacturing fireworks.
Labor costs in China are very low compared with that in Japan and
Korea. (Table 2-4) (7) As a result, fireworks made from China always have price
superiority to provide lower price. Since Liuyang is Jerry’s hometown, Jerry
can also understand the working culture in China and can more easily to manage
the local employees.
|
Year
|
National currency basis
(Yuan) |
U.S. dollar basis
(US$) |
Index1
(US = 100) |
|
2002
|
4.74
|
0.57
|
2.1
|
|
2003
|
5.17
|
0.62
|
2.2
|
|
2004
|
5.50
|
0.66
|
2.3
|
|
2005
|
5.95
|
0.73
|
2.4
|
|
2006
|
6.44
|
0.81
|
2.7
|
|
2007
|
8.06
|
1.06
|
3.4
|
|
2008
|
9.48
|
1.36
|
4.2
|
Table 2. Hourly compensation costs of
manufacturing employees in China, 2002-2008
Source:
http://www.bls.gov/fls/
|
Indicator
|
Unit
|
2008
|
2009
|
2010
|
|
Hourly compensation costs in manufacturing
|
||||
|
Hourly compensation costs
|
U.S. dollars
|
27.80
|
30.36
|
31.99
|
|
Hourly pay for time worked
|
U.S. dollars
|
15.57
|
17.39
|
18.32
|
|
Hourly directly paid benefits
|
U.S. dollars
|
7.27
|
7.55
|
7.97
|
|
Hourly social insurance expenditures and labor-related taxes
|
U.S. dollars
|
4.96
|
5.41
|
5.71
|
Table 3. Hourly compensation costs of
manufacturing employees in China, 2002-2008
Source: http://www.bls.gov/fls/
|
Indicator
|
Unit
|
2008
|
2009
|
2010
|
|
Hourly compensation costs in manufacturing
|
||||
|
Hourly compensation costs
|
U.S. dollars
|
16.50
|
14.52
|
16.62
|
|
Hourly direct pay
|
U.S. dollars
|
13.36
|
11.68
|
13.36
|
|
Hourly social insurance expenditures and labor-related taxes
|
U.S. dollars
|
3.14
|
2.85
|
3.27
|
Table 4. Hourly compensation costs of
manufacturing employees in China, 2002-2008
Source: http://www.bls.gov/fls/
Industry Life Cycle Analysis & Business model
Industry Life Cycle
Source: http://www.financewalk.com/2011/4-stages-industrys-life-cycle/industry-life-cycle1/
Every industry has life cycle includes introduction phase
including early stages phase and innovation phase, growth phase, maturity phase
and decline phase. The Chinese fireworks industry was no longer in a period of
growth and had plateaued. As a result, it is maturity phase now. However, if we
can input different strategy into this sunset industry, I believe fireworks
industry will start another life cycle. Moreover, Jerry can use blue ocean
strategy to focus on high-end market and provide unique products and
service in order to gain high profits. Great business model can make company
continue to survive in the market and changing business model when the market
changes is the way that keeps company starts another life cycle. Fireworks
industry is still a global opportunity because every country still has
fireworks shows every year and the scare seems like larger and larger. The
revenue in the international market still also grows up. So, I will suggest
Jerry can invest money in the Chinese fireworks business.
Reference
2. http://disneyland.disney.go.com/disneyland/ fireworks/
7. http://www.bls.gov/fls/
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