Chinese Fireworks Essay Essay, Research Paper
The competition in the Chinese fireworks industry is fierce with cutthroat price competition and hard-to-penetrate distribution channels with the entrance of small companies; competition intensified, driving the price, and ultimately the profitability of each company, to the floor. Companies were forced to hire cheap labor, which consequently led to poor production practices and quality materials. This resulted in low-quality-fireworks-related damages and injuries ; and, pushed increased stricter regulation regarding fireworks. As competition grew more intense, companies began to copy any new or popular product that came out to the market and under priced each other just to create sales. The resulting rule of competitive forces in the fireworks industry, which states that the stronger the collective impact of competitive forces, the lower the combined profitability of participating firms , (p.92), was shrinking and obliviating the profit margin of the industry.
Of the five competitive forces, the case portrays that the strongest in the industry of fireworks is The rivalry among competing sellers in the industry . This force drove the rest of the forces and became the initiator or catalyst to the cutthroat competitive industry. The industry rivalry was centered on price competition to offer buyers the best and lowest price no matter the extenuating circumstances that would ensue. This principle of competitive markets, as stated on page 82, is better kwon as competitive jockeying among rival firms is a dynamic, ever-changing process as new offensive and defensive moves are initiated . Consequently, due to the intense price competition, the market prices fell well below unit costs, forcing losses on mostly all the rival companies.
The weakest competitive force is the competitive pressures stemming from supplier seller collaboration and bargaining . This is illustrated in the case when importers could deal directly with the factories to take the
lower end price; and in addition, since there no switching costs, they could play the suppliers against each other. This meant that there was absolutely no collaboration between sellers and suppliers that lead to a weak or null competitive pressure to increase the profit margin among the industry s value chain. Consequently, the probability of the fireworks
industry in China plummeted to the abyss of a raging tsunami type ocean.
All competitive forces have an enormous effect on industry attractiveness, whether in itself or in combination thereof. Ideally, as stated on page 93, a competitive environment is one in which both suppliers and customers are in weak bargain positions, there are no good substitutes, entry barriers are relatively high, and rivalry among present sellers is only moderate . This utopian industry would enjoy earning sustainable superior profits. In the real world, however, this would be by far impossible to realize such an industrial competitive environment. Any of the five competitive forces can create a burden from the profit-making standpoint. The company in itself can create a favorable or attractive industry by providing a good enough defense against competitive pressures to preserve and enhance their ability to earn above-average profits. Therefore, all five competitive forces have an impact on the industry s attractiveness and transfer the burden on the company to a good defensive strategy to counter the competitive pressures in its favor.
The key factor that determine the success of fireworks manufactures are low-cost plant locations coupled with access to adequate supplies of shared labor both of these factors go hard in hard with each other to catalyze the man key factor that outranks the others in importance; low-cost production efficiency. This key factor is achieved through economies of scale and obtaining experience curve effects that result in price appeal to buyers. It is of prime importance for manufacturers to strictly concentrate on this key success factor to prosper in the marketplace. By paying close attention to the efficiency and effectiveness of manufacturing fireworks, companies can become financially and competitively successfully.
In this case, I would take the optimistic point of view to recommend Jerry Yu on truly investing in a fireworks factory that was owned by a village. With government intervention in regulating prices and opening distribution channels for increased promotion of Liuyang fireworks, the industry would begin to grow and the profit margin would start to flourish. As opposed to prior gun ho unplanned strategies which leveled the profit margin and the quality of the product, Mr. Yu can realize a competitive advantage by integrating the proper strategies with R&D to the current market conditions; and, open the doors to profitability in the export market as well as the domestic market. I have personally been enlightened since a child by firecrackers and fireworks, and nothing is more fascinating than to go to an amusement park like Fiesta Texas and experiencing the special effects associated with fireworks, lasers, animated cartoon characters, and musical accompaniments being displayed at night by the side of the mountain. With this in mind, fireworks will never cease to exist and will continue to be a great spectacle on special occasions like the fourth of July and other amusement and sporting events. In short, the fireworks industry will continue to flourish and grow for scores of years. With the right strategies, Mr. Yu can certainly cash in on a very formidable industry the fireworks will continue to be.
The strategy options that a new entrant should consider are actions and approaches that define how the company will manage R&D, production, sales and marketing, and finance. With this in mind, the company can better allocate its efforts into future growth and prosperity while enjoying a slow but gradual increase in profit margins. Also, a new competitor should have strategies in position for adaptive reactions to changing circumstances from initiatives to out compete rivals to defensives to guard against threats to the company s well being. In addition, strategic alliances and collaborative partnerships or mergers should be considered to better improve the strength and power of a newcomer should the need arise.