Chinese Fireworks - to Invest or Not to Invest

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Question 1: Is the fireworks industry a “sunset” industry or still worth being in for the long run? Answer: The fireworks industry is certainly a “sunset” industry and it is not worth to be in this industry for the long run. Following are the reasons that would solidify this claim: Firstly, this industry and the use of fireworks are highly regulated across the globe. For example: Canadian market is virtually closed to Chinese fireworks due to its regulations pertaining to health and safety issues. Although Europe and the US have comparatively less stringent regulations but growing concerns over environmental pollution and safety of human life and property could lead to increase in uncertainties revolving around government regulations and that hampers the growth of this industry. Secondly, Fireworks are facing tough competition from substitutes known as “make-believe firecrackers” that are now being used at weddings and grand openings where earlier fireworks were used. New technologies such as laser beams combined with sound effects are also substituting fireworks. Also, in recent years there has been a sharp rise in the number of fireworks manufacturers who all produce undifferentiated products and pricing of these products is the sole competitive criteria for the manufacturers. Because the fireworks manufacturers often work on limited profitability there is no added incentive for new research and development of new products and manufacturing technologies. Hence, fireworks on the whole lose out to new and attractive substitutes like laser beams. No doubt there is an optimistic view as well that suggests that fireworks are here to stay and the industry could grow further but given the current of market conditions like strict regulations, increased competition because of various factors, unfavorable trading practices like lack of respect for business contracts and no investment in research and development makes the industry very unfavorable for investing and it is...
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