Ruihua Jiang wrote this case under the supervision of Professor Paul W. Beamish solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail email@example.com. Copyright © 2011, Richard Ivey School of Business Foundation Version: 2011-09-21 In February 2009, Jerry Yu was spending the Chinese New Year holidays in Liuyang (lee-ou-yang), a city known as “the home of firecrackers and fireworks,” located in Hunan Province in China. Jerry was an ABC (America-Born-Chinese). With an MBA, he was running a small family-owned chain of gift stores in Brooklyn, New York. Liuyang was his mother’s hometown. During his visit, his relatives invited him to invest in a fireworks factory that was owned by a village. Mr. Yu had been impressed by the extravagant fireworks shows he had seen during the festival; however, he wanted to assess how attractive the Chinese fireworks industry was before he even looked at the financial details of the factory. HISTORY OF FIREWORKS AND FIRECRACKERS
Fireworks referred to any devices designed to produce visual or audible effects through combustion or explosion. The art of making fireworks was formally known as pyrotechnics. Firecrackers were a specific kind of fireworks, usually in the form of a noisemaking cylinder. Firecrackers were often strung together and fused consecutively, a staple of Chinese New Year celebrations, weddings, grand openings, births, deaths and other ceremonial occasions.
The main ingredients of fireworks had remained almost the same over the past thousand years: 75 parts-byweight potassium nitrate, 15 parts charcoal and 10 parts sulfur. It burned briskly when lighted, but did not erupt or make any noise. When it was found that a projectile could be thrust out of a barrel by keeping the powder at one end and igniting it, black powder became known as gunpowder. Today, smokeless powder has replaced black powder as the propellant in modern weaponry, but black powder remains a main ingredient in fireworks, both as a propellant and as a bursting charge. It was generally believed that the Chinese were the first makers of fireworks. The Chinese made war rockets and explosives as early as the sixth century. One legend said that a Chinese cook, while toiling in a field kitchen, happened to mix together sulfur, charcoal and saltpetre, and noticed that the pile burned with a combustible force when ignited. He further discovered that when these ingredients were enclosed in a length of bamboo sealed at both ends, it would explode rather than burn, producing a loud crack. This was the origin of firecrackers. In fact, the Chinese word for firecrackers — bao-zhu — literally means “exploded bamboo.”
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The loud reports and burning fires of firecrackers and fireworks were found to be perfect for frightening off evil spirits and celebrating good news at various occasions. For more than a thousand years, the Chinese had been seeing off past years and welcoming in new ones by firing firecrackers. Fireworks made their way first to Arabia in the seventh century, then to Europe sometime in the middle of the 13th century. By the 15th century, fireworks were widely used for religious festivals and public entertainment. Most of the early pyrotechnicians in Europe were...