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9B11M006THECHINESEFIREWORKSINDUSTRYRuihuaJiangwrotethiscaseunderthesupervisionofProfessorPaulW.Beamishsolelytoprovidematerialforclassdiscussion.Theauthorsdonotintendtoillustrateeithereffectiveorineffectivehandlingofamanagerialsituation.Theauthorsmayhavedisguisedcertainnamesandotheridentifyinginformationtoprotectconfidentiality.Thispublicationmaynotbetransmitted,photocopied,digitizedorotherwisereproducedinanyformorbyanymeanswithoutthepermissionofthecopyrightholder.Reproductionofthismaterialisnotcoveredunderauthorizationbyanyreproductionrightsorganization.Toordercopiesorrequestpermissiontoreproducematerials,contactIveyPublishing,IveyBusinessSchool,WesternUniversity,London,Ontario,Canada,N6G0N1;(t)519.661.3208;(e)cases@ivey.ca;©2011,RichardIveySchoolofBusinessFoundationVersion:2017-05-04InFebruary2009,JerryYuwasspendingtheChineseNewYearholidaysinLiuyang(lee-ou-yang),acityknownas“thehomeoffirecrackersandfireworks,”locatedinHunanProvinceinChina.JerrywasanABC(America-BornChinese).WithanMBA,hewasrunningasmallfamily-ownedchainofgiftstoresinBrooklyn,NewYork.Liuyangwashismother’shometown.Duringhisvisit,hisrelativesinvitedhimtoinvestinafireworksfactorythatwasownedbyavillage.Mr.Yuhadbeenimpressedbytheextravagantfireworksshowshehadseenduringthefestival;however,hewantedtoassesshowattractivetheChinesefireworksindustrywasbeforeheevenlookedatthefinancialdetailsofthefactory.HISTORYOFFIREWORKSANDFIRECRACKERSFireworksreferredtoanydevicesdesignedtoproducevisualoraudibleeffectsthroughcombustionorexplosion.Theartofmakingfireworkswasformallyknownaspyrotechnics.Firecrackerswereaspecifickindoffireworks,usuallyintheformofanoisemakingcylinder.Firecrackerswereoftenstrungtogetherandfusedconsecutively,astapleofChineseNewYearcelebrations,weddings,grandopenings,births,deathsandotherceremonialoccasions.Themainingredientsoffireworkshadremainedalmostthesameoverthepastthousandyears:75parts-by-weightpotassiumnitrate,15partscharcoaland10partssulfur.Itburnedbrisklywhenlighted,butdidnoteruptormakeanynoise.Whenitwasfoundthataprojectilecouldbethrustoutofabarrelbykeepingthepowderatoneendandignitingit,blackpowderbecameknownasgunpowder.Today,smokelesspowderhasreplacedblackpowderasthepropellantinmodernweaponry,butblackpowderremainsamainingredientinfireworks,bothasapropellantandasaburstingcharge.ItwasgenerallybelievedthattheChinesewerethefirstmakersoffireworks.TheChinesemadewarrocketsandexplosivesasearlyasthesixthcentury.OnelegendsaidthataChinesecook,whiletoilinginafieldkitchen,happenedtomixtogethersulfur,charcoalandsaltpetre,andnoticedthatthepileburnedwithacombustibleforcewhenignited.Hefurtherdiscoveredthatwhentheseingredientswereenclosedinalengthofbamboosealedatbothends,itwouldexploderatherthanburn,producingaloudcrack.Thiswastheoriginoffirecrackers.Infact,theChinesewordforfirecrackers—bao-zhu—literallymeans“explodedbamboo.”AuthorizedforuseonlybyyiweiguoinMarcelJoaquinatuniversityofmanitobafromSep13,2017toNov01,2017.Useoutsidetheseparametersisacopyrightviolation.Page29B11M006Theloudreportsandburningfiresoffirecrackersandfireworkswerefoundtobeperfectforfrighteningoffevilspiritsandcelebratinggoodnewsatvariousoccasions.Formorethanathousandyears,theChinesehadbeenseeingoffpastyearsandwelcominginnewonesbyfiringfirecrackers.FireworksmadetheirwayfirsttoArabiaintheseventhcentury,thentoEuropesometimeinthemiddleofthe13thcentury.Bythe15thcentury,fireworkswerewidelyusedforreligiousfestivalsandpublicentertainment.MostoftheearlypyrotechniciansinEuropewereItalians.Eventoday,thebest-knownnamesintheEuropeanandAmericanfireworksindustrywereItalianinorigin.Fromthe16thtothe18thcentury,ItalyandGermanywerethetwobest-knownareasintheEuropeancontinentforfireworksdisplays.In1777,theUnitedStatesusedfireworksinitsfirstIndependenceDaycelebration,andfireworkshavebecomecloselyassociatedwithJulyFourthcelebrationseversince.Upuntilthe1830s,thecolorsoftheearlyfireworkswerelimited,butby2009,thereweresixbasiccolorsusedinfireworks.LIUYANG—THEHOMETOWNOFFIRECRACKERSANDFIREWORKSAccordingtohistoricalrecordsinChina,firecrackersandfireworks“emergedduringtheTangdynasty(618-907AD),flourishedduringtheSongDynasty(960-1279AD),andoriginatedinLiuyang.”Formorethan1,000years,Liuyanghadbeenknownasthe“hometownoffirecrackersandfireworksofChina,”atitlethatwasofficiallyconferredtoLiuyangbytheStateCouncilofChinain1995.Asearlyas1723,Liuyangfireworkswerechosenasofficialtributestotheimperialfamilyandweresoldalloverthecountry.Exportsstartedearly:by1875,firecrackersandfireworkswerebeingshippedtoJapan,Korea,India,Iran,Russia,Australia,England,theU.S.,andothercountries.InChina,thenameLiuyanghadbecomealmostsynonymouswithfirecrackersandfireworks.Liuyang-madefirecrackersandfireworkswonnumerousawardsoveritslonghistoryoffireworksmaking.ThelonghistoryandtraditionhadmadefireworksmorethanjustalivelihoodfortheLiuyangpeople.Almosteverynativepersonintheareaknewsomethingaboutfireworksmaking,orhadactuallymadefirecrackersorfireworksintheirlifetime.Asaresult,Liuyangclaimedanimpressivepoolofskilledlabor.Firec