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turing plants in China. India also faces threat from China in terms of technolog
y adoption, which allows China to process diamonds at a more competitive price.
Predominance of the US market
The Indian gems and jewellery sector is pre-dominently dependent on the US marke
ts, which is its top export destination. The growth of gems and jewellery sector
is heavily dependent on the growth of demand in the US market. However, the rec
ent appreciation of the rupee vis--vis the US dollar and a slowdown of the US eco
nomy have aggravated the concerns for the sector. All these factors necessitate
India s venture into other geographical locations. During FY07, the exports to the
US market registered a growth of 14% over exports of FY06; however, owing to th
e slowdown in the US economy, the exports grew only 1.15% in FY08 over the previ
ous year. In the current situation the heavy dependence on the US market has aff
ected the exporters as they are facing a drop in orders and delayed payments.
Exchange Rate/Currency Risk
The gems and jewellery sector is affected by the rupee/dollar exchange rate beca
use it is export-oriented. Any volatility in the exchange rates affects the marg
ins of the players. For instance, the recent appreciation in the rupee against t
he dollar had made the exports of gems and jewellery less competitive in its key
export destinations.
High Level of Inventories
As the gems and jewellery sector is highly dependent on imports for its raw mate
rials, the players have to maintain a high level of inventory. However, maintain
ing this inventory becomes difficult for the players during the slack season, as
it carries inventory price risk. For instance, due to the current recessionary
trends, the demand slumped and inventory piled up much to the chagrin of the pla
yers.
Decreasing Diamond Reserves
The supply of rough diamonds is expected to fall in the near future as the diamo
nd reserves are decreasing. There has been no major diamond reserve discovery si
nce 2003, when reserves were last discovered in the Diavik Diamond Mine in Canad
a. The reduced supply will push up the prices of rough diamonds, which will furt
her put pressure on margins. Future supply levels are largely dependent on the i
ndustry s ability to identify new diamond deposits.
Competition from Other Luxury Goods
With the increase in disposable income and the change in standard of living, the
demand for luxury goods such as perfumes, consumer electronics, leather, automo
bile, gadgets etc are also increasing. The gems and jewellery sector is experien
cing competition from these luxury goods, which is eating into the market share
of the sector.
Beneficiation in Mining Countries
India is facing a threat from the emerging cutting and polishing centres in the
diamond-producing countries such as South Africa, Ghana, Angola, Botswana, Namib
ia etc. The local government is increasingly pressurising the African countries
for processing locally-mined materials such as diamonds within the country itsel
f to increase earnings through value addition to the vast natural resources that
these countries possess. South Africa has launched a draft Beneficiation Strate
gy for the minerals industry of South Africa in March 2009. The newly-formed Afr
ican Diamond Producers Association (ADPA) is advocating establishing a joint pol
icy that would support beneficiation across Africa. This could lead to fewer rou
gh goods being made available on the open market and in creating a threat to the
existing diamond processing centres such as India, as new processing centres co
mes up.
Global Economic Slowdown
The global economic slowdown has hit the Indian gems and jewellery sector hard.
As the sector was primarily dependent on exports to the US and European countrie
s, the meltdown in these countries affected the gems and jewellery sector to a g
reat extent. The players faced issues relating to inventory build-up and liquidi
ty pressure. A number of diamond units in Gujarat were shut down that rendered t
housands of workers jobless. Further, the bank finance, which was largely in dol
lar terms, also faced a setback due to foreign exchange rate fluctuations. This
further added to the woes of the players who were struggling to come out of the
global recession.
Even though the sector is in the recovery mode, owing to a gradual recovery of g
lobal markets, the credit cycle of the sector has changed drastically. The delay
ed payments from customers have raised the interest outflows for the companies.
Synthetic Diamonds
The sector also faces a challenge in the form of integration of synthetic or man
-made diamonds. With the advent of technology, it is difficult to differentiate
between natural and synthetic diamonds. It may so happen that the synthetic diam
onds are passed on as real diamonds and in the long run, this could affect the c
redibility of the sector. Further, as synthetic diamonds are much cheaper and id
entical to the man-made diamonds, these diamonds may find a clientele that is a
substitute to the natural diamond and may end up eating into the market share of
the diamond industry.
Issue of Conflict Diamonds
India is the largest importer of rough diamonds and a leading player in cutting
and polishing of the same, therefore, it runs the risk of dealing with conflict
diamonds. Conflict diamonds are those that are mined illegally in African countr
ies such as Angola, Liberia, Sierra Leone and the Democratic Republic of Congo t
o fund illegal military wars. In spite of the KP certification, there are issues
related to fake KP certificate. These fake certificates put diamond importing c
ountries at a risk of dealing in conflict diamonds.
Strategies to overcome those challengesThe following recommendations are suggested to tackle the
several problems of gems and jewellery sector of India:
Import of raw material is the basic requirement of the
trade; therefore it is necessary that the rough should be
available in ample quantity, of good quality and at reasonable prices.
Product planning and development is also recommended because our exporters and
manufacturers are requiring changes from time to time as per trends in the globa
l
market.
Manufacturers should emphasize on their comparative
advantage that is created through market structure,
technology, product diversification and others.
The discussion stresses that it is necessary to diversify the
export product portfolio, and concentrate more on other
products of gem and jewellery like pearls, Synthetic
stones, costume/fashion jewellery, non-gold jewellery
and coloured gem stones.
In addition, government should establish more designing institutes of jewellery patterns especially in major cities.
Furthermore, the researcher also subscribes to the view
that to popularize the use of gem and jewellery products
among the various sections of society at the national and
international level, proper publicity measures should be
initiated through media network.
There should be a provision to organize trade fairs and
exhibitions. As the markets has become international,
natural exchange or near orientation of techniques andand scientific methods can
be made.
SWOT ANALYSIS
Strength?
Large integrated diamond and jewellery players and having an internation
al presence.
?
Strong marketing and distribution network. Strong retail presence in Ind
ia and in US.
?
Strong brand equity and broad product range like gitanjali, tanishq.
?
Net worth of the total size of the gems and jewellery sector (both domes
tic and exports) is about Rs 4,15,000 crore. So we can say that it is financiall
y very strong sector.
?
Highly skilled, qualified and motivated employee.
Weaknesses?
There may be conflicts of interest between organized and unorganized pla
yers.
?
As the major raw material requirements need to be imported, companies no
rmally stock huge quantities of inventory resulting high inventory carrying cost
s.
?
Technology is less improved compared to China and Thailand s company.
Opportunities?
New markets in Europe and Latin America.
?
Growing demand in South Asian and Far East countries.
?
Industry moving from a phase of consolidation.
?
Expansion possibilities in lifestyle and luxury products in India like P
latinum jewellery, diamonds etc because increasing disposable income of people.
Threats?
International competition- China, Sri Lanka and Thailand s entry in small
diamond jewellery.
?
Increase in the price of gold and diamonds.
?
Other local competitors. According to the data 97% jewellery sales are b
y family jewellers.
?
Threat from producing nation like S.A. and Russia.