Diamond Industry
Diamond Industry
In partial fulfillment of the requirements of the Summer Internship of Post Graduate Diploma in Business Management Through Rizvi Academy of Management
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INDEX
Sr.No.
1) 2) 3)
Pg NO.
3-4 4-5 6-10
4) 5)
10-11 12-13
6)
14-19
7)
20-21
8)
20-21
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Executive Summary:
The Indian diamond industry thrives in the atmosphere of secrecy and informality that envelops the diamond trade and has for long been labelled as an unorganized sector of the economy. However, it resembles a close-knit community composed of thousands of small, medium and large sized CPD (cut and polished diamonds) units and has grown to become one of the highest foreign exchange earners for the country. The industry exports cut and polished diamonds worth US $ 22 billion annually and enjoy a 93 % market share of the global exports of cut and polished diamond pieces. An in-depth study of the industry reveals that the so called unorganized sector is in fact highly organized and has great potential to offer useful insights to the field of management in terms of new forms of organizing, networking, business processing and for doing international business. It includes insights about the remarkable rise, growth and the unique working of the industry The Indian diamond industry received significant attention in the media recently because about a hundred thousand workers lost their jobs in Nov 2008 when panic followed due to the impact of recession. While we acknowledge the sensitivity and gravity of the issues and the need of reforms to address them, this paper is an attempt to draw useful insights for the field of management with a balanced perspective on the industry. Due to the manner in which the Indian diamond industry has organized itself and grown, coupled with the kind of signals of recovery which have followed after the severe recession, we believe that this success story of long waits to be documented in the business management literature. Diamond is an 'export-led' and 'value added' industry. The industry depends entirely on imported raw material, namely, rough diamonds, generally referred to in trade parlance as roughs. The diamond exporters have developed a global outlook, as theirs is an export-oriented and importdependent industry. In order to excel, they have to overcome necessarily competition from manufacturing and cutting centers in other countries. India is the biggest diamond cutting and polishing centre in the world. Our study revealed that a few enterprising Indians who went to Antwerp agreed to bring to India the left-overs of diamond rough for polishing. These were very small pieces of diamonds called as grains of sand in diamond terminology. The entrepreneurs from Gujarat in India, utilized this opportunity to develop indigenous methods of cutting and polishing of diamonds in small factories (CPD units). The finished product, the
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processed diamond was then exported to the globally centralized trading market which existed in Antwerp. This was like outsourcing of low-valued diamond rough to an under developed country in those times. The prices of rough diamonds have increased sharply in the recent times pushing down margins further. Companies have started to look at more technological advance process to reduce manufacturing cost, predict future trends & understand supplier buyer demand. Thus this project will help us to understand how much technology has penetrated in the unorganized sector & how much more can be done to improve it further.
Introduction
From time immemorial, India is very well known in the world as the birthplace for diamonds. It has remained the home of diamonds for over two millenniums. It is difficult to trace the origin of diamonds but history says, that in the remote past, diamonds were mined only in India. Diamond production inIndia can be traced back to almost 8th century B.C. India in fact, remained undisputed leader till 18th century when Brazilian fields were discovered in 1725 followed by emergence of South Africa, Russia and Australia. World famous diamonds such as the Koh-i-noor, The Orloff, The Great Mogul, The Sancy Hope, Florentine, Nassak, Regent, Pitli and the Nizam etc. were produces of India and many of these world famous diamonds were recovered from India in 16th & 17th centuries. It is also said that, India was the sole producer and supplier of diamonds to the world before the discovery of Brazilian fields till the 17th century and the later emergence of South Africa, Russia and Australia, as major producers. The success story of the Indian diamond industry is unique. From humble beginnings, India rose to become the world leader in a span of just two decades. No other export segment of the country has such a significant share in the world market. It is rightly said, that India has indeed 'democratised' diamonds, which in the past were the exclusive preserve of only the rich and famous. This achievement of the Indian diamond industry was possible only due to the fortuitous combination of the manufacturing skills of the Indian workforce and the untiring and unflagging efforts of the Indian diamantaires, supported by progressive Government policies.
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But how did the Indian diamantaires get the diamonds? The answer to this query
lies in the business acumen and core competency of the early Indian diamantaires who migrated from small towns of Gujarat (specifically Palanpur in Surat and other nearby areas) to Antwerpen (in Belgium) which was then the diamond hub of the world, a market dominated by the orthodox Jews of Israel who claimed expertise in the cutting and processing of large diamonds (sized more than two carats, 1 carat =0.2 grams). The visionary Indian diamantaires started their trade with the cutting and manufacturing of diamonds of very small sizes, which nobody was ready to process (less than two carats, especially one carat and lesser) and gradually made it their core competency, a niche field in which no other country had the mastery in; and coupled with the lowest manufacturing and labour costs worldwide, India assumed greater market presence in the global diamond industry. The area of study of family owned businesses derives its importance from the huge conglomerate of family run organizations which operate in the diamond industry since many generations (not only in India, but all the diamond traders globally are family run businesses); the analysis of which would help to internalize the attributes that have helped them achieve the stupendous growth. Family-owned businesses play a crucial role in the economy of most countries. Much of the retail trade, the small-scale industry, and the service sector is run by family businesses. Worldwide, family-managed businesses employ half the world's workforce and generate well over half the world's GDP. In the United States, 24 million family businesses employ 62 per cent of the workforce and account for 64 per cent of the GDP. In India, it is estimated that 95 per cent of the registered firms are family businesses.
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Industry Overview
The Global Spread
The diamond industry is truly global. The raw material which is the diamond rough is not mined in India but in different pockets around the world as in Africa, Russia, Australia and Canada. This is imported by different countries where it is cut and polished. The global percentage share by value, of regions and countries which produce rough diamonds and of those which import this rough in 2009. The finished product has since long been traded mostly in Antwerp, Belgium, and exported to different parts of the world, the major consumer being the USA.
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The Rapaport Diamond Report is the primary first-hand source of diamond pricing information. Rapaport sets the standard for establishing inter-dealer prices in the diamond market. Buy and sell better diamonds at better prices. Buyers and sellers deal directly with each other without any middleman commissions. RapNet connects all players in the diamond industry from primary cutters to downstream retailers. RapNet is fully supported by the Rapaport Group. Membership includes direct trading privileges, real-time access to Rapaport prices, news and analysis, subscription to the Rapaport .
Benefits:
Real-time 24/7 access to the global diamond markets. The best diamonds at the best prices from the best suppliers. Buyers and sellers deal direct. No commissions. Real time patented Best PriceGrid technology provides the best price information in the world. Customized search engines that let you select exactly the type of diamonds you wish to buy. Diamond Listing Service allows sellers to control who gets their data and allows sellers qualified buyers to efficiently download diamond listings to their websites. Online real-time access to Rapaport prices, news and analysis. Weekly online access to Rapaport Price List updates.
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RapNet is the global diamond market most suitable for professional diamond dealers who are
experts familiar with traditional terms and conditions of the international diamond markets. It is the ideal market for buyers and sellers who wish to deal directly with each other. RapNet provides excellent opportunities for buyers and sellers to get to know each other and build long term direct relationships. Sellers post electronic listings of diamonds for sale by uploading files to the RapNet database. Files with sell listings can be uploaded at any time in a variety of ways. RapNet buyers search for diamonds on the internet. The search engines allow buyers to easily specify what they are looking for and obtain listings of diamonds that can be sorted by the best prices. Buyers can also post specific buy requests which sellers can respond to with offers of diamonds for sale. Information is the key to your success in the diamond industry. Pricing, availability and market information provides jewelers, dealers and manufacturers with a critical edge in the complex and competitive diamond, gem and jewelry marketplace. The Rapaport Diamond Report provides you with all the information you need to buy and sell better. Rapaport is your key to increased efficiency and higher profits. Rapaport tells you what is really going on in the diamond industry and what you can do about it. We identify the challenges and the opportunities. The Rapaport Diamond Report is the primary source of diamond pricing and market information for the diamond industry. It is the international standard used to establish prices in all the major cutting centers and dealer markets.
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The Second C: Color - A diamond color is measured from D (colorless) - Z (light yellow tint) color grade. We recommend to stay above I color grade for an exceptional diamond color. People think that diamonds as colorless but true colorless diamonds are extremely rare, in fact diamonds used in jewelry are nearly colorless with a small tint of yellow or brown.
The Third C: Clarity - Diamond clarity is a measure of a diamond's purity. Imperfections called inclusions or pique are measured from the highest grade, Internally Flawless (IF), Very Very Slightly Included (VVS1 or VVS2), Very Slightly Included (VS1 or VS2), Slightly Included (SI1 - SI3), Included (I1 - I3), to the lowest grade.
The Fourth C: Cut - This refers to the proportions and angles of a diamond's cut. Based on tested scientific formulas that will give the best brilliance of the round diamond. A very well cut diamond will reflect light internally from one facet to another, thus dispersing and reflecting light like several mirrors through the top of the diamond. This will result in a brilliant display of fire bringing a well cut diamond higher on the Diamond Quality Pyramid.
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DIAMOND MINE / DIAMOND PRODUCER RFID tags applied to primary packaging used to track inventory. Sorting automated and simultaneous confirmation of diamonds received full tracking of inventory from primary packaging through sorting to secondary article packaging. Inventory control of each article immediate inventory control by customer. Viewing record of articles provided to respective customers reconciliation of what has been taken and/or returned by customer following Selection
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MANUFACTURER/DEALER Inventory management automated and instantaneous stock counts can occur as and when required identification of all diamond parcels present record all inventory numbers without the need for manual processes complete and up to date inventory list can be generated as required Identification inventory numbers can be read immediately once the diamonds are placed onto a customized RFID reader Retrieval identification of specific parcels is achieved by a handheld reader
DIAMOND GRADING LABORATORY Automated certificate database full accountability and visibility throughout the supply chain real time track and trace of goods avoidance of clerical errors, and reducing time and cost. Improved billing increased efficiency of processes. Provide non-manual solution for their clients obtaining and importing all the valuable information from the GIA certificate at the click of a button image of the GIA certificate that can be provided to customers allow full value of the GIA certificate to be realized, thus increasing its utility and indispensability MANUFACTURER Inventory management automated and instantaneous stock counts can occur as and when required identification of all diamond parcels present record all inventory numbers without the need for manual processes complete and up to date inventory list can be generated as required Identification inventory numbers can be read immediately once the diamonds are placed onto a customized RFID reader Retrieval identification of specific parcels is achieved by a handheld reader.
POLISHED DEALER/RETAILER Inventory control and management due to stock turn of 1.0 1.2, inventory management is essential. Display optimization and real time store mapping due to display driven sales generation due to absolute requirement to maximise sales/ invested and sales/metre allocated to products. Complete stock protection due to high value goods subject to theft. Customer interaction instantaneous product information to increase conversation rate
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Started in a very small way, the Indian diamond industry has grown multifold since the time it has started exporting. Presented below is a table showing growth of exports over the last 35 years both in terms of caratage and in terms of value) Also grown has the number of countries India has been exporting to; today India exports cut and polished diamonds to almost 20 countries worldwide (refer appendix for the latest export figures), with a growth of 171% over the last ten years. The industry totally employs 13,00,000 people and coupled with its extensive network and global presence; the Indian diamond industry is all set to become a global leader.
Export Year 1970-1971 1975-1976 1980-1981 1985-1986 1990-1991 1995-1996 2000-2001 Cts Rs. US $
[Millions] [Crores] [Millions] 0.53 1.00 4.15 5.41 8.34 19.21 29.91 28.00 99.00 590.65 38.00 118.00 703.24
1,344.25 1,064.75 4,738.71 2,641.01 15,500.98 4,661.90 28,041.80 6,186.70 50,073.37 11,181.48
2004-2005 [Prov.]47.95
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Present Status:
Despite increase in rough diamond prices over the last year and also issues such as transfer pricing, excise duty on branded jewellery and the newly introduced value added tax, the diamond industry has performed very well, especially in the jewellery sector which is the future of the industry.
Exports of Cut and Polished diamonds form 14% of the total Indias foreign exports (US$ 11.2 bn out of US$ 78 bn), total gem & jewellery exports US$ 15.7 bn (2004-05)
y y y y y y y y
Worlds largest diamond cutting and processing center: Estimated workforce 800,000 skilled craftsmen 60% global market share by volume and 80% by volume 94% of global workers in diamond are Indians 11 out of every 12 diamonds polished pass through Indian hands 50 banks provide US$ 3 bn credit Manufacturing and sales offices worldwide Diversified into jewellery manufacturing since 1990 (Diamond Jewellery market inclusive of exports: Rs. 13,000 crores approx.)
Future Trends in the Indian Diamond Industry With the exponential growth the industry has achieved over the past years, the future is also equally bright for the Indian diamond industry. The global presence and recognition for Indian diamantaires over the years has been amazing, coupled with the positive vibes the Indian economy (GDP growth, increase in awareness levels) is expecting from the future; India is surely tending to become the global headquarters for diamond and jewellery.
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Some of the emerging trends that can be seen for the Indian diamond industry: y Further increases in trading activity, foreign export target for 2007 =US$ 20 bn
o Infrastructure development: 19 more special economic zones (SEZ) approved (one SEZ specially for Surat in Gujarat), this would greatly facilitate export o Setting up of the Bharat Diamond Bourse (BDB) to centrally locate diamond trading operations and would greatly benefit the Indian industry o Diversifying into jewellery using state-of-the art manufacturing facilities in export/economic zones, special economic zones to provide one-window clearance o Great growth curve for the branded diamond jewellery segment, coupled with the growing levels of consumer awareness; the branded segment is sure to grow; Indias jewellery market is the worlds fastest growing market o Value-addition capability and investment in technology would give Indian diamantaires the real edge o Joint ventures / Alliances on the rise; indicating a shrink in the distribution chain and Indian players have started to dominate o Extensive network of offices worldwide: (US = 1250, Belgium=325, Bangkok=325, HK=250, Japan=75) o Changing retail setup, emergence of malls, superstores, hyper markets and branded stores, to benefit the diamond industry o Diamond mining to be started in India also (Central and Southern regions)
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Besides the emerging indicators; the Indian diamond industry also would need to prepare itself for some challenges that might also emerge in the future:
o Greater use of Information technology, the current use if very limited compared to the other industries o Need to move from production/ manufacturing orientation to a marketing led business o Emphasis on operational and ethical standards to build world class organizations; more investment in employees required, greater abiding to the DTCs Best Practice Principals (BPP) o Co-ordination amongst all stakeholders producer, manufactures and retailers to protect and increase diamond industry reach o Forward integration into brand building (B2C segment) very much required for all leading diamantaires
y
Reduction in credit period, Indian diamantaires offer the largest credit period in t the world to their buyers
o Growing demands of the single-channel supplier (the DTC), increasing rough prices o Saturation of the US & European retail industries, newer markets need to be tapped o Productivity levels in diamond processing need to be increased as newer players like Sri Lanka and Thailand are also entering in the small carat segment o Investment into greater use of technology, better jewellery designs and into research and development (of gaining expertise in cutting bigger diamonds as well)
The India diamond industry if able to overcome the above challenges would surely be a force to reckon with.
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