|Wednesday, 18 June 2003|
Gem industry - new initiatives and new attitudes
by S. Wijegoonawardena, Chairman, Gem and Jewellery Research and Training Institute.
The governments are focussing more and more on the development of the gem and jewellery industry in those countries where the industry is being carried out, in view of its significant impact on their economies. In Sri Lanka this industry is the third highest foreign exchange earner for the country and we are exporting gems and jewellery worth about Rs. 8000 million per year.
The ever growing international market for gems and jewellery is so huge and it is estimated to be in the region of US $ 175 billion (Rs 167,000 million a year). Thus our share of the world market is pretty small - not even 5% of the world market. How come that we being a country reputed for best quality (natural) sapphires, have been able to do so little.
The industry in addition to bringing in valuable foreign exchange; generates significant wealth and employment opportunities for the country. Hence it is imperative that the planners of the industry seriously study and examine the reasons why we are lagging behind. Understanding the reasons for our failure to tap the potential of this industry and what strategies should be followed to develop it on the correct lines, and also pursuing those strategies vigorously could lead to a significant expansion of the industry and achievement of our overall targets.
In this scenario, the initiative that is being taken by the Ministry of Enterprise Development, Industrial Policy and Investment Promotion is a major step in the right direction to satisfy the above need. A diagnostic study/SWOT analysis has been carried out by a task force comprising the representatives of the major stakeholders of the gem and jewellery sector. And a series of proposals and an action plan has been formulated under the guidance of Minister Prof. G. L. Peiris, the Minister-in-charge of the subject. The strategic plan aimed at establishing S.L. as the sapphire capital of the world envisages implementing 3 major strategies, namely -
i. A manufacturing strategy, which includes in the main, establishing new gem and jewellery production units and expansion of existing units.
ii. Branding and repositioning strategy to distinguish Sri Lanka products
iii. Support/hub strategy to provide the support services for achievement of the above.
The vision of the plan is synonymous with the Government concept of regaining Sri Lanka. For centuries Sri Lanka was well known for its quality sapphires and some trading countries even sold their stones under the name of Sri Lankan products. Even recently it was reported that dealers sold their deep blue stone of inferior quality as Sri Lanka sapphires in Australia.
And we have lost our position in the world market partly due to these efforts of errant traders and partly due to the discovery of new gem deposits of sapphires and rubies in certain parts of the world. Discoveries in Brazil (Paraiba Tourmaline), Tanzania, Madagaskar and Kashmir (Particadery Blue Sapphire), have changed the gemstone industry in the world, Sri Lanka suffering a setback in the process.
The international market for gems and jewellery is ever growing and it is envisaged that the value of gems and jewellery sold in the market was Rs. 170, 000 million in 2003. The principal export markets are USA, Japan, Italy, UK, Germany and France. The leading manufacturing bases at present are China, Hong Kong, India, Thailand, Spain and Turkey. The principal markets of our gemstones are the USA, Japan, Thailand, Hong Kong, Switzerland, France, S'pore and the United Kingdom.
The industry has developed in leaps and bounds in 3 Asian countries whose value of exports taken together has exceeded US$ 4000 million in 2001. Their growth rate in the recent past has been significant. Growth rate of Thailand during last 10 years has been 3500% , India 2313% and Hong Kong 553%.
The demand for gems and jewellery in Japan has declined during last couple of years. Japan losing its position to USA as the leading buyer in the world. Meantime China and India with their huge populations are becoming substantially large jewellery markets.
This has been due to the increasing buying power of the people in those countries. The growth has been associated with increased purchase of diamond jewellery by the people who have buying power.
The increased sales in these countries was also the result of aggressive marketing campaigns. For example the cost of market promotion programmes carried out in India and China for diamond jewellery by a multinational group ran into a couple of millions of US dollars.
It is imperative that any attempt at enhancing production or the expansion of the trade should be accompanied by an effective marketing programme. It has been observed that the success of countries such as Hong Kong, India has been to a great extent due to the proactive marketing strategies adopted by the trade.
It is well-known that the knowledge about Sri Lanka products is very limited in some western markets. Couple of Sri Lanka traders who had brief encounters in the USA markets expressed the view that the name of our country "Sri Lanka" is hardly known in that country, not to mention the knowledge of our products.
Therefore there is a lot to be done towards making the buyers in these markets aware of our country and creating a demand for our products.
Some countries have used this as an effective instrument to boost their trade in those countries where the offices are located. These offices play an important role in that they feed the trade in their own countries with necessary information to guide the production, such as, data regarding customer choice, materials, designs, price levels and modern trends. This understanding about the markets give valuable guidance for product development and goes a long way in increasing the exports. It is reported that many Indian exporters operate export offices in major markets (Refer JNA-March 2003) and have greatly benefited in their efforts to expand the trade. One strategy adopted by the aforesaid countries was the increased presence of jewellery exporters at international exhibitions and trade fairs. The Jewellery News Asia (JNA) reports that, "Some companies exhibited in more than 20 shows a year.
The Hong Kong pavilion in many international fairs had grown into significant size becoming the largest or 2nd largest national pavilion. Lately India appears to be following the same strategy, has increased participation in trade shows. At the last "Facets" international exhibition held in Colombo in September 2002, the Indian pavilion attracted the attention of many visitors.
Trade coordination offices for Sri Lanka - Except for a couple of companies, Sri Lankan traders have not been able to establish trade offices or representation overseas mainly due to resource constraints. Bridging this gap can be achieved by establishing a couple of trade coordination offices in appropriate cities with Government assistance. The offices can be designed in such a manner to cater to the traders in common who will in turn meet the cost of services offered to them.
The writer explained in a feature article in CDN on 25-11-1995 the benefits that can be achieved through TV advertising. That year a Home Shopping Network (HSN) through a home shopping programme in Florida (USA) recorded unprecedented sales amounting to US$1 million within a matter of one hour. Couple of other TV shopping networks have used the medium very effectively to boost jewellery sales in that country and many other countries appear to have followed the example.
In Sri Lanka, a couple of companies using TV do so only to advertise the beauty of their products. There manufacturers have not successfully used the main advantage of a TV programme of giving the consumers the required information, the result of which is the creation of awareness and confidence in the minds of customers, thereby effectively promoting the product.
Internet is now being widely used by many companies to give information about their industry and the products.
Above comments and suggestions are made to emphasise the need for an effective marketing campaign and that an attempt to expand the trade may not bring desired result without an effective marketing programme.
Designs for respective markets
In the manufacture and sale of jewellery the need for an attractive design cannot be underestimated. If one is looking forward to increasing his market share in any given country he must manufacture designs acceptable to that market. Understanding the market through market research will be very necessary and useful in developing popular designs to a given market.
In the absence of market research facilities the traders could even buy designs developed by expert designers who are familiar with the market. Some traders in India are reported to be buying new designs from Hong Kong on a continuous basis for manufacture of jewellery to foreign buyers. This is an important reason for the successes of Indian trade in the competitive market.
In Sri Lanka, although the traders know the importance of designs for jewellery they have very little resources for design development or to purchase innovative designs. We hardly hear of any manufacturer buying a design from a reputed foreign designer at a substantial cost.
USAID - TCI consultancy, report regarding "Sapphire brand strategy" (produced by Jennifer Henricus - J. E. Austin Consultancy) which sought to formulate an effective strategy to life the gem and jewellery industry in Sri Lanka suggests that, "The best way to add value to these unique stones is to put them into beautiful high value designer jewellery, designed by the world top design houses and produced by the manufacturer in Sri Lanka."
Thus to increase our market share in a competitive market it is necessary that we procure suitable designs from outside at least until our design capabilities are developed to a satisfactory level.
It is also necessary that the traders take note of the new trends in the markets, and developments which have taken place in the industry.
Pearls - The world production of pearls has increased sharply over the years to 4.5 metric tons in 2002, from mere 350 kgs. in 1980. The use of pearl jewellery has offered competition to low value products in the gem industry on one hand and the traders have shown concern about over-production of pearls on the other.
Gemstone enhancement:- Bulk diffusion of sapphires, in Thailand - a controversial new method of treatment created some confusion in the market. Similarly high temperature treated diamonds was a matter of great concern to the trade. The two developments are seen as a severe threat to the natural stone industry. Particularly bulk diffusions in Thailand sans transparency and full disclosures resulted in beginning to lose confidence of customers in the gem industry, which in particular affected the natural gemstone trade.
Immense pressure was brought to bear on Thai traders by the international gemstone community for full disclosure of the treatment process which is given prominence at present.
Some countries introduced liberalisation measures to promote the industry, while others who had introduced some measures earlier took steps for further liberalisation. For example, in March 2003 Thailand removed VAT on rough stones, while China liberalised gold trade, allowing anybody to manufacture, distribute and retail products out of gold.
As stated earlier, USA remained the principal market for our gem exports. It is the principal gem and jewellery market for several Asian countries, including Hong Kong, Thailand, India etc. In the year 2001, 29% of our gem exports went to USA. Japan being our second best market, bought nearly 15% of our gems exported in 2001. Thailand and Hong Kong took 3rd, and 4th places respectively in terms of value of S.L gems bought in the same year.
Switzerland and France occupied 5th and 6th places of the export markets in terms of value of exports, suggesting that European countries have also become potential gem markets. With the economic progress being made in the European Union, Asian manufacturers such as Kong Kong, India have already begun their promotion programmes in this region.
An analysis of the varieties of gems exported by Sri Lanka offers a very exciting picture. Out of the varieties of gems exported from Sri Lanka in 2002, Blue Sapphire accounts for nearly 50% of the export. The quantity exported is about 165,000 carats of Blue Sapphire worth Rs. 2520 million. Of this, purchases by USA amounts to Rs. 884 million (in 2001).
Cats Eye and Alexandrite are 2 other popular varieties of precious stones which recorded exports worth Rs. 486 million, Rs. 365 million respectively.
In regard to jewellery our market share is very small. The value of jewellery we exported in 2002, was Rs. 1048 million. This includes the value of diamond jewellery as well. The value of all gems exported this year was Rs. 5878 million, inclusive of value of Geuda rough stones. If these stones have been exported after being set in jewellery, the value would have been substantially high.
Hence in conclusion it is very pertinent to draw attention of all actors in the gem and jewellery industry and the trade i.e. miners, heat treaters, (gems and diamond cutters), lapidaries, jewellery manufacturers and exporters who look forward to expand and develop the trade to the fact that, value addition should be the objective.
Value addition all the way down the industry chain from the mine to the consumer of jewellery, is the need of our hour, instead of limiting it to the sale of loose stones.
This view has also been expressed in the USAID funded consultancy report on the gem industry.
Produced by Lake House