SRI SHARADA INSTITUTE OF INDIAN MANAGEMENT-RESEARCH

PROJECT ON INTERNATIONAL GEMS AND JEWELLERY BUSINESS

Sri Sharada Institute of Indian Management-Research 7, Institutional Area, Phase-II, Vasant Kunj, New Delhi -110070 Website : www.srisiim.org ( 2010-2012 ) Submitted To: Prof. V.P GUPTA Submitted By: S.Rajalakshmi (20100143) Divya Mishra(20100135) Geetanjali Kumar(20100137)

DECLARATION

I Divya Mishra,S Rajalakshmi and Geetanjali Kumar students of PGDM (2010-12) hereby declare that we have completed this project on International Gems and Jewellery Business The information submitted is true to the best of our knowledge.

S Rajalakshmi Divya Mishra Geetanjali Kumar (PGDM 2010-12)

ACKNOWLEDGEMENT

The International Gems and Jewellery Business has been given to us as final Project (part of the curriculum in PGDM) We have tried our best to present this information as clearly as possible using basic terms that we hope will be comprehended by the widest spectrum of researchers, analysts and students for further studies. We have completed this study under the able guidance and supervision of Prof.V P Gupta .We would have failed in our duty if not acknowledge the esteemed scholarly guidance, assistance and knowledge received from them towards fruitful and timely completion of this work.

CONTENTS
1) Introduction 2) International trade in precious metals, gems and jewellery a) Exports and Imports of Precious Metals & Stones Gold b) Diamond c) Precious Stones 3) Metals, Gems and Status of Precious Jewellery Industry in India a) Gold b) Diamond c) Precious Stones 4) Exports and Imports of Precious Metals and Stones a) Gold b) Diamond c) Precious Stones d) Pearls 5) International Trade in Precious Metals, Gems and Jewellery a) Platinum b) Silver 6) Export and Imports of Jewellery a) Articles of Jewelley b) Articles of natural pearls / cultured pearls, precious stones c) Articles of Imitation Jewellery 7) Select Global Trends 8) Key findings a) Jwellery Retailing & Trading b) Exports c) China factor

9) Looking Ahead a) Diamond Industry b) Jewellery Industry c) Gold / Bullion 10) Other issues 11) Bibliography

INTRODUCTION
Gems and jewellery are being used by the Indians since ages, for both aesthetic, as well as investment purposes. India has the distinction of being one of the first countries to introduce diamonds to the world. The country was also one of the first countries to mine, cut & polish, and trade in diamonds. The two major segments of the gems and jewellery business in India are gold and diamond jewellery. While a predominant portion of gold jewellery manufactured in India is for domestic consumption, a predominant portion of rough, uncut diamonds processed in India are exported either in the form of polished diamonds or in the form of finished diamond jewellery. The gems and jewellery industry has an important role in the Indian economy. With an estimated consumption of 713 tonnes of gold during the year 2008 (including jewellery consumption of 501 tonnes), India is one of the largest consumers of gold in the world.

INTERNATIONAL TRADE IN PRECIOUS METALS, GEMS AND JEWELLERY

Exports and Imports of Precious Metals and Stones Gold The largest exporter of gold in the world in the year 2007 was USA with a share of 19.9% in total world exports, followed by Australia (15.9%), Canada (9.3%), Hong Kong (7.3%) and Peru (7.1%). The worlds largest importers of gold include Switzerland (25.7%), UK (19.6%), USA (8.4%), India (7.5%), and South Africa (4.4%). Diamond Israel (with a share of 19.7%), Belgium (19.6%), India (14.3%), USA (12.8%), and UK (9.1%) were the largest exporters of diamond in the world, in the year 2007. The largest importers of diamonds include:
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USA (17.7%), Belgium (16.2%), India (13.1%), Israel (13%), and Hong Kong (12.9%). India was an exporter as well as an importer of diamonds, with a respective share of14.3% and 13.1% in the world. This may be because, India imports rough diamonds, for value addition, and exports as cut and polished diamonds.

Precious Stones Hong Kong, USA, Switzerland, Thailand and India were among the leading exporters, as well as importers of precious stones (other than diamond) in the world in the year 2007. Hong Kong was the largest exporter of precious stones (other than diamonds) with a share of around 17.1% of the total world exports, and was followed by USA (13.2%), Switzerland (12.7%), Thailand (12.2%), and India (9%). In the case of imports, the leading importers include: USA (26.5%), Hong Kong (14.4%), Switzerland (9.2%), Thailand (7.2%) and India (6.3%). Pearls In the case of Pearls, Hong Kong was the largest exporter, with the exports valued US $ 482.92 million constituting a share of 30.2%, in the world exports of pearls in the year 2007. Japan, China, Australia, and French Polynesia were the other major exporters of pearls. Hong Kong was the largest importer with a share of around 33.2%, followed by Japan (18.3%), USA (15.8%), Germany (4.4%), and Australia (4%). Platinum South Africa, constituting a share of 32.5% was the largest exporter of platinum in the world in the year 2007. UK, USA and Germany were the other major exporters. USA was also a major importer of platinum constituting a share of 24.4% in the world, followed by Japan (19.2%), Germany (12.7%) and UK (8.6%).

METALS, GEMS AND STATUS OF PRECIOUS JEWELLERY INDUSTRY IN INDIA

Gold The total resources of gold in the country, as on April 2005, were estimated at 390.28 million tonnes. Out of these, 19.25 million tones were under the reserve category, and the balance 371.03 million tonnes were under the resources category. Besides, the total resources of gold ore of placer type in the country were estimated at 26.12 million tonnes. Karnataka has the largest known reserves of gold in India followed by Rajasthan and Kerala. Although there have been significant ore resources, Indias gold production has shown a decline over the years. India has been the largest consumer of gold jewellery in recent times, and in the year 2008, the gold consumption in India was estimated to be 501 tonnes, accounting for 23% of world demand. In the third quarter of 2009, the consumption of gold jewellery in India has declined by nearly 37% and the total consumption of gold has declined by around 45% over the same period in the previous year. During the year 2008-09, the export of gold (or jewellery) has witnessed a growth rate of 51.1% over the previous year, from US $ 4.3 billion to US $ 6.5 billion, and the imports had grown by 24.4%, from US $ 17.1 billion to US $21.2 billion. Major source countries for import of raw gold by India include Switzerland, constituting 44.6% of the total imports of raw gold in the year 2008-09, followed by Australia (19.7%), UAE (19.6%) and South

Africa (10.4%). Main export destinations of gold jewellery include UAE, Singapore and Hong Kong. Diamond According to USGS data, diamond production (gem and industrial) in India in the year 2007 was 55 thousand carats and has remained more or less stagnant over the years. As per United Nations Framework Classification (UNFC) system, as on 1.4.2005, India had total resources of around 4.5 million carats, of which 1.2 million carats was reserves. By grades, about 17% of resources are of gem variety, 18% are of industrial variety, while bulk of the resources (65%) is placed under unclassified category. Andhra Pradesh accounts for 40% of diamond resources, followed by Madhya Pradesh (32%), and Chhattisgarh (28%). India imports rough diamonds and process them for value addition and exports. As a result, India is a net exporter under this category in value terms. India exported diamonds valued US $ 14.2 billion during 200708, an increase of 34% over the previous year. During the year 2008-09, the exports of diamonds showed an increase of 10.6%, touching US $ 15.7 billion. Export of crushed industrial diamonds showed a tremendous increase during this period. India imported diamonds valued US $ 7.7 billion in 2007-08; during the year 2008-09, the imports increased by 110% from US $ 7.7 billion to US $ 16.3 billion. In the case of diamond exports, major destinations were: Hong Kong (30.1%), UAE (22.5%), USA (17.6%), Belgium (11.4%), and Israel (5.0%). As regards diamond imports, Hong Kong (27.6%), Belgium (24.4%), UAE (25.6%), UK (6.4%), and USA (4.8%) were the major source countries for India.

Precious stones Although traditional Indian gemologists have identified around 84 precious and semi-precious stones, nine stones, namely: Ruby, Emerald, Pearl, Diamond, Red coral, Zircon, Blue sapphire, Yellow sapphire, and Cats Eye, form the Navratnas or nine gems. India was more an exporter of precious stones than an importer of the same, and the difference between these two being minimal. During 2007-08, the exports of precious stones were US $ 280.8 million, an increase of 6.5% over the previous year, and in the year 2008-09, exports of precious stones Gems and jewellery are being used by the Indians since ages for both its aesthetic as well as investment purposes. India has the distinction of being one of the first countries to introduce diamonds to the world. The country was also one of the first countries to mine, cut & polish, and trade in diamonds. The gems and jewellery sector may be categorized broadly into: _Gemstones: Diamonds, coloured stones - precious, semi precious and synthetic stones;_ Jewellery plain gold, studded, silver, costume jewelleries; and _ Pearls. The two major segments of the gems and jewellery business in India are gold and diamond jewellery. While a predominant portion of gold jewellery manufactured in India is for domestic consumption, a predominant portion of rough, uncut diamonds processed in India is exported either in the form of polished diamonds or in the form of finished diamond jewellery. The gems and jewellery industry has an important role in the Indian economy. With an estimated consumption of 713 tonnes of gold during the year 2008 (including jewellery consumption of 501 tonnes), India is the largest consumer in the world. (Table 1). Apart from its historical religious significance, gold is valued as an important savings and investment vehicle. Even in present times, gold
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remains the brides wealth and is the preferred jewellery worn by women in India irrespective of their religious belief. Buying of gold and jewellery is an important part in every stage of the life-cycle of an Indian citizen.

EXPORTS AND IMPORTS OF PRECIOUS METALS AND STONES

Gold The largest exporter of gold in the world, in the year 2007, was USA with a share of 19.9% in the total world exports, followed by Australia (15.9%), Canada (9.3%), Hong Kong (7.3%) and Peru (7.1%). The worlds largest importers of gold include: Switzerland (25.7%), UK (19.6%), USA (8.4%), India (7.5%) and South Africa (4.4%). Diamond Israel (with a share of 19.7%), Belgium (19.6%), India (14.3%), USA (12.8%), and UK (9.1%) were the largest exporters of diamond in the world, in the year 2007. The largest importers of diamonds include: USA (17.7%), Belgium (16.2%), India (13.1%), Israel (13%) and Hong Kong (12.9%). India was an exporter as well as an importer of diamonds with a respective share of 14.3% and 13.1%, in the world. This may be because, India imports rough diamonds, for value addition, and for exports, as cut and polished diamonds. Precious Stones Hong Kong, USA, Switzerland, Thailand and India were among the largest exporters, as well as importers of precious stones (other than diamond) in the world in 2007. Hong Kong was the largest exporter of precious stones (other than diamonds), with a share of around 17.1% of
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the total world exports, and was followed by USA (13.2%), Switzerland (12.7%), Thailand (12.2%), and India (9%). In the case of imports, the leading importers include: USA (26.5%), Hong Kong (14.4%), Switzerland (9.2%), Thailand (7.2%), and India (6.3%).

Pearls In the case of Pearls, Hong Kong was the largest exporter, with the exports valued US $ 482.92 million, constituting a share of 30.2% in the world exports of pearls in the year 2007. Japan, China, Australia, and French Polynesia were the other major exporters of pearls.

INTERNATIONAL TRADE IN PRECIOUS METALS, GEMS AND JEWELLERY

Hong Kong was the largest importer with a share of around 33.2%, followed by Japan (18.3%), USA (15.8%), Germany (4.4%), and Australia (4%). Platinum South Africa, constituting a share of 32.5% was the largest exporter of platinum in the world in the year 2007. UK, USA and Germany were the other major exporters. USA was also a major importer of platinum constituting a share of 24.4% in the world, followed by Japan (19.2%), Germany (12.7%), and UK (8.6%). Silver Major exporter of silver was China, with a share of 15.9% in the world, in the year 2007, followed by Mexico (11.2%), Hong Kong (8.7%), and Germany (8.1%). USA, Hong

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Kong, UK, Germany and India were the major importers of silver in the world.

EXPORTS AND IMPORTS OF JEWELLERY

Articles of Jewellery World exports of jewellery articles made of precious metals was valued at US $ 42.5 billion in 2007; major exporters include: Italy (14.2%), India (11.9%), USA (10.5%), and Hong Kong (9.9%). Major importers of jewellery include: USA (23.7%), UAE (13.7%), Hong Kong (9.1%), and Switzerland (6.7%). Articles of Natural / Cultured Pearls, Precious Stones World exports of articles of natural and cultured pearls, or made of precious stones was valued at US $ 1945.99 million in 2007. Major exporters include USA (76.4%), Hong Kong (6.4%), China (5.4%), Switzerland (2%) and Japan (1.3%); major importers under this category include: Hong Kong (15.7%), Switzerland (14.9%), UK (9%), Netherlands Antilles (9%), and Japan (8.6%). Articles of Imitation Jewellery World exports of articles of imitation jewellery were valued at US $ 4967.03 million in 2007. Major exporters of imitation jewellery include Hong Kong (21.9%), China (17.2%), Austria (8%), France (6.4%), and Italy (5.7%); major importers under this category include USA (19.6%), Germany (7.3%), France (7.3%), UK (6.4%), and Italy (6.2%).

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SELECT GLOBAL TRENDS One of the recent major trends witnessed by the gems and jewellery industry, due to the economic slowdown, has been the increase in recycling of gold or usage of gold scrap. Key focus has been the surge in the levels of gold scrap coming back to the market. With mine production on a declining trend and the outlook relatively benign, scrap levels are likely to remain as the primary supply of gold. Selling of gold jewellery has provided the consumers with access to the muchneeded funds during the economic crisis. In the price sensitive markets, the profittaking motive behind recycling activity has been very strong, highlighting the intrinsic value of jewellery and the strength of the savings/investment aspect of gold jewellery purchases. Cash flow challenges have forced consumers to sell some of their assets,including their jewellery, to raise the muchneeded cash. Increase in recycling activity has been both a western and non-western phenomenon, although volumes in the non-western markets have continued to dominate. In western markets, the primary motivation behind recycling of gold has been distress selling, while in the more traditional non-western markets, the primary motive has been profittaking. Research by World Gold Council suggests that jewellery buyers across the world recognize that gold jewellery is both a store of value, as well as a means of adornment. Nevertheless, the investment and adornment motives tend to overlap strongly in traditional markets, such as the Middle East (including Turkey) and India, largely due to the very strong cultural values underpinning jewellery ownership; bar and coin demand in these regions account for a relatively modest proportion of total demand for gold. New technologies, often adapted from other industries, are finding their way into jewellery manufacturing. The use of Computer Aided Design (CAD) is fast
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growing, and is increasingly being coupled with Rapid Prototyping, which enables new designs to reach the market more quickly, thereby increasing competitiveness. Laser technology is also being increasingly utilised, not only for repair of defective castings and broken jewellery (it enables gem set jewellery to be repaired without the need for removing the gemstones), but also for decoration (laser engraving), cutting and hallmarking. Examples of technologies being adapted from other industries include cables (in place of conventional chains), knitted wires and powder metallurgy processing. According to World Gold Council, in the first quarter of 2009, total demand for gold increased by 38% to reach a level of 1016 tonnes, valued US $ 29.7 billion. The overall demand for gold has fallen in the third quarter of 2009, by 34% over the corresponding period of previous year, along with investment demand which witnessed a decline of 46% over the corresponding period of previous year. The impact of high gold prices, at a time of global economic crisis, led to a widespread decline in consumer demand for gold jewellery, by 30%, compared to the same period in 2008. In India, despite economic pressures and sustained increase in gold prices, second quarter gold demand recovered from the exceptionally weak levels witnessed in the previous quarter, but remained well below the levels of a year before. Total gold off-take in India was down by 48% during the first three quarters, with jewellery, the largest component of demand, falling by 36%. Following the global financial crisis, the growth environment for the global gems and jewellery industry remains uncertain. The world diamond industry, which is large subsegment of global gems and jewellery industry faced demand slump following the global economic crisis. Diamond prices in the world, like many other commodities, bottomed out, forcing the diamond majors (such as De Beers, Zao Alrosa) to cut down production and supply of rough diamonds to boost
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up the prices. Mining was halted at many mines, which were put on maintenance during this period. The most prominent example was the move by Debswana, jointly owned by De Beers and the Government of Key Findings - Transformation from family owned to professionally managed business is the key to success. - Reinventing, innovation in design, new markets, and new technology will help sustain growth. - Adaptability to global trends and consumer preferences will help increase market share. - Transparency will lead to higher growth. - FICCI foresees an integration of Jewellery, Luxury and Fashion as the next step in this ever growing sector. Jewellery Retailing/Trading: The Indian jewellery sector is largely unorganised at present. There are over 15000 players across the country in the gold processing industry, of which only about 80 players have a turnover of over US$ 4.15 million (Rs. 200 million). There are about 450,000 goldsmiths spread throughout the country. India was one of the first countries to start making fine jewellery from minerals and metals and even today, most of the jewellery made in India is hand made. The industry is dominated by family jewellers, who constitute nearly 96 percent of the market. Organised players such as Tata with its Tanishq brand and Gitanjali a pioneer in the branded jewellery segment have, however, been
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growing steadily carving a 4 per cent market share. As Indias jewellery market matures, it is expected to get more organised and the share of family jewellers is expected to decline. Exports After making its mark in the world diamond processing industry, India is well on its way to becoming the leading global gems and jewellery hub. Indias gems and jewellery industry is now on a high growth trajectory. Exports from the industry fetched US$ 17.1 billion in 2006-07 against US$ 16.64 billion in 2005-06, showing a growth of 26 per cent. While diamonds accounted for 64 per cent of the total exports, gold jewellery accounted for 30.47 per cent, coloured gem stones and others accounted for 1.44 per cent and 1.04 per cent respectively last year. Cut and polished diamond segment exports were US$ 10.90 billion, while gold jewellery exports fetched US$ 5.21 billion last year. Coloured gemstone exports yielded US$ 246.48 million last fiscal, against US$ 232.35 million in 2005-06. The growth momentum has continued into the current fiscal. The gems and jewellery export industry grew by a robust 27 per cent export during the first half of the current fiscal at US$ 9.4 billion, as compared to US$ 7.4 billion in the corresponding period of 2006, according to the Gems and Jewellery Export Promotion Council (GJEPC). The growth in diamond exports was 28 per cent, in jewellery it was 21 per cent and in coloured gemstones, it was 22 per cent. The major destinations for exports have been the US, UAE, Hong Kong, Belgium and Israel. In fact, the US, UAE and Hong Kong together accounted for over 70 per cent of the total exports in the previous fiscal year.
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The China Factor: The Chinese jewellery manufacturing industry employs a large base of skilled laborers working at relatively lower wage rates (around USD 300 per month). The Chinese jewellery fabrication industry is growing at a phenomenal rate of 12.84 per cent year on year, with the total output in 2005 being USD 3.14 billion. Processing (as well as sale of jewellery) in China is mainly concentrated in the three major centers of Guangdong, Shanghai and Beijing. Shenzhen is a major Centre for the production of gold jewellery where 70 per cent of the countrys total output of gold jewellery in value terms is fabricated. Looking Ahead: The booming economy along with the rapid increase in income levels is estimated to further accelerate the growth of this industry. According to a KPMG study, Indias growing importance in the global jewellery market is only expected to increase in the future with total estimated jewellery sales of US$ 21 billion by 2010 and US$ 37 billion by 2015. Diamond jewellery consumption in India is also estimated to jump by 78 percent in 2010. The following are the issues and areas in which FICCI will play a proactive role to support this Industry and seek the assistance from the concerned ministry. A. Diamond industry: - At present dollar loans are not available and rupee loans are too expensive. To make matters worse, different banks charge different

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rates of interest. The matter needs to be taken up with the RBI/Finance Ministry for regulatory measures. - Evaluating other options for financing to diamontaires. - Value addition: The margins in the diamond industry are very low and the entire emphasis is on large volumes. We need to devise ways and means of taking the industry up the value chain. - Direct supply of rough from countries such as Angola, Canada and other diamond mining countries. - Measures to improve working conditions in manufacturing units. - Move from unorganized to organized set-ups. B. Jewellery industry: - Going up the value chain. - Promoting brand India all over the world. - Promoting Indian retail brands. - Joint retail initiatives and cooperative retail. - BIS/Certification of jewellery to be mandatory in the interest of the consumer. - Set up export targets to 50% yoy and work towards achievement of this target. C. Gold/Bullion: - Availability of gold loan products to be made available to domestic manufacturers.
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- All exporters should be allowed to import gold freely. - Easy availability of gold for retailers against stocks. Other issues: - Survey of the gold retailing sector with regards to matters such as Gold consumption patterns, trade practices, trade profiles, regional differences. - Issues of Hallmarking, Gold and purity of gold, essaying centers. - Improvement in the ways gold is marketed in India. - Branding and Branded jewellery. - Use of technology in manufacturing and production. - HR practices to transforms traditional management. - Promote jewellery as a category - Enhance image of the industry - Manage a portfolio of markets - Professionalize and transform family owned businesses - Enhance talent supply - Reduce financing cost - Identify new products and consumer segments The global gems and jewellery industry is on way to huge transformation. India has many natural advantages to emerge as a Gems & Jewellery hub. India has the largest and the best artisan force
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for designing and crafting the jewellery in the world. There is considerable scope of value addition in terms of capacity building at the domestic front, quality management and professionalisation.

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BIBLIOGRAPHY

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