RAPAPORT... Increased activity at the India International Jewellery Show, which took place this August in Mumbai, is evidence of the growth of the Indian marketplace. The large number of foreign exhibitors at the show illustrates not only the scope of the ongoing search for new market venues by those active in the B2B environment, but the importance of this region, where domestic consumer demand is growing at an impressive pace.
India is home to the largest number of diamond and jewelry manufacturers in the industry and a rapidly growing market for traditional jewelry. The evolving diamond-purchasing demands of the Indian society and increased discretionary income have created a change in the country’s mindset, from exporting product to importing, making India a natural focus for many in the international diamond and jewelry trade. The long-term prospects of the Indian economy are bright. There are several key factors, I have observed, that will play into this expansion equation.
Manufacturing: India’s traditional role has been in diamond cutting and jewelry manufacturing. Surat, the manufacturing hub situated in the state of Gujarat, produces nine out of every ten diamonds supplied to the world. An estimated 600,000 people are involved in the Indian diamond trade, with the majority of them situated in Surat.
As producing countries in Africa focus upon beneficiation and job creation, however, the role Surat will play in the future may change. Increases in rough diamond prices worldwide are creating an intensely competitive environment for manufacturers. Higher wages and the increase in alternative employment opportunities for workers are additional hurdles that Indian diamond manufacturers will have to overcome. New business models will be needed that incorporate creative strategies to sustain current revenue streams.
Wholesale: The diamond wholesale sector is very active and incorporates a large amount of product manufactured in India. Mumbai is the polished diamond center of India, where the majority of manufacturers process their product for sale in domestic and global markets. Overseas buyers frequently visit the Opera House area that houses the local wholesale diamond trade. While overseas demand is an extremely important component, many Indian wholesalers, aggressively pursuing vertical integration, have begun to focus their energies and marketing efforts on the domestic retail market.
Despite the growth of the Indian market, however, current demand in the country lags far behind U.S. consumption. Many Indian wholesalers have, therefore, expanded their operations to include markets such as Belgium and Israel. These avenues are either used for the purchasing of rough or the distribution of polished diamonds.
Retail: Indian jewelry retailers differ greatly from their overseas counterparts. They are very much in touch with the wholesale market and are stringent in their merchandising. The Indian consumer is extremely price conscious, which means margins are limited and diamonds are usually bought upfront, differing greatly from the memorandum market in the U.S.
As in the Arab markets, gold plays an extremely important role in Indian society and is a huge part of the retail jewelry sector. Estimates indicate that India consumes around 25 percent of the physical gold supplied to market annually. Diamonds, however, are becoming an attractive alternative product category as luxury demand increases and gold prices experience extreme price volatility.
Consumers: India’s demographics — a population of more than one billion, median age of 25.1, with 31.5 percent of the population under 15 years of age — make it a desirable target for a large variety of products and services. Coupled with the fact that the disposable income of consumers is rapidly increasing, India’s importance as a consumer market is sure to grow in future years.
Branding has gained momentum lately and is being introduced in India on varying levels. While this marketing concept typically enables the realization of higher margins due to brand recognition, Indian consumers have been slow to embrace this phenomenon with jewelry. Domestic brands have been realizing reasonable results thus far, but major brands from overseas have been less fortunate in terms of traction. Although branding most definitely has potential in India, there is a need to carefully consider whether the investment involved will ultimately be recaptured in added sales revenue.
Conclusion: India is an exciting market offering a vast amount of opportunity. Competition will surely be fierce between members of the supply chain as the battle for market share is pursued. A younger generation of highly educated individuals also is emerging in India and will play an increasingly important role in the global consumption of our products. Wholesalers from abroad will need to find ways to compete and develop serious added-value propositions. While the Indian market is complex and will surely prove to be challenging, India’s time is now.
Article from the Rapaport Magazine - September 2008. To subscribe click here.