Rapaport Magazine


September 2007

By Mordy Rapaport
RAPAPORT... Globalization, a term with which so many of us have become familiar, is today a fact of life for those in all areas of industry, from business school professors to low-level managers and entrepreneurs. While both India and China remain associated with this phenomenon, diamonds are indisputedly an Indian ball game. Having spent the past five weeks roaming the various diamond and jewelry centers of India, I have seen the potential growth and existing opportunity.

While widely recognized for its manufacturing capacity and cheap labor, India has a substantial and growing segment of middle-income households. This sector has considerable purchasing power and displays the cultural tendencies of jewelry purchasing. While historically exporting their products to overseas markets, many Indian manufacturers and wholesalers have now begun seeking local avenues through which to sell their merchandise and meet local demand. As the American market — presently consuming 50 percent of world diamond jewelry production — begins to stall, the Indian domestic market seems to be an appropriate and attractive alternative. Although India lags far behind the American jewelry market in terms of volume, size and value, first-move advantages are being aggressively pursued.

Visiting Surat, one begins to understand the vast diamond manufacturing capacity this country possesses. Newly built factories outline the city skyline and thousands immerse themselves in pursuit of the diamond dream. I must note, however, that I left Surat more skeptical than optimistic. With large manufacturing facilities experiencing high fixed costs and operating under capacity, many are desperately seeking alternative sources of rough. The business model of such entities is questionable to me — despite India’s record of profiting immensely from manufacturing in the past, any business proposition reliant upon supplies provided by a third party is doomed to face a certain degree of difficulty in the long run. Diamonds are a natural resource recovered from the ground that is prone to shifts in supply, demand and, more importantly, price.

Smaller margins and an increasingly competitive diamond environment have led many Indians to redirect their capital toward alternative investment opportunities with higher projected returns. While the diamond business continues to provide one’s bread and butter, real wealth is being accumulated through real estate and the soaring Indian stock market.

The active role the younger generation is playing in this emerging market should also be considered. With the average age in India only 24.7 years, many shrewd, young and capable Indians will be entering the global diamond arena in the near future. Groomed from a young age and usually highly educated, these individuals possess all the necessary skill sets required to build upon the success of their predecessors. They are being provided with responsibility and guidance, enabling them to competently take full charge of various-sized enterprises when their time arrives.

The lack of foreign presence in the Indian diamond market is evident. While buyers from Israel and other nationalities appear periodically for short purchasing trips, a substantial base of foreign diamond entities is absent. Having just celebrated Rapaport’s fifth year of operations in India, I find this puzzling. India is booming. The time to act is now. The opportunity is there for those willing to invest the time, energy and capital in exploring the varying existent prospects. This is not to say that India is an easy country in which to operate, but the rewards awaiting those at the end of the maze may very well prove the efforts worthwhile.

If you would like to comment on this column, please email: perspectives@diamonds.net.

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