Contents01. International Jewellery market..............................................................................................3

01.1 Top Importers and Exporters...............................................................................................4

01.2 Current State of the Industry................................................................................................5

01.2.1 Industry size......................................................................................................................5

01.2.2 Sourcing............................................................................................................................6

01.2.3 Synthetic Diamonds..........................................................................................................7

01.2.4 Fabrication........................................................................................................................8

01.2.5 Retailing............................................................................................................................9

01.3 Special Characteristics and Trade Terms in the Global Jewellery Industry......................10

01.3.1 Special Characteristics................................................................................................10

01.3.2 Trade Terms................................................................................................................12

02. Domestic Jewellery Industry................................................................................................14

02.1 Sri Lankan economy and the Jewellery Industry...............................................................14

02.1.1 Sri Lankan Economy..................................................................................................14

02.1.2 Jewellery industry.......................................................................................................17

02.2 Current State of the Industry..............................................................................................18

02.3 Special Characteristics and Trade Terms..........................................................................19

02.3.1 Special Characteristics................................................................................................19

02.3.2 Trade Terms................................................................................................................20

03. Barriers or Constrains in the Jewellery Industry...............................................................21

04. New Market Strategy............................................................................................................24

04.1 Growth prospects in the international market....................................................................24

04.2 Modes of entry& the possible mode..................................................................................32

04.3 International Business Strategy.........................................................................................36

1

05. Recommendations..................................................................................................................37

06. Conclusion..............................................................................................................................38

07.References................................................................................................................................39

08.Bibliography............................................................................................................................42

2

01. International Jewellery market

Jewellery is a product that is brought together with the combination of earths rarest and

expensive materials. When considering the international jewellery market, it is impossible to find

all the materials to be found within the boundaries of one country. Since, the materials gems,

diamonds, gold, silver, platinum have their own market leading suppliers and consumers

(countries).

The main producers of gold are China, Australia, United States, Russia, South Africa, Canada,

Ghana and Uzbekistan while the top consumers of gold are India, China, United States,

Germany, Turkey, Thailand, Switzerland, Saudi Arabia and Russia.

When considering the precious metal Platinum, the main producers are South Africa and Russia

while United States and China have become the largest consumers. Peru, Mexico, Russia, China

and Chile have become the main producers in silver while United States, India, Thailand and

Germany have become the main consumers of silver. Given below is a list of the current top

importers, exporters and the producers in the jewellery industry.

3

01.1 Top Importers and Exporters

Out of the above countries, United States of America has been claimed as the largest jewellery

market in the world among the other big players in the industry. Half of the United States

jewellery market is being driven by diamond jewellery. Regional wise, Asia Pacific is

dominating the jewellery market as a result of the big players in the industry such as India and

China. India and China are also the current largest in processing and manufacturing jewellery.

The international jewellery market is now growing with the increase of the disposable incomes

and the changing lifestyles of the global population. According to Global Gems and Jewellery

Market Forecast and Opportunities, 2018, the industry is yet to experience a strong growth in the

coming years. The jewellery market has been steadily growing in the recent past despite the

slowdown due to the recession back in 2008.

4

Figure 1: Top Importers and Exporters (Adapted From: Business Vibe)

01.2 Current State of the Industry

01.2.1 Industry size

As of 2012 the global jewellery industry is worth around $275 billion of which 87% was fine

jewellery. The fine jewellery sector has grown 46% - the highest growth rate ever, during the

past five years despite the economic recession in 2008 (Young, 2013). The key stages in the fine

jewellery value chain include mining, refining of precious stone and metal, fabrication of

jewellery and retailing. More than 75% of the fine jewellery are made of diamond and gold,

based on value. Platinum is increasingly becoming popular, along with palladium more recently

due to its price convenience. Silver and other metal only make up a small amount in the global

jewellery market.

As the figure above describes, global jewellery industry consists of three key value addition

stages. i.e. Sourcing of precious stones and metal, Jewellery fabrication and jewellery retailing.

And as the term “precious” asserts, only a handful of countries are blessed with the sourcing

stage of the value chain. And the rest of the world is left to deal with fabrication and retailing

functions.

5

Figure 2: Jewellery Value Chain (Adapted from KPMG, 2006)

01.2.2 Sourcing

Gold and diamond together dominate more than 75% of the

global jewellery sales values (See Figure 3). Despite being

produced over 25 countries around the world, majority of the

diamond supply come from 7 countries (Botswana, Russia,

Angola, South Africa, Canada, Australia, and Dem. Rep. of

Congo). Similarly, more than half of the gold mining also

comes from 7 countries (South Africa, USA, Australia, China,

Russia, Peru and Indonesia) and the rest is produced by nearly

60 countries around the world. Unlike diamonds, gold is

acquired through sales from central banks and also recycled

from old jewelleries.

6

Figure 4: Diamond Pits around the World (KPMG, 2006)

Figure 3: Jewellery type by sales value - 2009 (Adapted from Bernstein Research, 2011)

77%

23%

% Based on Sales Value

Gold & Diamonds Other

01.2.3 Synthetic Diamonds

Synthetic or ‘lab grown’ diamonds are made artificially and mostly used for industrial purposes.

If cut and polished, it is practically impossible to differentiate from natural diamonds without the

help of sophisticated equipment. As such around 2% of synthetic diamond is used in jewellery

fabrication at present (Zimnisky, 2013). However, in September 2013 Scio, lab-grown diamond

manufacturer has announced its plans to mass produce diamonds in China, as large as 1million

carats per year (Heebner, 2013).

The move is a major concern for the jewellery industry as there is high possibility for most of the

synthetics produced to end up in the jewellery industry without mentioning the origins. Even the

CEO of Scio Michael McMohan confirmed that even though the company will be looking for

customers will good reputation, they cannot make sure their clientele would mark the diamonds

as ‘lab-grown’ (Heebner, 2013).

7

Figure 6: World Gold Mining – 2005 (KPMG, 2006) Figure 5: World Gold Supply - 2005 (KPMG, 2006)

01.2.4 Fabrication

Plain metal jewellery and gem-studded jewellery are the two broad variations in the fine

jewellery sector. Traditionally Italy, USA, Thailand, China/Hong Kong have been the leading

players in fabrication of fine jewellery. However India and Turkey have become significant in

fabrication; India has even overtaken Italy to become the world’s leading gold jewellery exporter

(Young, 2012). The key rationale for the shift is identified as the global recession along with the

price fluctuations of precious metal forcing fabricators to look for cheap labour. India, China and

USA, the current leading fabricators in the world also have other advantages, such as having a

large domestic market, skilled labour etc (Refer Figure 7).

The rising prices of precious metal have resulted in jewellery fabricators looking for alternatives

for gold, platinum and silver. The best alternative found is the Palladium, which is becoming

increasingly popular around the world mainly due to its price convenience.

Furthermore, the boundary between fine jewellery and costume jewellery is increasingly

becoming blurry. Dauriz (2013) argues, “some fine jewelry is available at bargain prices:

Tchibo in Germany sells gold diamond rings starting at €99. On the flip side, brands such as

Lanvin and Roberto Cavalli sell fashion jewelry for thousands of euros”.

8

Figure 7: Leading Global Fabricators - Comparative Analysis (Adapted from KPMG, 2006)

01.2.5 Retailing

Historically the USA has been the biggest retail market for jewellery, however regional wise it is

the Asian region being the biggest market with China and India accounting for than half of the

market. By 2015, it is expected that China will account for 20% of world’s luxury sales (Young,

2012).

In the traditional landscape of the jewellery retail sector, there was no room for branding.

However in recent years there is a strong shift in that stance, with branded jewellery growing

significantly on the global stage (See Figure 8). And by 2020 branded jewellery is expected

to be around 30 – 40% of the total jewellery retail sales (Dauriz, 2013)

9

2003 2005 2007 2009 2011 2020E

90 87 81 81 8060- 70

10 13 19 19 2030- 40

Unbranded Branded

Figure 8:% of Branded and Unbranded Jewellery (Adapted from Dauriz, 2013)

01.3 Special Characteristics and Trade Terms in the Global Jewellery Industry

01.3.1 Special Characteristics

Characteristics of the business differ from one industry to another and the jewellery industry is

not an exemption. There are few characteristics which are very unique to the industry and some

which are unique to regions and markets.

Controlled Supply

The sourcing of the top two minerals, i.e. gold and diamonds, used in the production of jewellery

is largely carried out by only 7 countries per each mineral (Refer 01.2.2). Hence they naturally

possess the power to control the supply to the market thereby artificially manipulating the price

according to their convenience. As a consequence the global jewellery industry is heavily

affected by high price fluctuations in raw materials over the years.

Carat Differences

Gold and diamond jewellery together accounted for more than 75% of the global jewellery sales

(Refer 01.2.2). As such it is vital to consider the variations in customer preferences with regards

to gold jewellery between regions. The most critical variation is the difference in the carats value

i.e. the amount of gold used in the alloys. While 22 – 24 carat, which consists more than 90% of

gold the jewellery is preferred in Asian region it is not considered suitable in Europe and USA as

it is deemed as not strong enough to wear. As such people is those region prefer to wear 9 – 18

carat jewellery which are much stronger, but less pure.

Illegal Activities

The industry has been subject to allegations of illegal activities, such as money laundering,

illegal trade and human exploitation, time and time again. The diamonds have fuelled civil wars

in Africa which is famously known as ‘Conflict Diamonds’ or ‘Blood Diamonds’ i.e. diamonds

mined in Africa, primarily in Sierra Leone, Liberia, Angola, and the Democratic Republic of

Congo, which is used to purchase arms and drugs to fuel domestic conflicts.

Diamonds are widely used as tool to grow wealth without being noticed by the taxmen around

the world as well for money laundering, due to the very nature of the product, which is highly

fungible and a highly concentrated form of wealth given its high value.

10

Human exploitation is quite common in gold and diamond mines, especially in Africa. Human

rights violations such as slave like employment, unsafe working condition are the common

allegations associated with gold and diamond mining operations. Additionally, the environmental

hazards due to irresponsible mining are also talked much in the recent years.

11

01.3.2 Trade Terms

In order to comply with or to mitigate (negative) special characteristics, the global jewellery

industry engages in trade terms which are identified below.

Hallmarking

This is the process of confirming the purity of the jewellery i.e. carat value, often by an assay

office, for the convenient of the consumer. Hallmark helps consumers in different regions to pick

the jewellery of their preferred carat value (Refer 01.3.1) with confidence. Although hallmarking

is largely common in leading jewellery market such as USA, China and Europe, it is largely

limited in India which is a significant market in the world, with large number of the consumers

not knowing the exact carat value of the jewellery they buy (KPMG, 2006)

KPCS - The Kimberley Process Certification Scheme

Established in 2003 between the governments of diamond producing countries, trader countries

and diamond industry players with backing of the United Nations, the KPCS process is designed

to prevent the ‘Blood Diamonds’ entering the global jewellery market. KPCS prevents ‘blood

diamonds’ by placing strict obligations such as forgery proof documentations, transportation in

temper proof containers and government approvals so that the end consumer is aware of the

origins of the diamonds. Even though the scheme has not eliminated ‘blood diamonds’ from the

market, it has played a vital role in increasing the transparency of the industry (KPMG, 2006).

Ethical mining

The alarming rate of irresponsible mining (Refer 01.3.1) has resulted in ethical mining practices

recently. ‘No Dirty Gold’ campaign is one such initiative in which not only the social groups got

together but also large retailers and global brands collaboratively thrive to ensure responsible

mining. The initiative looks forward to

reduce the environmental impacts

ensure healthy and safe working condition for workmen

reduce negative impact on communities such as, forced displacement, child labour, public

health, prostitution etc

(KPMG, 2006)

12

Even though the initiative is still in its infancy stage, it has the potential to become a key trade

term in the near future as human rights and sustainability are two key dimensions of modern

trade. In some industries such as the garments industry, ethics and sustainability are already and

integral part, without which most of the brands will struggle to attract customers.

13

02. Domestic Jewellery Industry

02.1 Sri Lankan economy and the Jewellery Industry

02.1.1 Sri Lankan Economy

Sri Lankan economy experiences a steady and strong movement during the last few years. In

2012 the economic growth recorded as 6.4% and in 2012 government expected a growth of 7%

(CBSL Annual Report, 2013). Agricultural sector showed a vast improvement in the last year

strengthening the food supply. As a result, rice and maize generated a surplus and the surplus

was exported. In line with agriculture, dairy and poultry showed a similar improvement.

Tourism industry recorded its peak arrivals during the last year reaching 1.5 million foreign and

3.5 million domestic tourists. Foreign earnings from tourism were around US$ 1.5 billion in

2013. The other related industries like handicraft industry were also groomed as a result.

Construction industry now contributes around 10% of the GDP with a growth of 17% compared

to 2012. Total value of the GDP was more than Rs. 3 billion at the end of 2012.

Export industries showed a little growth in the last year due to fluctuations in the global markets.

However, apparel industry showed a growth of 6% in the last year and is expected to create

export earnings of US$ 4000 million in 2014. Total expected export earnings will be US$10000

million while foreign employment contributes 70% to the total earnings (Budget speech 2014,

2013). External sector development was reflected in the BOP with a positive figure of Rs. 72,638

million in 2012. However there was a trade deficit and FDIs contributed to gain a positive

balance in BOP (CBSL Annual Report, 2013).

Sri Lanka was able to widen its export market to China, India, Australia, UAE, Saudi Arabia,

Russia, Qatar, Brazil and many African nations, in addition to the European and American

markets. Export target is US$ 20 billion in 2020 (Budget speech 2014, 2013). Development of

infrastructure laid the foundation for this improvement. The other supporting infrastructure such

as roads, highways, electricity, water, communication and education were also played a big role

in this scenario.

14

E.g.:-

MattalaRajapaksa International Airport

(Source: www.slatca.lk)

MagamRuhunupuraMahindaRajapaksa Port

(www.commons.wikimedia.org)

Colombo South Port

15

(www.discover-srilanka.blogspot.com)

Manufacturing and SME sector boomed with the low interest rates during the last year. Sunrise

industries unlocked their potential after eradicating the 30 years hatred war with LTTE on 18 th

May 2009. President MahindaRajapaksa was the key person in the success of the Sri Lankan

economy. He brought his policies through “MahindaChinthana” and “MahindaChinthana-Vision

for the future”. Economic stability and growth have given an insight to the potential investors

and Foreign Direct Investments would rise as a result. Sri Lanka is moving towards US$ 100

billion economy expecting per capita income of US$ 4000 by 2016.

“MahindaChintana-Vision for the Future”

(www.priu.gov.lk)

16

02.1.2 Jewellery industry

Jewellery industry is an old industry which now generates much more revenue from exports. It

was back then started in small scale, manufacturing shine jewellery, diamond jewellery and

jewellery with standardized gemstones. Industrialization was started in Sri Lanka in early 80’s

with the open trade policy prevailed at that time. From there onwards this industry became more

prominent and powerful.

About 25000 workers are employed in this sector which includes nearly 15000 craftsmen who

independently work and around 2500 workers employ under companies who are in the industry.

Rest of 7500 are specialized in the manufacture of silver jewellery (Weralupe, 2013). Trade

policies prevailed in those days were not harmonised and hence the growth of this industry was

at low rate. With the implementation of new trade policies, the jewellery industry was turned in

to a highly value added industry and there onwards the industry showed a steady growth. This

industry receives much more incentives compared to other industries mainly because of the

liberalization of export and import policies.

Three basic segments could be identified in the jewellery industry. They are;

Domestic

Tourist

Export

Domestic industry shows a reduction in growth while tourism and export has a growing trend

over the past years. Most of the domestic firms are operating in small scale having only few

employees. Majority of these firms were started in late seventies as a result of the open economy

(Fazil, 2014).

Most of the firms in jewellery industry lacks a formal structure and the sometimes the sales staff

is higher than the technical staff. Lack of research, lack of consultancy and exposure to

information could be the main reasons for the declining in the domestic industry. However

National gem and jewellery authority has taken many steps to promote jewellery industry in Sri

Lanka namely, removing all taxes, JEWELS exhibition in Sri Lanka, take part in foreign

jewellery exhibitions, trade agreements with other countries and consultancy programmes.

17

02.2 Current State of the Industry

If we consider the current situation of the industry,

30% of Owners of businesses interviewed were of the vision that the industry is growing, while

32% confirmed that the industry is static, and the rest of the 38% thought that the sector is

declining.

However the gold jewellery sector is reducing in the current scenario as the price of gold is

increasing day by day and making gold jewellery less attractive to the consumers. The current

trend is that people tend to go for white gold and also for jewellery with gems attached. However

middle class people tend to go towards silver rather than gold.

The price of 22 carat gold is roughly around 45000 rupees, which was earlier going at a rate of

around 30000 about 2-3 years ago. The main export sector products will be the jewellery with

fancy gems. The market price for jewellery is determined through Reutter prices of the foreign

markets.

In Sri Lanka the main jewellery shops have the upper hand where people go for normal shops

only to buy at a cheaper rate. And the main jewellery shops tend to be an entry barrier to the

jewellery industry as well. Currently the revenue gained through exports of jewellery lays around

19 million USD.

18

02.3 Special Characteristics and Trade Terms

02.3.1 Special Characteristics

Geographical diversity

In Sri Lanka most of the large jewellery shops are located in the Colombo district, hence this

industry has a less geographical diversity, and also if we take gems it is also mainly in

Rathnapura district. That reflects that there is less geographical diversity.

Flexibility

Flexibility of the industry is low. As if the trend changes from gold to silver, they cannot change

overnight. As jewellery is a skill related industry. Therefore it takes time for the craftsmen to get

hold of the trends, and also cost wise they are not flexible. For gold jewellery the labour cost

may be high, but they can’t charge the same amount for silver jewellery.

Competition

The competitions from the large players towards the new comers and also towards the small

scale players are very high. As the large scale players already have established there customer

base the new players cannot attract them and also it is really hard to match the same quality as

skilled craftsmen may not exist.

Chain reaction

In the jewellery industry the customer base for a certain business is achieved through past

transactions. If a person buys products and if he is satisfied then it will lead to repeated purchases

and also his relatives, friends will also buy from the same provider.

Use for religious Activities

This industry has a special characteristic to other industries where the products are used for

religious work.

19

02.3.2 Trade Terms

In the jewellery industry there are no specific trade terms, however the quality of the product

must be to a certain extent approved by the authorities, the number of carat should be to the exact

specifics. As the industry is mostly based on customer requirements, having trade terms may not

be very much effective. However when it comes to export trade certain gems is restricted of

exporting. Prices, trading values wholly depend on the customer’s requirements. Hence less trade

terms are there.

20

03. Barriers or Constrains in the Jewellery Industry

Start-up costsThe start-up cost for a jewellery manufacturer will be so high that they will need higher

amount of capital to put up manufacturing plants and other resources. And if it is a retailer

they will need to put up a high end jewellery shop to attract customers, therefore they will

incur a lot of costs to put up these shops. Therefore a retailer to enter into the industry he

must have a high capital or some other funding. This could be a main constrain for them.

Specified licenses and certificationsTo put up a jewellery manufacturing plant or a jewellery shop you will have to take specific

license from the authorities. And also to prove that you make high quality jewellery you will

need to get specific certifications. Getting these license and certifications are really a hard

and long procedure. Therefore this could be a barrier to people who are interested in the

industry.

However currently in Sri-Lanka they have reduce all this procedures to an easy way where

the local manufacturers will be motivated to enter into the market.

Distribution ChallengesIt will be a barrier to find distribution channels for the local manufacturers to distribute their

products locally and internationally.

Inventory costs and outsourcing Inventory cost is one of the main barriers that a new retailer will face when entering into the

jewellery industry. It will cost millions of dollars to even stock the shelves in the opening day

of the shop or the store depending on the size.

To overcome this situation, retailers could outsource their inventory to jewellery suppliers.

But then again it could be difficult to secure business because the suppliers who have

contracts under high volume with the current retailers will not consider supplying to another

retailer.

21

Existing players in the market (overcoming entrenched brands)Most of the jewellery retailers compete in the industry almost on quality and creating a

framework on consumer emotional experience and consumer psychology.

Eg:- most people in the world buy jewellery on special occasions such as weddings,

anniversaries, Special Birthdays etc.

Therefore existing brands in the industry have learned to create close and deep relationships

with their loyal customers (Creating strong bonds with them on their special occasions). This

consumer psychology is difficult to break into (sometimes two three generations from the

same family will buy from the exact retailer). Therefore it is really hard for a new retailer to

build customer loyalty in the industry and it will be a reason for them to not being

competitive in the market.

And also existing brands will use brand loyalty or emotional experience when marketing

their products. This will have a great negative impact on new retailers because it will show

that their products are low from quality.

Has to facilitate investment and risk of lossesJewellery retailers will have to face the same infrastructure requirements as other retailers,

including shelving, display cases, back-room warehouse storage and point-of-sale systems.

However, advanced security systems will be required to protect their high valued inventory

depending on the scale of the shop. The amount of security required of a retail jewellery store

can incur the largest expense when putting up the shop (cost of cameras, safes and electronic

monitoring for doors and windows). Even if they have an advanced security system risk of

loss from theft can be high.

Therefore it will be a barrier/constrain or demotivate a new retailer to enter into the jewellery

industry.

Insurance policiesJewellery shop owners will have to insure their shops because of the above reason. Therefore

they will have to pay high insurance cost because the value of a shop could be really high.

Therefore it will be another reason for them to not to enter to the industry.

(The Barriers to Entry in the Retail Jewellery Industry)

22

Highly skilled employeesIf a person or an organisation is entering into a jewellery manufacturing company they will

need to produce high end well-designed jewellery, therefore you will need to recruit highly

qualified jewellery designers. This will be a major issue because most of the qualified

designers (in Sri-Lanka) have left the country to work in Europe or America because they are

well paid in those countries.

And also to train the employees who are directly involved in making the jewellery you will

need to train them for at least two to three years with a professional maker. This could be a

time waste procedure and a costly procedure for the company. So these reasons could be a

barrier to enter into the industry.

(The Jewellery Sector)

Demographic differencesIn different countries they have different types of rules and regulations. Therefore

manufacturers will need to manufacture jewellery specifically for that country or the market.

For an example,

a. ‘The EU adopted a measure prohibiting using nickel as a mixture over 0.05 %. In the EU, manufacturers and importers of jewellery that contain nickel are under the control of the law concerning nickel in jewellery, and the general law regarding product safety.’ 

b. ‘A measure in the USA prohibits the import of irradiated gemstones, unless having license from the Nuclear Regulatory Commission and providing proper disclosure to the consumer.’

c. ‘The law of Saudi Arabia states that imported fine jewellery must have a Certificate of Conformity to guarantee that those product standards are in accordance with the Saudi Arabian Standard Organization.’

(The Study of Problems and Trends of Non-Tariff Barriers affecting the Gem and Jewellery

Industry)

Likewise manufacturers will need to consider rules/policies or regulations to every country that

they are willing to export. Otherwise there product will get rejected.

23

04. New Market Strategy

04.1 Growth prospects in the international market

When considering the Sri Lankan jewellery industry, the growth prospects have been gradually

increasing despite the negative impacts of the global economic recession. When referring to the

data obtained from the Exports Development Board (EDB), it can be seen that throughout the

time period of 2000 to 2013, Sri Lankan jewellery manufacturers have been exporting to a total

of 100 countries. Out of them, fourteen countries have been consistent/ regular buyers of Sri

Lankan jewellery. Given below are the regular buyer countries listed in their current ranking

order.

Switzerland

United States

Hong Kong

Germany

United Arab Emirates

Japan

United Kingdom

Australia

Malaysia

Maldives

Singapore

Canada

Thailand

South Africa

Cumulatively, these countries are responsible for more than 95 percent of the exports in the Sri

Lankan jewellery industry each year. When considering the growth prospects in these countries,

it has increased in a steadily other than for an exception. Given below is a graphical display of

the total revenue over the years.

24

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

5,000,00010,000,00015,000,00020,000,00025,000,00030,000,00035,000,00040,000,00045,000,00050,000,000

Total Revenue

Total Revenue

Figure 9: Total Revenue of the Jewellery Industry over the Years (2000-2013)

When conducting the analysis, the following countries were considered.

Switzerland

United States

Germany

Figure 10: Revenue from the Top Three Countries

The reason to select these countries were the reason that, in the selected time period for the

analysis (2000-2013), cumulatively these three countries have been responsible for fifty percent

(i.e. USD169, 364,621) of the total revenue of the industry.

25

12%

16%

23%

50%

Revenue by percentage

germanySwitzerlandUSAOther

Figure 11: Total Revenue Vs. The Revenue of the Top Three Countries (I)

Figure 12: Total Revenue Vs. The Revenue of the Top Three Countries (II)

After selecting the three countries, a regression analysis was done to select which country has the

highest payoff when compared to the revenue. To do the regression analysis, fourteen years of

revenue data was used. The revenues of the selected countries were held as independent

variables while the total revenue over the years was held as the dependent variable. Given below

are the formula generated from the final results of the regression analysis.

26

Revenue = 7676816.523+0.823 total value of the exports to Switzerland + 1.310 total value

of exports to USA

According to the formula,

The constant- this means that during the time period of 2000-2013, in the absence of all

independent variables in the formula, still, there will be a revenue of 7676816.523 USD to the

jewellery industry.

Total value of the exports to Switzerland- for every dollar increased in jewellery exports to

Switzerland, the total revenue will increase by 0.823 US dollars.

Total value of exports to USA- for every dollar increased in jewellery exports to USA, the total

revenue will increase by 1.310US dollars.

Depending on the above test results, we recommend selecting United States of America to start

export the products of our client.

But when considering the interview we had with the representative of the jewellery industry in

the Exports Development Board, it was said that the potential market for the Sri Lankan

jewellery was the European countries and the Chinese and the Japanese markets. As for this

report, we have decided to proceed with the results approved by the statistical data.

The economy of United States

History

In the pre-colonial stage, America was an agricultural economy. The economic growth of the

country started to occur with the population growth from the births and immigration started to

increase. The American economy experienced a tremendous growth with the writing of the

United States constitution in 1787. The open market concept allowed the free flow of goods and

ideas into the market which was the major boost of the American economy. In 1848, the

discovery of gold in California caused in drawing in thousands of people in to the country as

well as shifting the country’s balance of the economic attention. Over the years the American

economy has passed through many famous issues such as the civil war in 1860’s, World War I

and World War II. Despite the negative impacts, the country has managed to keep up its growth

27

over the years, keeping up to the standards as the largest economy in the world

(www.randomhistory.com). But when considering the recent past, back in 2008, America was

struck hard by the Global Economic Recession which set them back with massive damages to its

economy. The country is still on the process of recovering from the damages caused by the

recession in 2008.

Current state

The American economy managed to exit from the recession in the last quarter of 2009, but since

then, the economy has experienced a slow growth overall. The current growth rate is around two

percent (2%) and is expected to decrease more this year (economix.blogs.nytimes.com). America

is still holding the position as the largest economy in the world but still the economy is at a

unstable stage.

This situation is reflected in the GDP of the country where as the growth percentage of the 3rd

quarter in 2013 was 4.1 percent (from second quarter to the third) and the growth percentage for

the 4th quarter has been 3.2 percent (from third quarter to fourth quarter) (www.bea.gov,2013).

The personal income also shows a slow growth in the third quarter (0.2 percent) where as there

have not been a growth in the fourth quarter.

The BOP of the country is at a staggering negative value, yet, the deficit is gradually reducing.

The deficit has reduced 1.8 billion USD from 96.6 billion USD in the second quarter to 94.8

billion USD in the third quarter in 2013 (www.bea.gov, 2013).

When considering the foreign direct investments in the country, United States has a huge

difference between the foreign investments made in US against the investments made by US in

foreign countries. Even though there was a reduction in foreign investments due to the recession,

the investments have increased drastically ever since. Currently, the foreign owned assets in the

country are closing up to 26,000 billion USD while the Foreign assets owned by the US remains

at a worth of around 22,000 billion USD creating a difference of around 4,000 billion USD

(www.bea.gov, 2013).

Macroeconomic policies

Monetary policy

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The Federal Reserve System is in charge of the United States monetary policy. They use three

key instruments (merriam-webster, 2012).

Open Market Operations

Discount rates

Reserve requirements

The basic target have been set to keep the inflation rates at 2 percent (2%) and 3 percent (3%).

Fiscal policy

The United States fiscal policy has always tended to spend more than the money that comes in. it

consists of high taxes and social contributions with high public spending. It also has maintained

high borrowings in order to bail out from the recession situation from 2008.The fiscal policy of

United States is claimed to be a failure in adapting to the current situation of its economy.

Jewellery Industry of United States

When considering the current market for jewellery industry in America, the current trend shows

that the growth rate have further decreased after rising by 10 percent in 2011 and 6 percent in

2012. The US jewellery industry came back into track in 2011 after suffering major cut downs

from the recession. Currently, it is a 33 billion dollar industry with an annual growth of -0.3

percent (from 2008 to 2013 due to the recession) and provides business space to 67,622

businesses and employment to 172,889 employees.

Currently the US jewellery market is fragmented that none of the firms have the control over the

market. The largest market share of sales is currently 6 percent and it is by Sterling Jewelers.

This company owns the first and the third largest jewellery brands in the Unites States (Kay

Jewelers and Jared the Galleria). The small players in the industry are still having a hard time

being unable to match the competition from the big players in the industry

(www.euromonitor.com).

As for the future prospects, it is forecasted that the industry will have a full recovery in another

four years (by 2018). The consumer confidence index is projected to increase and return to

normal by the next four years. The profits are also expected to grow parallel over the years.

currently retail giants such as Walmart, have tapped into the market buying expensive jewellery

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items such as engagement rings which would be sold in their supermarkets, thus, the demand for

the traditional high-level customer service will also remain un-harmed and also increased over

the years since it is a trade mark to the industry. The employment and the wages are expected to

grow over the same time period (www.prweb.com).

Analysis of the current US jewellery market is given in the appendix.

Product analysis

Even though the jewellery market of the US is still at a recovering phase, there is much potential

sh23own in the growth prospect shown for small scale suppliers such as Sri Lanka. Sri Lanka

also felt the impact as the US jewellery market was crashing due to the recession back in 2008,

but currently the industry is recovering at a rapid pace, showing signs of growth in the US

jewellery market. A data analysis was done from the statistics retrieved from the customs

statistics department.

This analysis was done using five product categories which has had a constant demand over the

time period of 10 years. The purpose was to give an insight about the fluctuation of demands of

these five types of exports to US over the years. The types of products used in the analysis are;

Diamonds, whether or not worked

Precious stones (other than diamonds) and semi-precious stones

Synthetic or reconstructed precious or semi-precious stones

Articles of jewellery

Imitation jewellery

All of these products have resulted in revenue in millions to the Sir Lankan economy over the

years. Given below is a summary of the revenues earned by each product over the years. A

critical analysis of the five product types are given in the appendix.

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20032004

20052006

20072008

20092010

20112012

20130

500,000,0001,000,000,0001,500,000,0002,000,000,0002,500,000,0003,000,000,0003,500,000,0004,000,000,0004,500,000,0005,000,000,000

Revenue earned over the years (product base)

Diamonds, whether or not workedPrecious stones (other than dia-monds) and semi-precious stonesSynthetic or reconstructed precious or semi-precious stonesArticles of jewellery Imitation jewellery.

Reve

nue

in LK

R

Figure 13: Revenue Generated By the Five Different Products

As for the results of the critical analysis, was clearly displayed that despite the major blows from

the economic recession, the demand for the Jewellery have been relatively stable over the

considered time period for the analysis (2003-2013). Furthermore the market for the jewellery

exports from Sri Lanka has been in a feasible range of revenue for a SME market leader.

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04.2 Modes of entry& the possible mode

Modes of entry explain the best ways of entering the international market for a domestic

company. It is not easy to select the mode of entry since each of them has many advantages as

well as root faults. Entry strategy should be developed so 32as to suit the product. The main

concepts in choosing the best mode will be the degree of control and the amount of risk. It’s a

challenge for a SME to select the best mode of entry.

There are several modes of entry to international markets. Key modes are explained below.

Exporting

Exporting is one of the most fundamental modes of entry which has the lowest risk among all.

This comprises the sale of goods and services to another country. There are two methods of

exporting. They are direct exporting and indirect exporting. Direct exporting means the one to

one export trade done between the local producers with the importer. Indirect exporting includes

the sale of goods to another country through a third party.

Licensing

Licensing is the method of allowing the foreign country business to use the property of the local

company. The property in this case is the intellectual/intangible property. Some examples would

be Patent, Copy rights & Trade mark rights. Licensee has to pay the licensor with the loyalty fee

and he has to bear the burden of manufacturing and marketing costs. Licensing will give a higher

return on investment than the cost of the investment.

Joint Ventures

Joint venture is a business formed by joining two companies. Both companies form a managerial

team and share the joint venture control. Sharing knowledge and experience will benefit both

companies but on the other hand there may be issues in privacy and strategies in both companies.

Examples of some best known joint ventures are Sony-Ericsson & Hero-Honda.

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Franchising

Franchising is also another method of allowing the franchisee to use the intellectual property of

the franchisor. Franchisor will provide the guidelines and knowledge to conduct the business.

Franchises exist most of the time in food and beverage industries. Unlike in licensing, franchises

allow the franchisee to alter the product in to some degree to suit the culture prevailed in that

particular country.

Subsidiary

Local company can form a fully owned subsidiary company in another company and do the

operation. Lot of cost should be incurred and the parent company will have to start everything

from the bottom unlike in franchising.

Foreign Direct Investment

Investing directly in another country is called Foreign Direct Investment. Lot of capital is

required in order to do FDI. The best mode of FDI will be the acquisition of a company from

another country.

Piggyback

This is a kind of tactic used by companies to promote the products. Two different companies

exchange their products and sell in the home country. A high degree of trust is required and

considerable degree of control is also required in order to conduct the business comfortably.

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Possible mode

For a SME business in the jewellery industry, the most suitable method of entering to the

international market will be exporting. Exporting requires a less capital requirement and contains

a minimal risk compared to other modes of entry. In a country like USA, there is a possibility of

doing one to one direct exporting rather than exporting via a third party. Eastern world most of

the time prefers the indirect exporting since the transactions are relationship based. Buyers can

easily be found through the trade fairs and through internet.

Direct exporting will enable the company to gain the cash quickly with the help of a bank

guarantee. Hence financial risk will be at a minimum rate. SME businesses should focus on the

existence than expansion of the business because they will gain the capability of entering new

markets only if they become stable in the market.

Advantages of exporting

Company will be able to sell the goods to a market which they never served before. Sales

can be raised and sales can be maximized.

This will be a major solution for the increase of domestic competition.

Exporting will benefit in achieving the growth prospects.

Doing business at foreign lands will enhance the knowledge about different types of

market and thus future mistakes can be avoided and risks can be mitigated.

This will be a good solution for the sale of excess production than worrying.

Disadvantages of exporting

Financial costs that need to be incurred are very much higher and it is unbearable for a

small or sunrise firm.

Risk is high and there is a chance of having huge losses however there are options

available to mitigate the risk

Eg:- Obtaining a letter of credit or a bank guarantee from the importer’s bank

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Information about the foreign market will be unreliable and the sources available to find

information are less.

Legal procedures and documentation work may be a burden for the exporter. Meeting the

objectives of the agencies thatare in line with exporting (I.e. Sri Lanka Customs, Ministry

of Industry and Commerce) will be time consuming.

Limitations in other modes of entry

Licensing will be impossible since there will not be any intellectual property gained by

the SME business and also to do that, the company must be well established and reputed.

So a rising SME company won’t be able to do that.

Joint Ventures are formed between two well established and capable firms but in this case

SME sector business won’t have that kind of capacity since they are new to the industry.

Franchising could have been possible if the product is related to food and beverage

industries. Jewellery products cannot be franchised in such a way and doing franchising

not an easy task. It requires a good brand name with a good capital requirement which is

hard for a SME business.

Forming a subsidiary and Foreign Direct Investment requires a lot of capital where the

rising companies in the SME sector cannot bear. With the depreciation of rupee value,

money going out of the country will be an unbearable loss.

Piggyback method could be used if the companies have a good faith and trust. Trust

comes with the past experience. SME companies won’t be able to carry out the

piggyback strategy since they are new to the industry and the local company will have to

sell the foreign product in the home country.

With these limitations, SME exporter cannot select these modes of entry and therefore they will

have to stick to exporting.

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04.3 International Business Strategy

Strategy focuses on the action plan that an organization should work on. The strategy that is

focusing will depend on many things such as the type of the organization, types of products,

markets serving and even the types of customers. In order to develop an international business

strategy, there must be a clearly identified market/country. The country analysis which was

carried out should be used to analyse the factors affecting the business in the international

context. Country analysis gives a clear idea about the environment.

Cross cultural assessment has gained the attention throughout the past decades. Theories were

created on how to carry out the assessment in a manner that it can be used as a standardized

approach. Research and analysis which was carried out will help to suggest a best mode of

assessment. However there won’t be any necessity of doing an assessment on cross culture since

the mode of entering to USA is exporting. The assessment will be very much useful for the

modes of entries like subsidiary and foreign direct investment.

It is important to know about the culture, societal classes and trends in USA in order to develop

the market intelligence. Market intelligence provides an overall picture of the market and it will

be useful in deciding the future strategies on the modes of entry or widening the reach.

Risk assessment will be a result of the environment and market analysis. Ascertaining the risk

will always give a motivational effect on what the business do. By knowing the risk, the

organization can get to know about it and steps can be taken to mitigate the risk. Hence risk

assessment is a vital function that should be carried out in order to develop a good strategy.

There may be a risk of delaying the payments since the relationship is new. Options available to

mitigate the risk are handling transactions through money terms rather than credit terms,

obtaining a bank guarantee etc. There is a best time to do anything even in the personal life. So

do the organizations. Organization should wait till the right time comes which is the best

opportunity. Knowing the general environmental factors like economic factors will give clues in

choosing the right time. For an example, in order to export jewellery to USA this is the best time

since the rupee value is depreciated.

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05. Recommendations

To improve the jewellery industry the country needs to bring down high tech machinery to

manufacture high quality jewellery. Therefore to bring that machinery the manufacturers will

need to pay high amount of taxes for the government. Therefore the government should give

tax incentives to improve this industry

There should be a separate department under the Gem and Jewellery authority to deal with

jewellery industry in Sri-Lanka. Because currently the Gem and Jewellery Authority of Sri-

Lanka concentrates mostly on Gems. Therefore improving jewellery industry has declined. If

a separate department is there, then they could concentrate on improving the jewellery

industry.

Government should emphasize on collecting more international data on jewellery industry

and publishing it to the public so that exporters and potential exporters have an idea of which

markets to enter. Therefore the exports on jewellery industry could be improved.

Branding our jewellery products so that it will gain more recognition and popularity in the

international market.

E.g. similar thing is currently done for the ‘Blue sapphire’ gem in Sri-Lanka.

Providing training and development programs to current and potential employees so that they

could improve their skills and manufacture high quality jewellery products. For the

government should get down expertise from other countries and train them collaborating with

technical colleges island wide.

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06. Conclusion

This report includes a complete analysis on jewellery industry in Sri Lanka. After conducting a

thorough analysis about the domestic jewellery market, a complete and critical analysis was

carried out about the international jewellery market. As we are supposed to develop a

international business strategy for a SME firm, we did a regression analysis and found the best

market. The best market was identified as USA since it showed a steady growth with fewer

fluctuations throughout the last decade.

A country analysis was done using the techniques of SWOT, PEST and porter’s five forces.

After carrying out the country analysis, modes of entry were evaluated and possible mode of

entry was decided as exporting. Then the reasons for rejecting the other modes were also

explained. Finally the recommendations were given to develop the export industry for jewellery

market in Sri Lanka.

38

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