D3_sm_project_interim_report.docx

Group Project Report 1: Indian Jewellery Industry Analysis A report submitted to Prof. Prarthan Desai

In partial fulfillment of the requirements of the course Strategic Management

By Group D3 Aditya Soni - 188015 Rajaram Vennam - 188191 Sanjeev Kumar - 188211 Saumya Rao – 188215 Vaibhav Verma – 188263 on 15-02-2019

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Contents Executive Summary:...................................................................................................................................... 1 Introduction: ................................................................................................................................................. 2 Industry Overview: ........................................................................................................................................ 2 Growth picture: ......................................................................................................................................... 2 Key trends: ................................................................................................................................................ 3 Competitive environment ......................................................................................................................... 3 Value Chain: .............................................................................................................................................. 3 Industry Analysis: .......................................................................................................................................... 4 Porter’s Five Forces: .................................................................................................................................. 4 Rivalry among existing competitors ...................................................................................................... 4 Threat of new entrants ......................................................................................................................... 5 Threat of substitutes ............................................................................................................................. 5 Bargaining power of suppliers .............................................................................................................. 6 Bargaining power of customers ............................................................................................................ 6 PESTLE Analysis: .................................................................................................................................... 7 Conclusion: .................................................................................................................................................... 9 References .................................................................................................................................................. 10

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Executive Summary: Tanishq is the jewellery brand of the TATA Group and is a leading player in the Indian jewellery sector today. Gold has always been a favorite of the Indian consumers, and Diamond has recently gained popularity among the higher and middle classes. The increasing labor-intensive industry provides employment to over 5 million people. People consider Gold as a safe means of investment of their hard-earned money. With increased internet penetration, jewellery now sells online as well and this provides the buyers more choice of styles. There is high competition in this industry as there are multiple jewelers and even more importers and exporters of finished and unfinished jewellery. The change in governmental and economic policies over the years have worked in the favor of jewelers and have promoted jewellery buying behavior in the Indian consumers. Another factor working along the same lines are the creative promotion campaigns of the big-players in the industry that have been focused on positioning their jewellery lines both as an elite luxury experience as well as a musthave commodity. This report contains observations and learnings recorded after studying the jewellery industry. We’ve focused on the Industry Overview which reflects on the growth of jewellery consumption in India owing to increased income of consumers and relaxation of governmental norms for jewelers. The Key Trends observed in the jewellery industry have been recorded till date when Diamond jewellery is booming and the consumers are moving more towards light and sober-looking jewellery. We’ve studied the Competitive Environment of the Indian jewellery industry where there are few major players who’ve been in the market for years, but multiple small family jewelers who’ve been in the business for ages have loyal customer base. Value Chain reflects on the process from procurement of raw unprocessed minerals to the finished and polished jewellery that is sold to buyers. The second-half of the report contains Industry Analysis with detailed study of Porter’s Five Forces namely rivalry among existing customers, threat of new entrants, threat of substitution, bargaining power of suppliers, and bargaining power of buyers. Further on is the PESTLE Analysis of the Indian jewellery industry which focuses on Political, Economic, Social, Technological, Legal, and Environmental factors influencing the growth and sustainability of the industry.

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Introduction: TITAN group was founded in 1984. It is a joint venture between TATA group and Tamil Nadu Industrial Development Corporation. The core business of the TITAN is manufacturing the watches. Titan is the India’s largest watch manufacturer. In 1995, Titan entered jewellery business with a sub-brand name Tanishq. In a span of two decades, Tanishq has become the India’s most trusted jewellery brand. Titan further launched Caratlane, Mia, Zoya Jewellery brands in the recent years. We selected Titan group as our research company for group project. We would like to focus on Jewellery business of the Titan for this project.

Industry Overview: Growth picture: Gold is considered as a valuable and important metal in India. Traditionally Indians are fond of wearing gold and diamond ornaments, they are considered as a symbol of status. Initially, India had large gold reserves. Over the years, its reserves have been depleted and the demand kept on increasing. Currently, India is the fourth largest importer of the gold. Other precious metals such as platinum, Diamonds, Gems are also being imported from the various parts of the world. Gems and Jewellery sector contribute 6% to the Indian GDP (NSDC, 2018). The labor-intensive nature of the industry provides employment to over 5 million people. India is one of the major demand cluster for the golden jewellery. Most of the Asian countries, Middle east countries have higher demand for golden countries whereas western countries have a demand for diamond jewellery. The increased disposable income, improved living standards are contributing towards the high consumption of gold in India. Imports are the other major market for the jewellery industry, India is the one of the preferred exporters for the fabricated jewellery products. The highly skilled workman, variety of designs provided by the Indian jewelers is a key component in driving the demand. Coming to the Indian market, gold is associated with festivity, celebrations. Also, most Indians consider gold as a safe, reliable way to save their fortunes be it in the form of biscuits or in the form of fabricated jewellery. There is statistic that Indians spend 30-40% of their wedding expense on jewellery, (NSDC, 2018) this shows Indians fondness towards purchasing the gold. There are 350 million people in India, who are in the age group of 25-30 in the period 2011-2021 (NSDC, 2018). This demographic shows that almost 150 million weddings are expected to happen during this time. This shows that Indian domestic market has a strong growth prospect. The average age of the Indian population is one of the lowest across the globe, the youth who are exposed to various trends might drive the purchase decisions. The number of working women increasing steadily, as the woman are the major buyers of the jewellery, their improved economic state and financial independence will further increase the demand for the gold.

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Key trends: Indian Jewellery sector is fragmented. Conventionally, majority portion of Jewellery fabrication is done by the independent jobbers. The landscape of the sector changing slowly with more retailers entering to the business. The footprint of the large-scale players is also increasing progressively. Sensing the raising demand in the domestic market, these large players are focusing on expanding their operations. This trend helping the industry in getting more organized. With increased internet penetration and growing awareness of e-commerce, people started purchasing jewellery via online. The online jewellery sales are steadily picking up. This is helping existing large organized players to expand further. Through online, these players can provide standardized designs to a large-scale market. This will help them in cutting down their costs and further improve their profitability. The jewellery usage patterns are also changed over the years. Now, with the increased working women, there is a high demand for work place jewellery. The demand for contemporary products and western jewellery is gradually increasing. This shift in the consumer preferences is a huge opportunity for the jewellery manufacturers and retailers.

Competitive environment Since there is a huge opportunity to capture from the fragmented retailers, there is a huge competition in the organized jewellery industry. Along with the jewellery fabrication, many firms are operating in Jewellery import and export business. To reach out to more consumers, these players expanding their operations aggressively. Some of the key players in this industry are: Malabar gold and diamonds, PC Jewellers, Tanishq, Kalyan Jewellers, Joyalukkas, TBZ group. All these players are venturing in various initiatives to gain customer trust and confidence which plays a vital role in the purchase decision of the Jewellery. These companies have edge over other smaller retailers, as they have larger selection, greater variety. All these companies are spending lot of money on advertising and promotions to gain public attention.

Value Chain:

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Source: Report on Gems and Jewellery sector by NSDC and KPMG

The above diagram shows the value chain of the industry. The inbound logistic part is mostly taken care by the importer. The fraction of gold supply from domestic mining is very low. Switzerland, UAE, USA, South Africa are the major gold importers for India. Apart from selling or exporting the jewellery, India is a major player in cutting and polishing the diamonds and exporting them. Overall India contributes over 15% to the global diamond exports. (Indian Law Offices, 2018) Conventionally Jewellery fabrication is done by the independent jobbers, who take orders from the consumers and fabricate the ornaments at home. There are retailers who employ the skilled gold smiths to fabricate the Jewellery. The third group is large scale players, who run manufacturing firms to fabricate branded ornaments. Large players are betting on Automation, computerized manufacturing to boost the production and reduce the cost of manufacturing. Given the diverse geographies and varied demographics, the domestic market of Jewellery industry value chain is majorly fragmented. Small, independent retail stores account for more than 80% of the total retail stores in India. There are national players who operate large scale stores across India, but their operations mostly limited to tier-1 and tier-2 cities. These national level retailers focusing on consolidating the retail stores and increase their market share. As pointed in the previous section, the share online retailing of the jewellery is increasing steadily. Majority of the national level retailers made sure that they are present online. This is done through launching few new labels and collaborating with online retail partners.

Industry Analysis: To analyze the industry, we are using Porter five forces frame work. Along with this, to get a clear picture of business prospects in India we did a PESTLE analysis of Indian Jewellery industry.

Porter’s Five Forces: Rivalry among existing competitors The gold and jewellery products in Indian market are not very much differentiable. If we consider the national players, everyone has access to similar resources and they produce similar designs. From the consumer perspective, the brand doesn’t play a huge role as everyone providing similar offerings. The switching cost of the consumer are insignificant. Though gold is not perishable, the price of these metals are volatile, this adds pressure on the companies to sell the inventories as soon as possible. Large scale stores have large set up costs, they do spend heavily on advertising, this creates pressure on the retailers to boost their sales. All this adds up to a high competition among the existing players in the industry. The incumbents try to differentiate themselves via quality assurances, exchange programs and buyback guarantees etc., Big players are focusing on building brand equity through brand ambassadors. All in all, there is a high competition in among the existing industry 4

players. They are trying to compete via lower price and higher quality model. Existing players are focusing on entering new customer segments which are traditionally ignored by the large scale Jewellery companies. Threat of new entrants The growth prospects of the jewellery markets are looking good. There are no restrictions on new entrants. Also, the customer switching costs in this industry are insignificant. So, when we consider the independent retail stores, the threat of new entrants is low. When it comes to the large-scale retail stores, the economies of scale come into the picture. Large players can have agreements with the gold importers and suppliers. Often, they can hedge the price fluctuations. This reduces the risk associated with the business significantly. The automated facilities for jewellery fabrication help these companies in cutting down the costs significantly. These companies have a good visibility and their brand equity is raising steadily. This will help the large-scale players in patronizing their brand and drive the sales. The government rules and regulations that govern the entry into this industry are really strict. Also, the requirement of skilled manpower in this industry also plays a crucial role in influencing the decisions of players entering this industry. Overall, there are very low entry barriers for a small-scale retailer. The entry barriers are moderate to high if someone is planning to enter the industry at a large scale. Threat of substitutes The most important substitutes to jewellery (gold and diamond) are artificial or imitation jewellery, stone jewellery or the bagasra jewellery etc. But these substitutes cannot replace or play down the importance of gold or diamond jewellery as such. This is because people nowadays attach special value to jewellery made up of gold and diamond. It has become a status symbol and people are willing to spend large sums of money for acquiring something that reflects their position in the society. Income levels are on rise and the need to display one’s financial well-being is high as ever and no substitute can meet this incumbent need. Also, rising living standards influence much of the purchasing decisions of a consumer and buying substitute products does not often meet their standards. Gold jewellery also represents a good investing options for most people. This is because the price of gold is market regulated and it increases with increasing demand. Other investing options like mutual funds, stocks, real estate, etc are somewhat more volatile than gold, which offers higher long term returns. Overall, it can be safely concluded that the threat of substitutes to jewellery is quite low.

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Bargaining power of suppliers The suppliers to the jewellery industry have low to moderate bargaining power. This is despite the fact that India, being a key national player in the industry, has lots of suppliers, both national and international. Due to this, the bargaining power of suppliers should be low, but it is not. Their power is greatly influenced not only by the different type of gems and jewels they supply, but also their quality. The quality of raw materials, per se, is one of the utmost important criterion that helps in establishing company’s reputation in the industry. The supplier has to be reliable, to command its position in the national as well as global market. Also, the price does not play any role in strengthening the bargaining position of a supplier because the rates are usually fixed and the value of orders is quite high. Bargaining power of customers The buyers in India are price sensitive, especially when it comes to holding high value asset like gold or diamond. The price of gold is market regulated that is highly affected by supply-demand. Also, the price of other gems and stones is fixed by the sellers and is (usually) almost similar across different sellers. The fact that India has high number of buyers (number increases manifold during weddings and festivals like Diwali, Dhanteras, etc.) almost always ensures a steady demand of gold and diamond jewellery. All these factors contribute to low bargaining powers of customers.

Bargaining Power of SuppliersMedium

Threat of Substitutes-

Bargaining Power of Buyers- Low

Threat of New EntrantsMedium

Low

Competitive RivalryHigh

Porter’s Five Forces chart of Indian Jewellery industry

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PESTLE Analysis: Political Factors: Complete Foreign Direct Investment in the jewellery sector has enabled entry of international brands like DeBeers, Tiffany’s etc. in the Indian market. Demonetization has introduced increased transparency for buyers and jewelers as more people now purchase using plastic money and online transactions which ensures that no illegal currency is parked in the form of jewellery. The scope of Gold Monetization scheme has been increased by the Reserve Bank of India allowing more government bodies and charities to deposit gold. Indian is the leading exporter of un-cut diamonds and jewelers can now export with regulated proofs and certifications which increase their worth in the international market. Economic Factors: The improvement in living standards and per capita income of Indian consumers has resulted in promotion of jewellery. The implementation of 3 percent GST on finished gold, diamond and silver jewellery has led to promotion of jewellery investment trend. The Corporate Tax for micro, small and medium enterprises in jewellery industry was cut down to 25 percent. The past few Pay-Commissions have enabled the working classes to invest more and the increases reliability of jewellery sector has turned out to be a favorite for them. Social Factors: When procurement of jewellery became a trend in India, everybody used to buy Gold items. Gold was exchanged in weddings and other functions as it was considered a token of love and good wishes. Gradually, the trend shifted towards Diamond and other stone jewellery. The growing middle and upper classes now prefer wearing light Diamond jewellery. However, heavy gold and gem jewellery is bought and exchanged in weddings and family functions. Celebrities and movies play a major role in influencing the trends of consumer behavior towards purchase of jewellery. Other than for fashion purposes, people tend to buy jewellery as a means of investment. Gold or diamond jewellery bought from certified jewelers gain value over the years, and can be exchanged for latest jewellery or cash later when requirement arises.

Technological Factors: The upgradation of technology has enabled the jewellery industry to provide better designs more efficiently. Better equipment and machinery is now used for cutting and polishing of stones. The finishing of machine-cut jewellery is unmatchable and this allows the jewelers to charge high Making Charges from buyers. These 7

Making Charges are different for all jewelers depending on how big the brand is and how finely made the jewellery is. Entry of technology has also reduced labor costs for jewelers as hand-made work has reduced leading to lesser employment of goldsmiths. Technological advancement has introduced machinery that can check the purity of stones and metals in any jewellery. This enables the customers to return old jewellery, get it melted and buy new jewellery. Jewelers can now check the purity of returned jewellery that was bought from some other jeweler to gauge the worth of the item. Legal Factors: The Gem and Jewellery Export Promotion Council of India plays an important role in controlling the gem and jewellery trade in India. It facilitates import and export of raw stones and finished jewellery to its members. It is responsible for providing training and information needed to play fairly in the jewellery business. The tariff rates to foreign locations and rates of import duty are communicated by the Council. There are set standards of jewellery that will be sold in the market and the jewelers have to abide by Hallmark and Carat systems. Stringent laws regarding record keeping of sale of jewellery have been introduced after Demonetization of 2016 according to which sale of jewellery worth more than 50 thousands requires the jeweler to keep a copy of the Identification proof of the buyer. Sale of jewellery worth more than 2 lakhs requires the jeweler to keep a copy of PAN Card of the buyer and this is the upper limit for cash transactions for sale of jewellery. Environmental Factors: Mining of Gold is extremely harmful for the environment due to the usage of chemicals in its extraction. Arsenic, Lead, Mercury, petroleum by-products, acids, and cyanide are used in the extraction of Gold ores. In the process, the land of that region is turned upside-down, the soil along with these chemicals is washed in the rivers and other water bodies flowing in that region. Although there are laws regarding rehabilitation of area mined after extraction, this rule isn’t followed and not properly enforced by concerned bodies. Mining of Diamond is less harmful comparatively due to lesser usage of chemicals. The workers involved in the process are exposed to extreme temperatures and washing and cutting procedures that harm their hands. Jewellery is made from metals and stones that are exhaustive in nature and present in limited amount on earth. Most of these valuables have already been mined by mankind and the remaining are not sustainable enough to last all generations. Hence, the concern of non-replenishment of natural minerals looms over the jewellery industry. (adamkasi, 2017) 8

Conclusion: Gold is considered as a valuable and important metal in India. Traditionally Indians are fond of wearing gold and diamond ornaments, they are considered as a symbol of status. The improvement in living standards and per capita income of Indian consumers has resulted in promotion of jewellery. India is one of the major demand cluster for the golden jewellery. The highly skilled workmanship, variety of designs provided by the Indian jewelers is a key component in driving the demand. With increased internet penetration and growing awareness of e-commerce, people started purchasing jewellery via online means. The jewellery usage patterns are also changed over the years. This shift in the consumer preferences is a huge opportunity for the jewellery manufacturers and retailers. There is a huge competition in the organized jewellery industry. Along with the jewellery fabrication, many firms are operating in jewellery import and export business. Given the diverse geographies and varied demographics, the domestic market of jewellery industry value chain is majorly fragmented. Small and independent retail stores account for more than 80% of the total retail stores in India. Large scale stores have large set up costs, and they spend heavily on advertising, so this creates pressure on the retailers to boost their sales. There are very low entry barriers for a small-scale retailer but high if someone is planning to enter the industry at a large scale. The buyers in India are price sensitive, especially when it comes to holding high value asset like gold or diamond. The price of gold is market regulated that is highly affected by supply-demand. Technological advancement has introduced machinery that can cut and polish with efficiency and precision, and check the purity of stones and metals in any jewellery accurately. All that glitters is not gold, hence, there are negative sides of the boom in jewellery industry as well. Minerals, metals, stones used in making jewellery are naturally occurring non-renewable resources and Earth is slowly running out of them while mankind continues to pollute the environment in mining these resources.

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References adamkasi. (2017, June 25). Pestle Analysis of Gems and Jewelry. Retrieved from freepestelanalysis.com: https://freepestelanalysis.com/pestle-analysis-of-gems-and-jewelry/ Indian Law Offices, I. (2018). Indian Jewellery Industry. Delhi: Indian Law Offices, ILO. NSDC. (2018). Human Resources and Skill Requirements in Gems and Jewellery Industry. New Delhi: National Skill Development Corporation.

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