Competition: Thailand’s Golden Opportunity

Standing in the teeming, glitzy trading towers in Bangkok’s jewelry district, you would be hard-pressed to imagine the industry’s modest beginnings or its current woes.

Over the past two decades, the industry rose from last to fourth place in importance among Thailand’s industry groups. In 1992 alone, for example, jewelry exports grew 28% over the previous year. But in late 1994, the momentum slowed and jewelry and gems slipped to eighth place as competition from neighboring countries heated up.

Thai businesspeople view the challenge in a positive light. “Competition makes us worry enough to do our best in making our products and in developing new markets,” says Vichian Veerasaksri of Aquarius Gems.

A sense of how the industry will meet the challenge emerges from a look at its latest buzz words: “manufacturing efficiency,” “highly skilled workers,” “labor-intensive work,” “industry experience” and “infrastructure.” These buzz words reflect the abilities that leading Thai companies say will help them to overcome their competition by focusing on quality and higher-end products. In other words, they view competition as a golden opportunity.

Powerhouse realities: Thailand learned early on about the benefits of creating a friendly, business-oriented atmosphere. Now political and economic changes are allowing some neighboring countries in Southeast Asia to do the same. Vietnam and the U.S. have normalized relations. Myanmar (formerly Burma) is on a pell-mell road to market liberalization and possible democracy. China’s peculiar brand of capitalism has spread like wildfire through its southern provinces. And other countries from India to Indonesia are trying to build their own success stories on foreign trade.

At the same time, Thailand’s unbridled growth as an economic center has created some problems:

· Practically anyone who visits Bangkok complains about pollution and the human and automobile congestion. Business meetings routinely are delayed or canceled because participants are caught in traffic.

· Few businesspeople venture out on the crowded, muggy streets, where tuk-tuks (three-wheeled, open-air taxis) sometimes lurch onto sidewalks in search of clear pathways.

· Social problems, including prostitution and AIDS, are growing at an alarming rate. And child labor is still a reality in many industries.

· Inflation is taking a big bite out of profits and paychecks. “Our overall economic situation is not as good as we thought,” says Veerasaksri. “Items we need for daily living are too expensive. Do you realize that bottled water here costs more than gas?”

Still, Thailand remains on a steady course toward becoming an industrial powerhouse, and the gem and jewelry industry is playing a role. In fact, Thailand is the world’s largest exporter of faceted gemstones and second only to Italy in jewelry exports.

Conducive to business: Two reasons that Thailand’s success story continues despite the problems are its culture-based friendliness and its overwhelming consideration of foreign businesspeople.

The friendliness is woven into the country’s Buddhist roots. Perfect strangers smile at each other on the street, and misunderstandings are handled with a sense of humor and understanding. Accordingly, Thai traders strive to make their clients feel comfortable.

The government also does its part. “About 10 years ago, Thailand got a very open-minded government that made adjustments,” says Halpin Ho, president of the Ho Group Ltd. “Without them we would not have been able to compete with Hong Kong, Taiwan and Japan.”

The Department of Export and Promotion, for example, is accessible and helpful. Director General Sanit Vorapanya says one department objective is to promote the image of Thailand as the place to go for gems and jewelry. Another is to differentiate Thailand’s image from that of China, India or other competitors. In fact, the department recently created a promotion labeled “The Jewels of Thailand” that runs in consumer publications such as Town & Country.

The department also organizes the Bangkok Gems & Jewellery Fair, held each March and September with up to 500 exhibitors. The shows give foreigners easy access to the Thai market &endash; as buyers or sellers. (The U.S. National Trade Data Bank says Thailand is a good prospect for U.S. companies that manufacture high-quality jewelry findings, which the country now gets mostly from Europe, Hong Kong and Japan.)

And businesspeople seeking some contacts in the gem and jewelry industry will find the Thai Gem & Jewellery Traders Association a good place to start because its members adhere to a code of ethics. This is important in avoiding copyright design violations, underkarating and other common production scams.

Infrastructure in place: Thailand has more to offer than eager and willing trading partners. “Thailand has the proper infrastructure in place from having created fully integrated marketing over the past 20-25 years,” says Pornsit Sri-orathaikul of Beauty Gems Group.

Consider mass cutting of gemstones. Apichart Fufuanganich of Quality Color Corp. introduced the technique in Thailand many years ago. He specializes in blue topaz and counted the U.S. as his major customer for several years. When U.S. consumers tired of blue topaz, he already had the infrastructure in place to open new markets for the gem in Asia and Europe. The result: his business is up 50% from 10 years ago.

Distribution channels and efficiency of production are already established. Says Joseph Belmont of K.V. Gems in Bangkok: “This is the center for colored stones. In other countries it is sometimes hard to sell stock, but here you can always sell it!”

Meanwhile, neighboring countries face a daunting learning curve to catch up to Thailand. In addition to the skills, they must acquire machinery and technology, establish business contacts and try to coax and reroute precious rough material to their cutting factories. This will be hard because Thailand is such a market draw for rough material.

Jewelry manufacturing also has become an important component of Thailand’s gems and jewelry infrastructure, says Jennifer Herrin, an analyst for the U.S. National Trade Data Bank. “[Thailand’s jewelry manufacturing] sector is experiencing even faster growth than the gemstone cutting and polishing sector.”

And Thailand doesn’t rely just on direct exports. It also markets to the growing tourist trade and sells 30% of its production domestically. “Women account for 90% of local jewelry sales,” says Assarasakorn. “Women are becoming very powerful in Thai society because they are increasingly better educated and are in the work force.”

Transition: With the business-friendly atmosphere and infrastructure in place, the Thai gem and jewelry industry feels it can outmaneuver its competitors by moving toward higher-end products.

As a result, Thai manufacturers now spend less time stressing low-wage labor. “Jewelry-making requires long-term training, and labor is really a small percentage of the total value of the product &endash; no more than 10%,” says Prapee Sorakraikitikul, director and vice president of operations at Pranda Jewelry. “That difference can be made up in efficiency and productivity.”

What will happen to the lower-end jewelry market that Thailand has long dominated? “A lot of that is going to China, India or Sri Lanka,” says Boonyong Assarasakorn, president of the Thai Gems & Jewellery Traders Association. (Leaving nothing to chance, Thai entrepreneurs themselves are investing heavily in developing countries, establishing joint ventures with manufacturers of lower-end jewelry.)

Thailand has taken several steps to aid in the transition to higher-end lines.

Halpin Ho of the Ho Group Ltd. points to innovations in technology. “Such concepts as computer-aided design, computer image transmission and laser applications in jewelry manufacturing are already being used in our factories,” he says. “The products are efficiently and economically made, and there is a lot of choice.”

Thai businesspeople also have forged excellent working relationships with their government. The government set up free-trade zones to lure businesses. These areas can best be described as one-stop shopping centers for businesspeople. Two of them deal exclusively with the gems and jewelry industry:

· The Jewelry Trade Center opened this summer in the heart of Bangkok’s jewelry district. The center is the city’s tallest building and includes a bonded warehouse (a joint operation with Malca-Amit Thailand Ltd.) that serves as a customs facility. This makes it easier to send items on consignment or for display at a jewelry show by averting the lengthy delays and seemingly arbitrary duties associated with government customs facilities. And it helps avoid &endash; in most cases &endash; the government’s 7% value-added tax on imports.

The center also houses a gem laboratory (the Asian Institute of Gemological Sciences), a gem school, the International Gems and Diamond Bourse, an auditorium and a post office and has space for offices, retail galleries and restaurants. “It is designed as a comfortable, convenient and enjoyable place to do business,” says Ho.

· Gemopolis, the other free-trade zone for the industry, is a 200-acre facility on the outskirts of Bangkok. It contains manufacturing and cutting factories and even has housing for workers. About 50 companies will be represented. A separate 70-acre facility is planned. Gemopolis also houses the Bangkok Diamonds and Precious Stones Exchange.

Trading inside Gemopolis is free of the value-added tax. In addition, the center is close to a new airport that should be completed within six years.

These developments point toward a Thailand that, while experiencing some growing pains, is still gathering steam. Halpin Ho says Thailand offers three major advantages over its competitors: price, consistency and volume. The challenge now is to continue delivering all three while also raising the standards of quality and design.

Ideally Situated

Thailand, which comprises some 200,000 square miles and could fit loosely into Texas, owes some of its success as a gem capital to its location.

Nearby are some of the world’s most important gem-producing countries, including Myanmar (which produces ruby, sapphire, jade, spinel and peridot), Vietnam (ruby and sapphire) and Cambodia (various colors of sapphire).

Though often ruled by military dictators in the past, the county is a constitutional monarchy that never became socialist or communist like some of its neighbors. Because the government has been less repressive and more stable, gems from neighboring countries have long trickled into this market-oriented country. Until recently, for example, gems from Myanmar were traded openly in northern Thai border towns such as Me-Sot and Me-Sai.

And because Thailand gives a warm reception to raw materials such

as gems, it also attracts business from farther away. By plane, Thailand is only four hours from Bombay and Colombo and five hours from Tokyo. Thai businesspeople also are willing to travel. “There is no limit to Thais traveling,” says Pornsit Sri-orathaikul of Beauty Gems Group. “Thais like to go every place.”

Power-Lunches, Thai Style

Thais have dutifully mastered a version of “power-lunches.” Whether a spicy dish from Bangkok or a kinder, gentler one from northern provinces, food is an important part of business proceedings in Thailand. Many a gem deal has been sealed over a steaming bowl of thom yum khung (shrimp soup) or a mouth-watering thom ka gai (coconut chicken) served on a bed of jasmine rice and washed down with Bangkok’s famous Singha brew.

THOM YUM KHUNG (SHRIMP SOUP)

12 to 15 shrimp, shelled and deveined

3 cups of water

Vegetable bouillon, 1 or 2 cubes

1Æ2 teaspoon of salt, 1Æ4 teaspoon of freshly ground pepper

1 stalk of lemon-grass (optional)

Thai thom-yum paste (available in some grocery stores), 11Æ2 teaspoons for regular, 3 teaspoons for spicy

2 scallions, minced

3 cherry tomatoes, halved

The juice of 1 or 2 limes

1 can of peeled whole straw mushrooms

1 tablespoon of chopped cilantro (coriander leaves)

Bring the water to a boil and add other ingredients in this order: vegetable bouillon, salt, pepper, scallions, tomatoes, lemon grass, thom yum paste and lime juice. When the soup comes to a boil, add the shrimp and mushrooms. Reduce the heat immediately; when the shrimp turn pink, the soup is ready to serve on a bed of steaming jasmine rice. Garnish with cilantro leaves. Eat at once. (Serves 4.)

SIAMESE RUBIES

Rubies from the Chanthaburi-Trat area near Thailand’s border with Cambodia have been known to exist since the mid-1800s. But their importance was long minimized because of the world-class supplies and qualities in neighboring Burma.

Everything changed when Burma became a Socialist country in 1961 and its ruby mines were nationalized. Burmese ruby supplies dwindled, then stopped. Thai rubies rushed in to fill the gap.

The deep, burgundy-red Thai rubies became the standard for two decades (Burma’s were generally lighter toned) and helped to define Thailand’s standing in the gem community. Along the way, the Thais developed great expertise in heat treating, cutting and setting ruby.

By the late 1980s, however, Thai rubies from Chanthaburi-Trat were largely mined out. Interestingly, a huge ruby cutting industry and gem marketplace still exists in the Chanthaburi area. The rubies now come from Tanzania, Vietnam, Madagascar, Sri-Lanka and &endash; once again &endash; Myanmar.

Chanthaburi also has become a huge trading market, but the buyer most certainly should beware. So-called “natural” ruby lots are often salted with synthetics, and inexperienced buyers are sometimes duped. Single synthetic stones are represented as natural, complete with meticulously handcarved “natural-appearing” etch marks. Glass fillings in ruby cavities also give buyers headaches; the filling gives the illusion the stone is more perfect than it is and it adds weight, boosting the price. If you travel to Thailand to buy gems, rely on well-established, reliable businesses, preferably members of the Thai Gem & Jewellery Traders Association in the major trading cities.

ANANT SALWALA, THAILAND’S PIONEERING MAN OF VISION

Anant Salwala of Thai Lapidary Ltd. is one of Thailand’s gemstone pioneers. A gemologist and jeweler to the royal family for more than 30 years, Salwala’s recollection of his modest beginnings offers a glimpse into Thailand’s own genesis in gems.

He started by buying and selling Thai rough, mostly corundum from the Kanchanaburi sapphire locality in the 1930s and ’40s. Thailand had no cutting technology, even though neighboring Burma did. “But cutting [in Burma] was a highly guarded secret,” he recalls. “Anyone who plotted to sell the secrets &endash; especially to neighboring countries &endash; was killed.” So Salwala decided to go to Burma himself to unravel the mysteries of gem faceting.

“The trip from Chiang-Mai, Thailand, to Burma involved 15 elephants and 50 horses,” he says. The whole time, he bought gems and observed. “God gave me two eyes, so I saw how it [the gem-cutting] was done.”

By 1948, Salwala had started a cutting factory in Bangkok and subsequently taught lapidary to prison inmates and the blind, promising future jobs and garnering loyalty. “In order to teach to those who cannot see, I myself wear a blind,” he says. “That way I can feel what my students are feeling and can see through my fingers. We can actually tell about the quality of faceting by dragging our fingernails across the facet junctions.”

Soon his factory was cutting everything that came his way, including rubies from Chanthaburi-Trat, jade, opal and other gemstones. By the mid-1960s, Salwala had essentially provided a blueprint for Thailand’s global gem role. Others followed the blueprint, and Thailand’s gem and jewelry business got off to a roaring start.

Salwala’s family owns what was once a 2,000-acre sapphire mine at Kanchanaburi &endash; at one time the biggest in Asia. Sapphires from Kanchanaburi province, near the city of Bo Phloi, are about the only gems still mined in Thailand. The mine processes some 20,000 tons of overburden per day to produce just over two pounds of rough. It’s expected to produce for 10 more years.

Much of the material from the mine is iron-rich and is suitable for mêlée. Top-grade material comprises 5% of the quantity and 70% of the value of the production. Thai sapphires often are compared to Australian sapphires because of the generally dark hues.