Watch Out for India and China, Chatelain Says

India and China are “giant” markets that will have a huge impact on our industry, MVI Marketing’s Elizabeth Chatelain told attendees in a seminar called “India and China Become Global Forces.”

She said India, Hong Kong, and mainland China are “all connected,” with each serving different functions.

India is the largest producer of cut and polished diamonds by volume—although the third-largest by value. Its gem and jewelry exports have soared from $14.8 billion in 2004 to over $17 billion in 2005.

“India used to produce just smalls,” she said. “Nothing substantial ever came out of India. That’s not true anymore. Their skill level has gone up, their manufacturing level has gone up. Now they are the dominant producers of 1 ct. stones and below, and that basically is the market.”

She noted that a lot of Indian companies now sell direct to retailers—including independents. “Even if you buy a 1 ct. stone from an Israeli company, there is a good chance that diamond was produced in India,” she said.

India has 1 million diamond cutters, she said, as well as a long history in the diamond industry. “The diamond industry is a very big employer in India, and the government knows that, so they are really beginning to pay attention to this area,” Chatelain said. “Government policies are becoming more business friendly.”

The industry is also moving into a more modern diamond bourse, which should open in 2007. Indians also have sales offices throughout the world.

The domestic market for jewelry in India is also growing, and eventually the Indian market will grow faster than America’s.

Hong Kong has become a trading center for jewelry and better polished diamonds, operating as a clearinghouse for jewelry manufactured in China. But Hong Kong’s jewelry manufacturing has moved to mainland China to save on labor costs.

“As history has shown us, China is the tiger,” she said. “Since joining the World Trade Organization, China’s jewelry industry has been developing rapidly.”

She said businessmen in China are adept at learning rapidly.

“When you don’t have to invent the wheel, but copy it, it’s very easy,” she said. “The Chinese are now learning and copying from all the examples from the generations that have gone before in Israel and India.”

China is still small in diamond processing compared with India, she said, with only 80,000 diamond cutters in mainland China. “But they are going to grow at a rapid rate,” she said, especially since sightholders are starting to outsource manufacturing there. “China has set their sights on outproducing India. They want to take on India, and then take on Israel.”

India’s and China’s largest growth will come from their own domestic consumer markets. In the end, India and China are “going to be buying our diamonds,” she said. “They are going to use a hell of a lot of diamonds and a hell of a lot of gold.”

“There is a shortage of diamonds coming,” Chatelain said. “Within the next five years, there will be a diamond shortage that will impact the whole pipeline including the independent retailer.”

Where does this leave U.S. manufacturers? Some “know it’s their last generation in the business,” Chatelain said. Others are forming joint ventures with Indian firms.

“We get calls every week from manufacturers who say they want a joint venture with an Indian firm, because they know that’s who makes the jewelry these days,” she said. “U.S. companies are becoming more global. It’s a small world after all, and it’s getting smaller. Every other industry knows this, and so do we now.”

She noted that while India and China are getting a lot of attention these days, the traditional diamond centers are still in the game.

“Israel is certainly not going away,” she said. “By value, they are still very important. They are finding their niche, which has always been with the bigger stones anyway.”

Antwerp, meanwhile, remains the largest trading center for diamonds, but it’s under threat from Dubai, which has offered generous tax incentives.

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