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Presentation On Diamond Distribution

Channel In Hongkong

Submitted To:
Dr. Mamta Mohan
By: Anmol Garg
(MBA-IB, Sec A)

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DAIMOND

For hundreds of years the Diamond has fascinated all for its alluring sparkle and
physical hardness exceeding all other gems. Formed about 3 billion years ago
beneath the Earths crust by extreme heat, it may be the oldest item you will ever
own. Before the rough diamond is transformed into a beautiful piece of jewelry, it
must undergo several stages in its production.

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Process of Manufacturing

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Process of Manufacturing

A diamond value chain overview: a journey from mine to finger

Exploration. In this stage producers seek commercially viable diamond resources,
usually by finding and evaluating kimberlite and lamproite pipes that might contain
diamond ore. When a promising site is located the producers develop and construct
new mines.
Production. Getting the diamondiferous ore out of the ground usually occurs
through open-pit or underground mining. Alluvial and marine mining are two other
methods of diamond production. Once mined, the diamond ore passes through
various processing stages to extract rough diamonds from it.
Rough-diamond sales. Next producers inspect, classify and prepare the diamonds
for rough-diamond sales. London, Moscow and Antwerp are the main centers for the
purchase and trade of rough diamonds. These primary sales most often take place
within the sight holder system, a system specific to the diamond industry in which a
select group of verified buyers are allowed to purchase rough product. Other sales
channels include auctions and spot sales.

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CURRENT
Cutting and polishing. This stage,
in which RATIO
diamonds are transformed from rough
12
stones into finished
gems, comprises five steps: determining the optimal cut,
10
cleaving or sawing
to break the rough diamond into pieces, bruiting to give the
8
diamond the desired
shape, polishing to cut the facets and final inspection to ensure
6
quality. Diamond cutting requires specialized knowledge, tools and equipment.
4
2

Polished-diamond
sales. Polished diamonds get sold to manufacturers for jewelry
0
manufacturing. The sales are transacted either directly by cutters and polishers or
through dealers. Antwerp is the key polished diamond sales center, and all major
diamond players maintain a presence there. Most of the polished gem sales also take
place in Antwerp, but recently the site of sale is shifting closer to jewelry
manufacturers in India and China, with many companies opening regional offices.
Jewelry manufacturing. Manufacturers use both in-house and outside designers to
create their product, and the sector is quite fragmented. Thousands of players
ranging from individual shops to large companies such as Tiffany, Cartier and Chow
Tai Fook are integrated into different steps of the value chain, from rough diamond
sales to jewelry design and manufacturing to retail. A large share of the mid- to lowrange jewelry manufacturing takes place in China and India.

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Retail sales. More than a quarter million retailers sell jewelry to consumers around
the world. Retail channels include independent stores, mass-market chains such as
Wal-Mart for low-end jewelry and high-end specialty chains such as Harry Winston.
Consumer demand. Demand is driven by the millions of people around the world
who want to own diamond jewelry. At either end of the value chain a handful of
well-known public companies operate and earn the industrys highest profits. In the
middle of the chain diamonds pass through a complex and fragmented distribution
system in which many thousands of individuals and small businesses, almost all
privately owned, are bound together in an intricate web of relationships. These
cutters, polishers and manufacturers engage in a significant amount of back-andforth trading.
Outsiders who voice concern about the lack of transparency in the diamond industry
point specifically to the accuracy of stock-level estimates and to the setting of prices.
A comparison with other commodities and precious minerals, however, shows that
the diamond industry is not unique. A similar level of uncertainty also surrounds
stock levels at key stages of the value chain in the markets for precious metals such
as gold, platinum and palladium.

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Value chain economics & Profit Margins

As the diamonds pass through each stage of the chain, their value grows in relatively
small increments until they reach manufacturing and retail. The highest portion of
revenues is generated at the retail stage, with revenues in 2014 slightly exceeding
$60 billion worldwide.
The highest profit margins are realized in the production and retail segments at either
end of the chain. In 2014 players in rough production achieved operating margins of
22 to 26 percent, the highest in the industry. Next highest were the 5 to 10 percent
margins achieved by retailers. But the range in this segment is wide, since it includes
not just the largest players in the industry, but also small independent retailers whose
margins can be quite thin. Margins and revenues are lowest in the middle segments
of the value chain. The total industry profit pool was approximately $11 billion in
2014.

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Sales Channel of Diamond In Hong Kong

The diamond industry of Hong Kong is by and large export-oriented. The trade is
characterised by a subcontracting system under which small- and medium-sized
factories provide subcontracting services, such as mould making, precision casting,
gem-setting, polishing and electroplating, to larger manufacturers or local jewellery
retailers. Mass production of jewellery products is normally restricted to established
manufacturers which are equipped with more sophisticated and automated
production machines. The diamond jewellery items made for exports usually bear
buyers' brand names or logos. Some diamond jewellery makers have set up overseas
offices and outlets to promote sales. Online display is another growing trend.
Some Hong Kong manufacturers are making inroads into retail and distribution in
Hong Kong, supported by the influx of tourists in recent years. According to Hong
Kong Tourism Boards survey, in 2014, overnight visitors spent HK$23.4 billion on
diamond jewellery, accounting for 17.1% of their total spending on shopping; as for
those from the Chinese mainland, the share was higher at 18.5%. In addition, Hong
Kong is the seventh largest economy in terms of retail value of luxury diamond
jewellery and timepieces in 2015, according to Euromonitor International.

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Hong Kong International Diamond, Gem & Pearl Show

The worlds largest jewellery marketplace, formed by the Hong Kong International
Diamond, Gem & Pearl Show and the Hong Kong International Jewellery Show.

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Two Leaders in the Diamond Industry, one represents the

world while the other leads in Hongkong market.

De Beers Group Of Companies

The De Beers Group of Companies has a leading role in
the diamond exploration, diamond mining, diamond
retail, diamond
trading
and industrial
diamond manufacturing sectors. The company is currently
active in every category of diamond mining: open-pit,
underground, large-scale alluvial, coastal and deep sea. The
company operates in 28 countries and mining takes place in
Botswana, Namibia, South Africa and Canada. De Beers
currently sells approximately 35% of the worlds rough
diamond production through its distribution subsidiary, DTC

Chow Tai Fook Jewellery Group Limited

Chow Tai Fook Jewellery Group Limited ( Stock Code:
1929 ) is a world-class leading jeweller listed on the Main
Board of The Stock Exchange of Hong Kong in December
2011. Being the largest jeweller listed in Hong Kong by
market capitalisation, which is also one of the worlds top
few, the Group also excels as the number one for sales in the
world.

The iconic brand "Chow Tai Fook" of the Group has been
widely recognised for its trustworthiness and authenticity,
and renowned for product design, quality and value. The
The name De Beers has been synonymous to diamonds for
acquisition of Hearts On Fire, an internationally acclaimed
125 years so its no surprise that there hasnt been a diamond
U.S. luxury jewellery brand, in August 2014 has further
company whos been able to unseat the undisputed market
underpinned the Group's stature as a diamond expert in the
leader in diamond mining, manufacturing and retailing.
industry.
De Beers name is anything but flawless, however. Critics
The Group boasts an extensive retail network comprising
love to point out that the De Beers Group was formed in
over 2,250 Chow Tai Fook and Hearts On Fire points of sale
order to control and monopolize the diamond industry so
spanning 500 cities in Greater China, Singapore, Malaysia,
that it can control the supply and demand of diamonds and
South Korea and the United States, as well as a strong and
by extension, diamond prices.
fast growing e-tail network through operating its Chow Tai
Fook e-Shops and various e-tail accounts on other online
shopping platforms.

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Diamond Reverse Logistics

Recycling has now arrived at the retailers shop floor. A number of high-end retailers
now offer to repurchase stones from customers. De Beers, through a stand-alone
venture, the International Institute of Diamond Valuation (IIDV), is running a smallscale program with a limited number of retailers in the US to assess the effectiveness
of existing approaches to re-selling and to explore how they can be developed and
improved for the consumer. These activities will probably reinforce certain brands,
such as De Beers Forevermark. They might also contribute to increased market
transparency and liquiditycrucial elements in the development of diamonds as an
investment. Following a surge in volume during and immediately after the financial
crisis, diamond recycling now accounts for about $1 billion in polished diamonds.
Recycling is gaining popularity in the US, as is vintage or recast jewelry.

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Bull-whip Effect

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Bull-whip Effect

If we examine what the industry underwent, it is apparent that upstream areas like
rough and manufacturing were affected more severely than others. Words used to
describe this phenomenon include de-stocking/re-stocking, ripple effect and bullwhip effect.
It is best explained by a simple example. Let us consider a retailer who needs to buy
100 million-worth of diamonds. He is operating in a developed market and expects 1
inventory turn. Hence at the beginning of the year, the retailer will carry 100 million
of stock in order to meet expected sales. But all of a sudden, external events change
the world view, making customers less inclined to buy. The retailers expected sales
are revised downward by 10%, and he reduces his expected diamond requirement to
90 million, assuming he maintains the same margin on the goods. Being a sound
business person, the retailer will want to bring down stock levels to 90 million, say
by the end of one year. Hence, his diamond requirement will now be 90 million
(sales) + 90 million (future stock) = 180 million. Against this, he is currently holding
a stock of 100 million, implying that he will purchase only 180 million
(requirement) 100 million (current stock) = 80 million of diamonds. Rational
business decisions will also demand that the reduction in purchase is upfront, further
increasing the severity of the drop. Hence, the polished manufacturer will see a drop
in demand of 20%, as a result of the 10% drop in retail demand.

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Key challenges
Todays diamond market presents producers with four major challenges:
1. Reserves replenishment
2. Environmental challenges
3. Increasing social awareness
4. Increasing pressures on operating costs

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Thank You