This document provides an abstract for a dissertation studying the supply chain and market selection dilemmas faced by the Indian diamond industry. The study aims to investigate issues in the industry, which is currently facing slack retail demand in both foreign and domestic markets due to inappropriate supply chain management and market selection practices. Qualitative research was conducted through interviews with five participants from major diamond jewelry companies. The analysis identified critical issues that need to be addressed through efficient supply chain strategies and market selection approaches in order to help the industry recapture lost foreign and domestic markets and support the growth of the creative industrial sector. The study also has important commercial implications for organizations.
This document provides an abstract for a dissertation studying the supply chain and market selection dilemmas faced by the Indian diamond industry. The study aims to investigate issues in the industry, which is currently facing slack retail demand in both foreign and domestic markets due to inappropriate supply chain management and market selection practices. Qualitative research was conducted through interviews with five participants from major diamond jewelry companies. The analysis identified critical issues that need to be addressed through efficient supply chain strategies and market selection approaches in order to help the industry recapture lost foreign and domestic markets and support the growth of the creative industrial sector. The study also has important commercial implications for organizations.
This document provides an abstract for a dissertation studying the supply chain and market selection dilemmas faced by the Indian diamond industry. The study aims to investigate issues in the industry, which is currently facing slack retail demand in both foreign and domestic markets due to inappropriate supply chain management and market selection practices. Qualitative research was conducted through interviews with five participants from major diamond jewelry companies. The analysis identified critical issues that need to be addressed through efficient supply chain strategies and market selection approaches in order to help the industry recapture lost foreign and domestic markets and support the growth of the creative industrial sector. The study also has important commercial implications for organizations.
MARKET SELECTION DILEMMAS OF INDIAN DIAMOND INDUSTRY
BY
VARUN MAHAJAN
SEPTEMBER 2007
A Dissertation presented in part consideration for the degree of MA MANAGEMENT
1 Abstract This study aims to investigate the underlying dilemmas that exist in the Indian diamond industry, which is presently standing at a cross-road, where the retail demand of Indian diamonds in foreign as well as in the domestic markets have turned slack due to inappropriate supply chain management and market selection practices. In order to capture the various issues faced by the industry players, literature review on the key components of SCM, in context of Indian diamond industry supply chain and market selection has been focused.
As this study needed to gain an in-depth understanding of the predicaments faced by the industry players at various stages of the supply chain, qualitative research method was chosen and five participants of well-known diamond jewellery companies were interviewed to carry out this research. Thorough analysis of the interview data followed by a comparison with the literature framework has helped in unfolding certain facts that were not covered in any of the researches in this field.
These critical issues need to be addressed with the help of efficient supply chain management and market selection strategies, as these strategies would lead to huge savings in total cost of diamond jewellery coupled with solving other dilemmas, which hampers the growth of trade in this creative industrial sector. Therefore, this study will have an important commercial viability as it will help organizations to re-capture the foreign as well as domestic markets that has turned slack due to inappropriate SCM and market selection practices.
2 Table of Contents Abstract . 1 List of Figures and Tables ..4 Abbreviations and Acronyms ......5 Acknowledgements .....6
Introduction .....7
1 Overview : Indian Diamond Industry ........................................................... 9 1.1 History...............................................................................................................9 1.2 Current situation: where does it stand...............................................................9 1.3 Swot Analysis of Indian Diamond Industry....................................................11 1.4 Diamond Industry Pipeline .............................................................................12 1.4.1 Value chain anaysis...............................................................................12 1.4.2 Journey of Diamonds: Mines to Customers......13
2 Literature Review.....17 2.1 Supply Chain Management....17 2.1.1 Importance of Supply Chain Management...17 2.1.2 Wrong Supply Chain Management Creating Issues.18 2.1.3 Implications for Issues......20 2.1.4 Supply Chain Decision- Making Model...24 2.2 Essence of Marketing in Implementing SCM.....26 2.2.1 Market Assessment and Factors Influencing Market Selection...26 2.2.2 Market Factors: Dilemmas Faced by Companies....32
3 Research Methodology...35 3.1 Research Purpose.......35 3.2 Data Collection-Multiple Tools.....37 3.2.1 Primary Source......38 3.2.2 Secondary source...........39 3.3 Data Analysis .................................................................................................39 3.4 Quality of Data...............................................................................................40
4 Sample Selection for Research..42 4.1 Interviews: Sample Selection.................................................................42 4.2 Background of Sample Companies Chosen...43 3 5 Findings, Analysis and Discussion......44 5.1 Findings and Analysis...44 5.1.1 Supply Chain of Companies...44 5.1.2 Dilemmas Encountered Due to Inefficient Supply Chain Management.46 5.1.3 Innovations Adopted by Companies to Address the Supply Chain Dilemmas.49 5.1.4 Factors to be Considered While Selecting a New Market......................52 5.1.5 Problems Encountered By Companies While Entering a New Market and Steps Taken to Overcome them...53 5.2 Discussion.....54 5.2.1 Dilemmas Encountered by Companies.......55 5.2.2 Factors to be considered For Selecting and Entering a New Market...58
6 Conclusion and Implications........62
6.1 Identification of Dilemmas....62 6.1.1 Dilemmas in Relation with SCM.........................62 6.1.2 Dilemmas in Relation with Market Factors for Selecting Appropriate Market..........63 6.2 Managerial Implications................................64 6.3 Limitations of this Study.......................................65 6.4 Guidelines for Future Research.....65
References ....67
Appendix 1- Interview with a participant of EROS Diamonds 75 Appendix 2- Diamond supply chain model of DeBeers 79 Appendix 3- Diamond Pipeline ....80 Appendix 4- Destination wise Export of Cut and Polished Diamonds ....81
4 List of Figures and Table
Figures and Table Page
(1) Diamond Industry Pipeline 12 (2) Stage of Value Chain 13 (3) Initial Supply Chain of Tanishq 19 (4) Characteristics of Push Pull Portions of Supply Chain 21 (5) Redesigned Supply Chain of Tanishq 23 (6) Supply Chain Decision- Making Model 25 (7) Conceptual Framework: Two Forms of Market Orientation 31
5 ABREVIATIONS AND ACRONYMS
BRIC Brazil Russia India and China BC Before Christ CFA Carry Forward Agency COO Chief Operating Officer CPFR Collaborative planning, forecasting and replenishment DTC Diamond Trading Company ERP Entering Resource Planning EXIM Export and Import IDI Israel Diamond Institute IT Information Technology PIR Periodic Inventory review RFID Radio Frequency Identification SCM Supply Chain Management UAE United Arabs Emirates USA United States of America
6 Acknowledgements
I would like to thank my supervisor, Dr. Ramakrishnan Ramanathan, for his guidance and support throughout every stage of this dissertation. I am also grateful to my initial stage supervisor, Professor Linda Whicker, for her guidance at the initial stages of this dissertation. In addition, I earnestly want to thank all my interviewees, who have spared their valuable time and played a vital role in accomplishing this research.
I would also like to thank my parents and close friends who have given me enough moral support throughout my academic session. Last but not the least; I am very grateful to University of Nottingham for giving me a chance to be a part of this institution and helped me in enhancing my knowledge and management skills during the period of the academic session.
7 INTRODUCTION Among all the BRIC 1 nations, India has been developing at a very rapid pace. The success of Indian economy can be gauged from the fact that the Indian rupee is becoming stronger day-by-day. The various industrial sectors of India have contributed in making a mark in the international trading blocs of the world. However, in recent times, several factors such as increased competition at domestic and global level, rapid changes in the market structure coupled with unstable financial markets have all created pressure on the Indian organizations. Beside this, Indias economy is also facing significant challenges due to ease of international trade barriers and economic liberalization (Kannabiran & Bhaumik, 2005). Also at the global level, the industry players are getting tough challenges from the foreign industry players. To effectively address to these rapid changes in the external environment, organizations have started to adopt different strategies in context of their supply chain and market selection issues.
There is ample number of books/journals available which provides some interesting insights into the predicaments faced by different Indian industries due to numerous reasons. Two of the major reasons accounting for these predicaments are (a) wrong supply chain approaches and (b) inappropriate market selection. However, Indian diamond industry has yet not given enough consideration to mitigate the above mentioned issues, which causes several setbacks such as loss of sales in domestic as well as in foreign markets. This has further impeded the growth of the companies operating in this creative sector. As a result, Indian diamond industry finds itself at a cross-roads. Hence, the industry players should try to turnaround the setbacks by implementing comprehensive supply chain and market selection strategies.
RESEARCH PURPOSE This study serves a dual objective. Firstly, it aims to identify and examine the underlying predicaments that exist in the Indian diamond industry with regards to its
1 BRIC nations represent four countries of Brazil, Russia, India and China which are considered as the most up-and-coming nations of the world.
8 supply chain management and market selection. Secondly, it gives implications to overcome the dilemmas that subsist in this creative industry. For this thesis, there has been an attempt to focus on the key components of supply chain management and market selection approaches to solve the issues that were encountered by the diamond trading companies of India.
RESEARCH STRUCTURE This dissertation is divided into six chapters. It opens up with a brief overview of the Indian diamond industry, discussing the back ground, current situation and supply chain system of the Indian diamond industry. This is followed by the literature review, which is sub-divided into two halves. The first half focuses on the dilemmas, which the companies encounter due to incorrect supply chain management practices. The second half of this section throws light upon a gamut range of factors, a diamond jewel company should consider, while entering a new chunk of market. This section is buttressed with examples of dilemma, which were encountered by various diamond trading companies in the past.
The two following chapters (three and four) deals with the methodology and the sample selected to carry out this research. The fifth chapter incorporates the major part of this research i.e. findings, analysis and discussion. In this section, the rich data collected through primary sources is analyzed and compared with the literature review section to evaluate the valuable findings from this research. The last chapter deals with the conclusion of this research followed by implications, limitations and future guidance for this study.
9 CHAPTER ONE OVERVIEW: INDIAN DIAMOND INDUSTRY
1.1 HISTORY India has a very old connection with diamonds. According to Klein (2005), diamonds were discovered during 4 th century BC in India. Moreover, the worlds most famous Koh-i-Noor diamond was also found in the vicinity of India. The Indian diamond industry has been very lucrative over the several decades. India entered the world cut and polished diamond market in the late 60s. With time, Indian diamond industry has registered spectacular progress. Presently, diamonds are India's single largest export. It has emerged as the clear leader in the international polished market. India is believed to have the largest cutting and polishing industry in the world and is the leading centre in terms of value added. As per the estimates made by DeBeers (2007), India accounts for 55% of cutting and polishing by value, 80% by carat weight and 95% in terms of pieces of global cut and polished diamond production. Radhakrishna (2007) commenting on the Indian diamond industry advocate that seven out of ten diamonds marketed in the world, today, are cut and polished in India.
1.2 CURRENT SITUATION- WHERE DOES IT STAND The Indian diamond industry, presently finds itself at a cross-road, where retail demand has come down in leading markets such as the United States, Europe and Hong Kong and this has inevitably caste a shadow on the Indian diamond industry. It is very surprising that Indias export of cut and polished diamonds have registered decline from the past two- three years. As per the latest figures produced by Reserve Bank of India Bulletin, Indias export fell by nearly 17 per cent in during April- August 2006 (web1, 2006). One of the reasons that contributed for this fall in demand is the high price of imported rough diamonds, which has been continuously mounting. The Indian diamond industry has to bear this inclining cost as there are no active diamondiferous ore bodies in India. As a result of the high price of imported diamonds, the diamonds processed in India becomes very expensive.
10 The area where an improvement is desirable is the sourcing of rough diamonds. Indias major imports of rough diamonds are managed through a single channel distribution system, operated by Diamond Trading Company (DTC). DTC is a subsidiary company of DeBeers (mining review Africa, 2005). Besides this, diamonds import are currently routed through Antwerp (Belgium), which makes imports more costly (web2, 2007). However, this turn down reason has struck in the minds of some Indian diamond industry people. Therefore, in response to this, direct sourcing from Russia, Botswana, Namibia and South Africa etc. have started to begun (Mukherji, 2007). This move of direct sourcing of diamonds will help in cutting down the substantial cost that is incurred while purchasing diamonds from DTC, who makes huge profits by acting as an intermediary between the diamond mines and the Indian diamond market
EXAMPLE OF ISRAEL, WHO ENCOUNTERED THE SAME DILEMMA Other countries have also encountered the same problem of importing rough diamonds but few of them; have found a solution for this issue. For instance, Israeli diamond industry like Indian diamond industry also had to depend upon foreign companies for the import of rough diamonds as they dont have sufficient diamond mines of their own. But in recent times, Israel has been transformed into a major nerve-centre for the international diamond community. Like India, it is blessed with best cutting-edge technologies and craftsmanship that enables them to yield best from the rough diamonds. But unlike India, they have started join-ventures with the direct mines in South-Africa and other parts of the world. It enables them to buy diamond at comparative cheaper prices then to buy it from DTC. Moreover, IDIs (a non-profit organization of Israel) marketing committee chairman suggested that they are helping Israeli diamond companies to expand and establish their business name in USA by promoting Israeli trade shows and exhibitions in U.S.A (web3, 2006)
Therefore, a proper marketing strategy is being adopted by Israel in selecting and focussing, the biggest market of diamonds i.e. U.S.A. In 2006, Israel exported diamonds worth of $4.1 billion which is a great achievement for the industry (web3, 2006). At the same period of time, Indian industry lost its market in USA (appendix 4). This means that Indian diamond industry is losing its US market due to Israel, as 11 Israeli diamond industry is offering cheaper prices for the diamonds and is entering the US market with its distinct market strategies.
1.3 SWOT ANALYSIS OF INDIAN DIAMOND INDUSTRY
STRENGTHS According to Radhakrishna (2007), India has a reputation of having master craftsmen who have the skill that can be harnessed for cutting and polishing even the smallest pieces of diamond. Apart from this, industry is also blessed with the cheap labour as compared to other countries. Also, government support measures such as duty free import policy helps Indian diamond industry to grow very smoothly (Shivkumar, 2007).
WEAKNESSES According to Radhakrishna (2007), India has to import diamonds as there are no efforts being made for diamond exploration in India by the government. As the prices of imported diamonds keeps on climbing, Indian diamonds are considered expensive and therefore losing share in the major foreign markets. Purani (1999) adds that as industry has to import its major raw materials, companies stock huge quantities of inventory that results in high inventory carrying cost, which further increases the prices of diamond jewellery in India.
OPPORTUNITIES Indian diamond industry should try and capture new markets in Europe & Latin America (Purani, 1999). Government should go in for joint-ventures with foreign diamond mines. The government should try to activate the mines in India and should explore for diamondiferous ore bodies in India.
THREATS Industry faces infrastructure bottlenecks (Purani, 1999). Apart from this, government interference with frequent changes in the EXIM policies creates dilemmas for the industry. Another danger sighted can be an overcapacity of production of polished diamonds, if does not meet the demand can result in increasing 12 the prices of diamond jewellery (Purani, 1999).The effects of synthetic diamonds also cannot be ignored as it is very difficult to distinguish between natural and synthetic diamonds.
1.4 DIAMOND INDUSTRY PIPELINE The term pipeline construes a sequential set of operations that bring diamonds from the earth to end-consumers. It is considered as a hierarchical process beginning with exploration for diamondiferous ore bodies, mining of diamonds, sorting, major diamond cutting and polishing factories, private diamond firms, brokers, wholesalers and finally diamond jewellery retailers (diamond fact sheet, 2006). Following figure of diamond pipeline represents the path that diamonds follow through the industry.
Figure 1: diamond industry pipeline
(Source: diamond fact sheet, 2006)
1.4.1 VALUE CHAIN ANALYSIS According to the diamond fact sheet, the value of diamond increases exponentially as it travels from one stage to another. The graph on next page shows the value added during each stage. It is clear from the graph that the mining cost is very low while the highest potential of profit lies in retail sector. Also the diamonds price increases approximately four times its cost of mining during the later stages of distribution. 13
Figure2, (Source: Ariovich, 1985)
1.4.2 JOURNEY OF DIAMOND- MINES TO CUSTOMERS As seen from figure 1 and 2, the diamond industry pipeline can be divided into different stages which are explained in detail below:
EXPLORATION According to Radhakrishna (2007), diamond discoveries lead to direct revenue growth for the host countries. This acts as a boom for the countrys growth. There has been a gradual increase in the world diamond exploration investment from $210 million in 2002 to $250 million in 2003 and it is increasing consistently. Also the exploration project numbers have increased from 380 projects in 2002, 460 in 2003 and 500 in 2004 (mining review report, 2004).
However, Radhakrishna (2007) argues that the diamond exploration has languished in India. The government in power never made any serious efforts for exploring diamondiferous ore bodies due to lack of financial and organizational support. Even though there have been some significant discoveries of pipe rocks in India at Chattisgarh, Panna district, etc. but their diamondiferous character and economic grade have yet to be established. This is the reason; the Indian diamond industry has to rely upon the import of diamonds from other countries. Had diamonds 14 been produced in India in large quantity, the cost of diamonds would have been much cheaper and would have easily captured the world market. This is evident from diamond pipeline diagram (annexure 3), which shows that as rough diamonds move from mines to cutting centres of India, subsequent cost is added to them. If diamonds were mined in India, the subsequent cost could have been saved and consequently, diamonds produced and processed in India would have been comparatively cheaper than produced by other countries.
MINING Mining is a pivotal stage in the supply chain of diamond manufacturing. Once the diamondiferous ore mine is detected, there are different types of mining operations used, to extract them depending on the environment in which they are found. Mining involves many stages of crushing and processing before it can be sorted and classified (Harlow, 1998). Presently, around two-third of the rough diamond imported, comes from the mines of South Africa, Angola, Belgium, etc. which are handled by Diamond Trading Company, an arm of DeBeers.
According to Radhakrishna (2007), India is considered no longer a source for rough diamonds. Even though, most of the Indias diamond mines were depleted centuries ago, there are few active diamond mines such as Panna district also known as the Golconda mines in the central state of Madhya Pradesh (Harlow, 1998). This mine is also controlled by native princes who take and hold the most valuable part of the diamonds found here.
SORTING After the rough diamonds are mined, they are passed on to the sorting experts to be sorted and valued in preparation for sale. There are thousands of different categories into which diamonds can be sorted, on the basis of their size, shape, quality and colour.
CUTTING AND POLISHING After the rough diamonds are sorted into different categories, they are sent to the diamond cutting and trading centres in Antwerp, India, New York, etc. the diamond cutting and polishing centres adds value to the rough diamonds by changing their 15 looks through cutting into different shapes such as oval, brilliant, the pear. Polishing follows the cutting, before the diamonds are again classified by their 4 Cs i.e. cut, colour, clarity and carat weight (web 4, 2007). This is one of the most crucial stages of the diamond supply chain. This step of the supply chain involves a major mark-up of the diamonds value. The centres that are able to find the most cost-effective, quality assured and safest means of cutting and polishing represent those that will be globally competitive in the future.
India has the finest diamond cutting and polishing centres of the world located in the cities of Surat, Mumbai, Ahmedabad, Navasari, etc. According to Radhakrishna (2007), almost nine out of ten diamonds of the world market are processed in Indian centres. One of the major reason that is considered for the success of Indian diamond cutting and polishing industry is the labour costs which is comparatively low ($.60 to$1.00 per stone) when compared to other diamond-cutting industrialized centres of the world(web 5, 2007).
JEWELLERY MANUFACTURING In this part of the supply chain, wholesalers or manufacturers buy unset, polished diamonds as per their demand. These diamonds are either sold by the wholesalers to jewellery designers, manufacturers or retailers. Using designs from jewellery designers, retailers, or in-house designers, manufacturers transform these diamonds into jewellery. Sometimes, manufacturers also produce diamond jewellery designed and commissioned by a retailer. There is also a great deal of value addition in this phase of the supply chain as the diamonds are finally modified into fashionable jewellery items.
RETAILERS This is the final stage of the diamond supply chain where diamond jewellery travels from the manufacturers to retailers who further sell them to the final customers or may be further to some small retailers. USA is considered as the largest market for Indian diamond jewellery, followed by Japan and so-on. According to a respondent (interviewee), there are retailers which have direct dealings with the US diamond merchants and have business transactions with them. Figure 2 depicts that the highest potential of profit lies in the retail segment. 16 SUMMARY POINTS
Indian diamond industry finds-itself at a cross-road, where retail demand has turned slack in leading world markets. There has been a remarkable fall of 17 per cent in the Indias export of cut and polished diamonds.
Reason accountable for this fall is that there are no active diamond-ore mines in India because of which industry has to rely upon the imported diamonds, whose prices are continuously rising.
Reason for the high prices :(a) substantial cost added By DTC, who manages the supply of rough diamonds in India,(b) the diamonds import are currently routed through Antwerp which adds substantial cost to these rough diamonds.
Israel also encounters the same dilemma of not having their own diamond mines but they have started joint-ventures with diamond mines in South Africa, which enables them to buy diamonds at comparatively cheaper prices then to buy from DTC. Secondly, Israeli diamond industry is also using some efficient marketing strategies to capture the world market for diamonds.
Diamond industry supply chain is divided into various stages- Exploration, mining, sorting, cutting and polishing, jewellery manufacturing and retailing.
The price of diamond rises exponentially as it travels from one stage to another.
17 CHAPTER TWO LITERATURE REVIEW
There is not much of research done by scholars on the dilemmas, encountered by companies operating in the Indian diamond industry in context of their supply chain and market selection phenomenon. Therefore, for the literature review, supply chain and market selection issues of the diamond industry is identified on the basis of the information available through the primary (interviews) and secondary source (journals, fact sheets, government reports, etc).
2.1 SUPPLY CHAIN MANAGEMENT As defined by Nichols & Handfield (2002), a supply chain encompasses a gamut of activities ranging from purchasing, manufacturing, logistics, distribution, and transportation to marketing to transform raw materials into intermediate goods and final products, and that deliver those final products from the suppliers supplier to the customers customer. The term supply chain management construes a set of approaches adopted with a view to integrate the operations of suppliers, manufacturers, warehouses, wholesalers and retailers, so that merchandise is produced and dispersed at the right quantities, to the right locations and at the right time, in order to minimize system wide costs while meeting the customer service level requirements (Simchi-Levi et al, 2006). However, Nichols & Handfield (2002) points out the significance of information flow. He argues that an ideal supply chain should incorporate both material and information flow, both up and down the supply chain.
2.1.1 IMPORTANCE OF SUPPLY CHAIN MANAGEMENT Simchi-Levi (2006) believes that a well-organized supply chain management is considered a yardstick for any companys growth. According to Thomas and Griffen (1996), SCM performs a dual function. Firstly, at the operational level SCM brings together several functions that have either direct or indirect impact upon the cost and play a key role in making the product, match the customers requirements i.e. from the supplier and manufacturing facilities, through warehouses and distribution centres to retailers and stores. Secondly, at the strategic level, SCM is a relatively new and 18 rapidly expanding discipline that aims to develop an efficient integration among various manufacturing and non-manufacturing departments of the firm in order to reduce misinterpretation between various departments of the firm that always contribute to an increase in the total system-wide overheads. Lambert and Cooper (2000) also agree that SCM aims to improve performance through better use of internal and external capabilities, in order to create a perfectly coordinated supply chain.
2.1.2 WRONG SUPPLY CHAIN MANAGEMENT CREATING ISSUES According to Bowersox et al. (2005), effective SCM is reliant on several internal and external environmental variables of an organization. Van Hoek (1998) argues that management has to face diverse obstacles to arrive at a responsive supply chain. These issues increase manifolds when the domestic supply chain is extended across national boundaries. There are an infinite number of fundamental issues that need to be managed such as uncertainty in demand, substantial geographic distances, forecasting difficulties and inaccuracies, exchange rates volatility, etc. (Cooper et al. 1997).
Kannabiran & Bhaumik (2005) offered some interesting insights into the Indian diamond jewellery sector in their research paper and focused on a companys challenges to turnaround through effective supply chain management initiatives. Their research was based on the supply chain of Tanishq (Indian diamond jewellery brand). Tanishq stepped into the Indian diamond industry in 1996 with its 69 boutiques across the country. Initially, the supply chain of Tanishq consisted of its raw material suppliers, manufacturing units; carry forward agencies (CFAs) and retail stores. Figure 3 represents a model of Tanishqs initial supply chain
INVENTORY MANAGEMENT ISSUE According to Kannabiran & Bhaumik (2005), the brand showed a positive sign initially but the profits were not apparent to the company. Tanishq suffered losses consecutively for five years. The company had to face a series of challenges which hampered the performance of their supply chain. It had a poor inventory management system. It was notified, that when the turnover of the business was $75 million, the cost of inventory was in order of $34 million. Also, the finished goods inventory was about 80 percent of the total inventory (Kannabiran & Bhaumik, 2005). Donath (2002), commenting upon the inventory management issue, believes that failure to understand the impact of individual decisions on the supply chain as a whole, is one of the major causes of the poor inventory management. However, Kannabiran & Bhaumik (2005) believes that the inventory problem existed because of the lack of ownership of finished goods and irregular indenting of material.
ISSUE OF LOSS OF SALES Another issue, identified was the companys loss of sales due to stock out though there was a huge amount of finished goods stock. This put Tanishq in a Catch22 predicament. Kannabiran & Bhaumik (2005) proposed two major reasons for the above situation, i.e., firstly, the poor delivery coordination in respect of orders and indents. Secondly, as supported by Gary Graham (2005), diamond jewellery is creative in nature and the designs should always be made considering the changing customer preferences. However, the managers of Tanishq ignored the preference of the customers and kept on ordering stock-designs which resulted in high non-moving stock. Moreover, they also faced the dilemma of poor visibility of stock in relation to 20 sales. All this resulted in creating a lot of confusion in the supply chain of the company.
ORDER DELIVERY AND ASSORTMENT PROBLEM Fisher (1997) advocated that high order lead-time and assortment of designs predicaments are very common in the creative sectors like diamond jewellery. Tanishq also faced the dilemma of lack of discipline in terms of indenting frequency, poor back-up conformance to order delivery and absence of tracking indent and delivery. Furthermore, the outlets and franchisees faced the problem of assortment which often resulted in blocking the capital on one side and losing sales on the other. Moreover, inappropriate assortment planning led to a high lead-time for order fulfilment. Kannabiran & Bhaumik(2005) viewed that the root cause of these dilemmas was the lack of proper communication between various departments.
ISSUE OF INSUFFICIENT STOCK As diamond jewellery is an expensive item and needs a lot of investment, it is not convenient for the retailers to stock large number of items of diamond jewellery. This created competition problem for Tanishq. This problem is illustrated with the help of an example, if a retailer stocks a wide variety of items, there are more possibilities that their designs will appeal to the customers, and for the retailer to make a sale. Otherwise, the customers will be impelled to visit other retailers.
2.1.3 IMPLICATIONS FOR ISSUES According to Krause (1999), efficient SCM helps in understanding critical issues and uses standard determinants such as inter-organizational communication, cross-functional teams in managing relationships, etc. to solve the above issues. Likewise, as in the case of Tanishq, a new Chief operating officer (COO) was appointed to look into the working of their supply chain. Several changes were made by COO to improve the defective functioning of the supply chain. A cross-functional team under the guidance of a leading strategy consultant was set-up to diagnose and map a comprehensive action plan.
ISSUE OF INVENTORY MANAGEMENT 21 In order to meet the predicament of inventory management, the COO of Tanishq introduced the concept of periodic inventory review (PIR) strategy. As per the PIR strategy, slow-moving designs were categorized and their production was rationalized. Simchi-Levi (2006) suggests that the PIR strategy is an effective tool that allows management to overcome their inventory management dilemmas. Also the cycle counting practice was introduced to check inventory management. As defined by Donath et al (2002), cycle counting practice is a system where part of the inventory is counted every day and each item is counted several times per year. This practice continues to blossom as the best practice amongst the managers of inventory.
ISSUE OF DUMP-STOCK Apart from this, a major step taken by Tanishq was to clean the non-moving stock which had accumulated for more than one year. It announced a price mark down campaign called impure to pure, where customers were encouraged to exchange their old jewellery for new jewellery. This helped in sweeping of the sludge from the boutiques. This move is a clear example of push-based strategy as the prices were cut down. This is evident from the following table. According to Simchi-Levi et al (2006), push-based strategy helps to meet the changing demand patterns. It also helps in clearing-off certain products for which the demand has disappeared.
CHARACTERISTICS OF THE PUSH AND PULL PORTIONS OF SUPPLY CHAIN PORTION
PUSH STRATEGY PULL STRATEGY OBJECTIVE MINIMIZE COST MAXIMIZE SERVICE LEVEL COMPLEXITY HIGH
LOW FOCUS RESOURCE ALLOCATION RESPONSIVENESS PROCESSES LONG
SHORT Table 4, Source: Simchi-levi et al (2006) ISSUE OF INSUFFICIENT STOCK 22 To overcome the problem of in-sufficient diamond jewellery stock, Tanishq introduced the concept of prototypes. In this concept, exact replicas of high value products (made of 9 carrot gold) instead of 18 carrot gold and diamond were made to use. In this, certain number of best selling designs were categorized by the company, which tend to sell fast in the market and original sets of these designs were kept in the factory and as soon as any order was booked, dispatch was made from the factory and the factory stock was replenished. According to Kannabiran & Bhaumik (2005), this move considerably worked very well for the company as it helped in offering a substantial range of designs of high-end jewellery for the customers to choose from. This made the business more responsive with the same investment.
Apart from this, the company started vertical integration with other diamond merchants of the market. They started with the consignment sale. They got their stock into stores on consignment. Vendors were paid as the sales happened and the unsold stock was returned to the vendor. This initiative helped the company in terms of meeting the customer requirements, less order lead time and reduced inventory with more stock designs. Pitelis and Sugden (2000) adds that vertical integration reflects a trade-off in any industry. It helps both the parties to improve their profitability as both the party complements each other.
ISSUE OF ASSORTMENT AND ORDER LEAD TIME In order to meet the order delivery and assortment dilemmas, initiatives such as weekly indenting system with indent limit computation, compressing indent processing time, declaring variant wise lead-time and monitoring and declaring weekly production alignment helped to improve the inventory management and operations. The company also made use of IT system. A web-based IT initiative was taken to connect all boutiques, CFAs and factory. The system offered visibility on the status of orders placed by boutiques and production was coordinated with an ERP based system. According to Kannabiran & Bhaumik (2005), immediate results were visible after this initiative. Locke (2004) also agrees that IT system is the best means to bridge the communication gap between variant departments.
DILEMMA OF REGIONAL COMPETION 23 Tanishq claimed various reasons why they got a tough competition from the local diamond merchants. Firstly, their jewellery was more expensive as compared to the others. This was because the company produced its own jewellery by hiring the best jewellery designers. Another reason was that that these hired jewellery designers could not compete with the regional Karigars who have inherited years of experience regarding the taste of their regional customers. So in order to control the cost of operations as it has a direct impact on bottom-line, the company stepped into outsourcing. Normally, a diamond jeweller manufacturer would take orders from customers and pass it on to middleman who employed goldsmiths to make the jewellery. So, the company made a direct contact with the best Karigars and developed ancillary units called Karigar Parks. This was an important initiative as it avoided the two-tire middlemen system which is still prevailing in the industry. This helped them to eliminate the substantial cost paid to middlemen and also helped them in adding an extensive range of designs to their collection. Dell, PC maker, also adopted the same strategy of removing the middlemen as it only adds a substantial cost to the company products (Holzner, 2006). According to Holzner (2006), Dell also believes to go straight, without using the two-tire middlemen system and increase the use of metrics. Figure 4 represents model of redesigned supply chain.
ISSUE OF SHOP-THEFT There always lies a problem of shop-theft in the trade of diamond jewellery. This predicament is common among the retailers. To overcome this problem, the companies have started using a new technology of Radio Frequency Identification 24 (RFID) technique.Some of the jewellers such as Damas of UAE have already realized its significance and have starting implying this in their retail jewellery business (web6, 2005)
2.1.4 SUPPLY CHAIN DECISION-MAKING MODEL According to Chopra and Meindl(2006), in order to improve the supply chain performance in terms of responsiveness and efficiency, the basic steps should be to examine the logistical and cross-functioning drivers of supply chain performance i.e. facilities, inventory, transportation, information available, sourcing and pricing. For achieving a highly responsive and flawless supply chain, the company must synthesize the right combination of the above drivers such that for every driver, there should be a trade-off between efficiency and responsiveness based on interactions with other drivers. The model on next page, given by Chopra and Meindl(2006), shows how a supply chain should be designed with the help of right combination of the above mentioned drivers.
25 Figure6: SUPPLY CHAIN DECISION-MAKING MODEL
Efficiency Responsiveness
Supply chain structure
Logistical Drivers
Cross functional Drivers
Source: Chopra and Meindl(2007)
2.2 ESSENCE OF MARKETING IN IMPLEMENTING SCM Competitive strategy Supply Chain Strategy Facilities Inventory Transportation Information Sourcing Pricing 26
According to Kotler (1988), the term marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational goals.
According to Mentzer and Min (2000), the theory of the marketing concept, a market orientation, relationship marketing and SCM cannot be divided. Many academicians believe that marketing plays a pivotal role in the implementation of supply chain management. A market orientation has several positive impacts on SCM implementation. Firstly, a firms orientation generates valuable market information that forms basis for building, maintaining, and improving supply chain relationship. For instance, if a firm has information about the market variables i.e. customers, suppliers, competitors, socio-political environments, and technological trends, it could easily frame an efficient supply chain which serves its customers needs, coordinate its marketing efforts, restructure its organizational system and achieve high-quality performance(Mentzer and Min, 2000).Secondly, as suggested by Cooper et al. (1997), it further contributes to information sharing (through two-way communication) between parties within a supply chain, which facilitates relationship marketing that, in turn, could promote the implementation of SCM (Gundlach and Murphy,1993).
2.2.1 MARKET ASSESSMENT AND FACTORS INFLUENCING MARKET SELECTION
According to Kotler and Keller (2006), the primary step in choosing a market for operation, is to assess the long-term market potential of that market. Yoshida (1987) adds that market potential is one of the most pivotal factors in market attractiveness, its selection and constitutes a primary driver in company expansion into new markets. The incentive for a company to establish operations in a selected market (foreign as well as domestic) depends upon numerous factors that can be categorized into three broad categories: internal, external and the mixed (internal/external category). A company should consider these factors before entering a new market. INTERNAL FACTORS 27
COMPANY STRATEGIC ORIENTATION As explained by Koch (2001), companies develop their strategic orientation to give an insight view of their individual and group experience, values and attitudes of their current and retired employees. It also reflects the changes in the business environment and strategic objectives established for the company (Hamel and Prahalad, 1994). Koch (2001) suggests that strategic orientation may have a strong influence upon parties to collaborate with their competitors that, in turn, affect the process of business expansion.
COMPANY STRATEGIC OBJECTIVES According to Koch (2001), there are no rigid strategic objectives that the company should follow. These objectives may be of various types as they are dependent on the company tradition, industry specificity or personal interests of those who formulate these objectives. For instance, some of them may aim to establish the company as a market leader or may be they can try to reduce risks by aiming for an average growth of the company. Johanson (1997) suggests that the strategic planning is an important factor in assessing the growth in the market. Therefore, the company should take enough time to set its strategic planning in order to select the right market with long-term market potential in it.
MARKET SELECTION EXPERIENCE In context of market assessment, experience is an important factor in shaping strategic directions, business culture to achieve good judgment skill (Koch, 2001). In absence of sufficient, relevant experience, information and understanding, there always lies a stronger sense of risk and uncertainty involved in the marketing decisions (domestic as well as global) which acts as a restriction in the freedom of choice of market to be selected.
COMPANY COMPETITIVENESS According to Koch (2001), when a company wants to enter a new market, the success of the company in the new market environment is always contingent on the companys possessing or being able to access, certain capabilities and skills. For instance, if the company plans to go global but does not possess enough resources, 28 then the company will eventually will not be able to perform well as they are not competitive in the international market. Therefore, these factors hold a vital importance when the company is exposed to a wide array of business situations.
STAGE OF INTERNATIONALISATION According to Johanson (1997), the internationalization stage examination is useful only when the company plans to go global and looks for potential in the overseas market. According to Koch (2001), company strategic orientation and company competitiveness (globally) highly influences the stages of the company internationalization. On one hand, company strategic orientation minimizes the company interest in the progress of internationalization. While on the other hand, company competitiveness depending on its level, either speed up or delays the advancement of company international involvement.
MIXED FACTORS-(INTERNAL/EXTERNAL CATEGORY)
OWN/ACCESSIBLE RESOURCES According to Koch (2001), during a market selection, the companies that have majority of their own resources or have access to required resources are less restricted as compared to those who neither have their own resources nor they have access to required resources. Therefore, during a market selection, numerous strategic options of various strategic alliances are gaining popularity and have to be considered.
NETWORKING According to Johanson and Mattson (1988), there are several ways parties from different markets come in contact with other parties i.e. through participation in international trade fairs, exhibitions, sharing same suppliers-dealers-buyers, through strategic alliances and so-on. Nouwens and Bouwman(1996), adds that companies operating in a business environment which requires immediate information flow between parties prefer to find those market players which have an easy access to electronic equipments. Therefore, implication of rapid growth of e-commerce may also affect the selection of market.
EXPANSION SEQUENCE OPTIMIZATION 29 The biggest challenge during an expansion to foreign markets is to know an ideal sequence of entering them. According to Koch (2001), many companies enter foreign markets in a cascade manner i.e. starting either by focusing on markets which are considered least demanding and entering them, and then challenging foreign markets, as their experience, competencies, know-how, capabilities are enhanced with time. Secondly, companies can also enter foreign markets, where there is a good demand for some new products, and it attracts parties for a commercially viable proposal and then moving the markets that follow the pioneers. But Koch (2001) feels that the best sequence of market expansion should be to look for a company to use its resources efficiently and sustain its growth.
Bora (2002) argues the use of internationalization theories such as Dunning eclectic paradigm and Uppsala model, in order to enter a foreign market. He believes that Dunning (1988) eclectic paradigm and internationalization theories like Uppsala model explains firms internationalization as a pattern of growth which should be an incremental process, starting with the exports in the target country etc. to familiarize with market conditions for its smooth growth (Bora, 2002).
EXTERNAL FACTORS
COMPETITIVE POTENTIAL OF MARKET Hodgson and Uyterhoeven (1962) considered market potential as the most common criterion used in market selection. Porter (1990) also suggests its significance as it tries to explain why particular countries have a good home market for specific industries by identifying national attributes such as demand conditions, related and supporting industries, firm strategy, structure, entry barriers and internal rivalry which is influenced by two uncontrollable factors: the government and chance( Sakarya et al, 2006). Elliot and Cameron (1994) suggest a market which has a good demand of the product-line, free from government barriers, with strong competitors are the best for a market selection. However, Samli(1977) argues that even though, market potential has a lot of significance while choosing a market, it is often underestimated while selecting a market. As a result, the company has to suffer and is not able to meet its expected results. ESTIMATED OVERSEAS MARKET RISKS 30 Overseas market risks assessment is also a very important aspect of market assessment. Czinkota (1998) claimed that international business risks can be divided into three categories- (1) ownership risks, (2) operating risks that includes exchange risks, over-investment and price controls related risks and (3) transfer risks. Koch (2001) points out that in the absence of some prescribed method for calculating risk, the role of perception increases significantly.
CULTURE DISTANCE According to Koopman (2000), cultural characteristics play an important role during a market selection. Hofstede (1980) distinguished culture on five dimensions- power distance, uncertainty avoidance, individualism/collectivism, masculinity /femininity and time orientation. He believes that company should choose to expand in a market which has a similar culture to the home market or the company should learn to adapt cultural characteristics. According to Chng(1993), certain ethnic groups(e.g. Chinese) prefer to develop business networks on the basis of shared ethnicity.
CUSTOMER PREFERENCES Another important determinant of choosing a market is to find the consumer receptiveness towards the business for a specific industry as well as the companys country of origin/ home market. Apart from this, the purchasing power of the consumers is also an important criterion which cannot be ignored while assessing the market potential (Sakarya et. al., 2006).
AVAILABILITY OF LABOUR According to Sakarya et al (2006), another key factor for choosing a market is to identify the availability of labour services, in that area. For instance, the company will prefer to choose a market where the labour services are easily available and are comparatively cheap then to choose a market where labour services are rare and expensive
MARKET STRUCTURE 31 According to Jaworski et al (2000), examining the market structure is very crucial while choosing a new market for expansion. Market structure can either be market-driven or can be driving-markets. As defined by various authors, in the market driven structure, the company needs to acquire knowledge, in-depth understanding and accordingly has to address to the perceptions and mind-sets of various players within in a given market structure. In contrast, in a driving market structure, the company needs to change the composition or role or behaviour of the players in the market in a direction such that competitive position of the business is enhanced manifolds (Jaworski et al, 2000).
Figure7 Source: Jaworski et al (2000)
Jaworski et al (2000) suggested three basic approaches (deconstructionist, constructionist & functional modification) to modify the market composition under driving market structure. According to Brandenburger and Nalebuff (2000), deconstruction approach involves the elimination of players in the industry value chain that adds subsequent cost to the product. The players can be wholesalers, distributors, retailers, etc. For instance, Calyx and Corolla practiced the channel deconstruction approach to eliminate the wholesalers, distributors and retailers by training people in flower arrangements and then shipping directly to the end user using courier services. This move helped the company to cut down the subsequent cost (discount), given to the wholesalers and further down the supply chain (Jaworski 32 et al, 2000). The elimination approach can also be practiced on the suppliers in order to access either a lower cost position or increased functionality.
The constructionist approach involves the addition of players into the industry value chain. Jaworski et al. (2000) believed that there are two ways to bring in more players in the market structure i.e. by building a new web of players or by increasing the number of complementors. The third strategy for shaping the market structure is to modify the functions performed by other players in a market. For instance, virgin mega stores, when compared to standard retail store, offered a unique environment that included the music, kiosks and a more modern in-store environment (Jaworski et al, 2000).
2.2.2 MARKET FACTORS: DILEMMAS FACED BY COMPANIES
MARKET STRUCTURE According to Morris (2004), DeBeers (through DTC) has a strong monopoly position in the Indian diamond industry, handling around 90 percent of the rough diamonds in India. She is considered as a cartel i.e. an independent producing company which aims to enhance her profit by means of price fixing, limiting supply or other restrictive practices (Economist print, 2004). Diamonds are produced at a very cheap price but DeBeers maintains an artificial high price for its diamonds. She has modified the diamond industry structure from driven-market to market driving. Accordingly, she sets the rules for the diamond industry. Due to the high prices being charged for the diamond jewellery, people in India, as customers, consider diamonds as a luxurious commodity.
Moreover, in order to dominate the market, it adopted a monopolistic approach. As per this monopolistic approach, it established contractual relationships with the mines in Africa and other parts. This contractual relationships did not give chance to these mine-ore countries to develop with full-fledge (Economist print, 2004). Therefore, these state-mines such as Argyle mine of Australia, Russia and Miba in Congo have realized this and have either partly or wholly decided to sell directly to the market after adding its profit margin which gives tough challenge to DeBeers 33 diamonds, cost-wise (diamond industry report, 2001). According to our interviewee, the sales of the DeBeers have also come down due to its high prices. Therefore, the market driving structure may sometimes create obstacles in the companys success.
COUNTRY-OF-ORIGIN The diamond industry also suffered tough challenges due to its country-of-origin effect. The term conflict diamond is very common in the diamond trade. As defined by global witness (2000), conflict diamonds are diamonds which originate from areas in Africa controlled by forces fighting the legitimate and internationally recognized government of the relevant company. As the international consumers became aware of this issue, the sale of diamonds went down all over the world. This issue got highlighted after the release of the movie Blood Diamond as consumers stopped purchasing these diamonds. Therefore, the country of origin has a dual effect on the companys growth.
MARKET CAMPAIGNING According to Kannabiran & Bhaumik (2005), wrong marketing campaign can also create problems for the diamond companies. For instance, Tanishq, when launched initially built its image as a luxury. Therefore, there was an attempt to create a niche market. This had a negative effect as this campaign only focused on the higher income groups that accrues only a small percentage of the Indian population. However, this campaign did not succeed and the brand was running into losses. Therefore, the company was forced to change its target market and the advertising campaign which now, focused on the middle class people which is considered as mass effluent segment as it has the highest potential in the Indian jewellery market.
SUMMARY POINT Supply chain management is considered an important yardstick for the growth of any company. It aims to integrate the operations of various departments of a supply chain to reduce any kind of confusion.
34 Incorrect supply chain practices, in context of Indian diamond jewellery trade can raise problems such as inventory management issue, loss of sales, high order delivery, shop-theft issue, regional competition and assortment issue.
Possible techniques to overcome the above issues can be the PIR strategy, cycle counting practice, price cut down strategy, vertical integration, weekly indent system, RFID technology.
For achieving a highly responsive and flawless supply chain, the company must synthesize the right combination of the drivers (facilities, inventory, transportation, information available, sourcing and pricing) such that for every driver, there should be a trade-off between efficiency and responsiveness based on interactions with other drivers.
Marketing plays a pivotal role in the implementation of SCM as it gives valuable market information that forms basis for building, maintaining, and improving supply chain relationship.
For selecting a market for operation, three kinds of factors should be considered. (a) internal such as companys strategic orientation, company objectives, market selection experience, company competitiveness, etc. (B) mixed factors such as networking, own/accessible resources, expansion sequence optimization and (c) external factors such as potential of market, overseas market risks, customer preferences, etc.
The organizations must consider the above factors before selecting any market for operation/ implementing their supply chain otherwise companies can face problems such as of conflict-diamonds, wrong campaigning causing loss of sales, losing trust of suppliers due to monopolistic approach.
35 CHAPTER-THREE RESEARCH METHODOLOGY
This section illustrates the methodology adopted in carrying out this research. It explains the different viewpoints on research methods, together with reasons for choosing the specific research methods, in accordance with, the research objectives.
Every research is carried with some specific objective and it is very essential to derive the right methodology tools to achieve these objectives. Miles and Hubberman (1994) suggest that it is very crucial to figure out the suitability and limitations of choosing an appropriate method, so that suitable precautions can be taken to achieve increased validity and reliability of the research.
3.1 RESEARCH PURPOSE As defined by Yin (2003), every research is classified into three categories i.e. exploratory, descriptive and explanatory. Exploratory research aims to investigate a specific problem area, which is not commonly explored by researchers. Descriptive research refers to imparting information regarding a certain topic. In this research, there is nothing much to explore other than giving information regarding a topic. Explanatory or conclusive research is the one in which the researcher tries to obtain something conclusive with the help of hypothesis that are tested empirically (Yin, 2003).
Since, this dissertation aims to serve two purposes i.e. firstly, it aims to investigate the predicaments, the industry has to face due to inappropriate supply chain and market selection approaches; secondly, it gives recommendations to overcome these issues, therefore, this research will be categorized as an exploratory as well as a conclusive research.
36 TWO APPROACHES OF METHODOLGY-QUALITATIVE AND QUANTITATIVE There are two distinctive approaches for conducting any research-qualitative and quantitative.
As defined by Gephart (1999), qualitative research is a type of research that produces findings by not using the statistical procedures or any other means of quantification but by concurrent use of multiple tools such as interviews, conversational analysis, participant observation, etc. which are essential for understanding the human behaviors, social movements, cultural phenomena that largely drives any society.
As defined by Mujis(2004), quantitative research is type of research that explains phenomena by collecting numerical data that are analyzed using mathematically based methods.
The basic difference in these two approaches is the collection of data. Quantitative research depends upon numerical figures, equations and hypotheses whereas; qualitative research solely depends upon researchers experiences with its subjects to understand the various relationships. However, both of these approaches have their pros and cons, when applied for understanding various patterns of relationships. Therefore, both the methods are not suited for all the researches. However, Punch (2005) argues that both the methods can be combined as per the research objectives. Therefore, it is very important for the researcher to select the most appropriate method for carrying out his research as wrong methodology could lead to a false research (Denscombe, 1998).
According to Ambert et al (1995), qualitative research has a slight edge when contrasted with quantitative research. Firstly, it enables the researcher to learn how and why do people behave or think in a particular manner rather than generalizing the whole concept based on a large sample of the population. Secondly, during a qualitative research, a researcher finds new unexpected information while 37 interviewing its respondents which is not possible in the latter method, as it limits the choices of the respondents.
This research upon supply chain management and appropriate market selection in context of Indian diamond industry is a highly complicated topic as there is not much empirical evidence available on this topic. Secondly, being one of the most creative sectors, has to be dealt very carefully. Qualitative research was chosen to get a close view of the realistic dilemmas that predominantly lies in the industry due to inappropriate supply chain and market assessing approaches, which have started to create obstacles in the path of this upcoming sector. This clear picture would have been possible only through personal interviews (qualitative technique) with people involved in this industry. On the other hand, quantitative research would have limited the information.
3.2 DATA COLLECTION- MULTIPLE TOOLS According to Miles and Hubberman (1994), qualitative research encompasses multiple tools that use interpretive, naturalistic approaches to its subject, to collect its data. Yin (2003), points out six different types of methods for collecting data. These are documentation, arrival records, interviews, direct observations, participant observations and physical artifacts. It is very essential for the researcher, to choose the most appropriate method of data collection, considering their strengths and weaknesses, while using them.
Since, this dissertation uses interview method for collecting data through primary sources, a little more information will be given to support the decision of choosing interview methods for this research.
WHY INTERVIEW METHOD WAS CHOSEN As defined by Lewis et al (2006), an interview is a personal discussion between two or more people. It is one of the most successive techniques used under qualitative research methods, to derive valuable information from the interviewee. Interview method has a number of advantages that makes it the most suitable technique for collecting data in certain situations. According to Reidenbach and Goeke(2006), the main advantage that favours personal interview is the flexibility provided by the 38 personal interviews, especially, by unstructured personal interviews. There is a greater ability to delve for meaning behind responses to questions, which makes this approach most suitable especially, when researching complex issues. Further, interviews also help in discovering any unexpected data. An interview also enables the researcher to establish trust and rapport with the respondent, which often helps in extracting information especially which is considered confidential (Jones and Gratton, 2004). Therefore, personal interview techniques are considered as strengths of qualitative research as it helps in accessing meaningful and accurate data from its respondents.
According to Punch (2005), there are three distinct types of research interviews- structured, semi-structured and unstructured interviewing. Structured interviews are the most standardized interviews, where researcher develops a specific hypothesis and frame questions in a specified way. They are quite useful as they increase objectivity. They are a good option but sometimes it can go wrong as the fixed questions and responses may overlook qualitative aspects of the situation. Unstructured interview are referred to as unguided interview. In this, the researcher does not follow any specified questions. It is considered as a good method of data collection but it is not suitable for hypothesis testing. The third type of interview is the semi-structured that includes a series of open-ended questions. It is considered as the safest option as it enables a researcher to gain in-depth knowledge about the topic. It is also suitable for hypothesis testing. According to Lee and Humphrey (2004), semi-structured interviews allow respondents a degree of freedom to express their thoughts upon the areas of interest and expertise that they felt they had.
For this research, data collection was done through primary and secondary data sources.
3.2.1 PRIMARY SOURCE For this research, primary data was collected by conducting semi-structured interviews with participants who have had years of past experience of working or running the diamond jewellery business in India. This was done to gain a better understanding of their views regarding the predicaments faced by them, which was 39 possibly, due to the employment of inappropriate supply chain and market selection approaches. The interview questions were framed, in accordance with, the main objectives of this research i.e. to find the dilemmas, faced by them, in context of their supply chain and market selection phenomenon. Secondly, to find all the possible innovative approaches exercised by them, to solve those issues. It was preferred, keeping these questions open-ended as it gave participants, the freedom to express, which helped in extracting some unexpected information from them.
3.2.2 SECONDARY SOURCE According to (Stevens et al, 2005), there are two sources of secondary data collection- an internal source and external source. Internal sources data refers to the data formulated by the companies such as annual reports, sales reports, etc. On the other hand, external data refers to data provided by the external parties such as fact sheets, government reports, etc.
For this research, secondary data was collected through journals, books, articles, diamond industry fact sheets. Apart from this, few past research work upon supply chain and marketing assessing complexities in context of diamond industry was very helpful especially for the literature review and for framing questions that formed a yardstick for this research
3.3 DATA ANALYSIS According to Spiggle (1994), one of the most difficult stages of any research is its data analysis i.e. how the data collected through various methods is to be analyzed. For the data collected in this research through interviews, a framework given by Spiggle (1994) was used. As per Spiggle framework, the first stage deals with the classification of data. The term classification construes categorization of the interview questions into different groups having similar characteristics. The second stage is known as abstraction, involves sub-division of the above groups into more general classes. This is done to remove complexities during data comparison. For the comparison of data, firstly, similarities in the data sets are identified and are then compared with data sets having different viewpoints. Secondly, advantages and disadvantages of each data sets are recognized and then, the one having advantages over the other data set is considered as the best. 40 3.4 QUALITY OF DATA As stated by Yin (2003), there are four tests in order to check the quality of the data collected.
Construct vlidity : This refers to constructing correct measures for the topic being researched.
Internal validity : This refers to establish a casual relationship for obtaining reliable data from the respondents.
External validity : This refers to create a domain where the findings of a study can be taken a broad view.
Reliability : This refers to the data collected which should be highly reliable. This can be done if the data is collected through interviews of respondents dealing with the same subject.
According to Yin (2003), there are several ways of improving the quality of the research. For increasing the construct validity in this research, several sources of evidence was used. These were compared with each other to cross examine the data. The sources used during this research are interviews (face-to-face), fact sheets, other journals and past research studies upon the supply chain and marketing selection in context to diamond industry. Further, the internal, external validity and reliability increased as the data collected through interviews was cross examined by the literature review.
41 SUMMARY POINTS
Qualitative Research method has been chosen for this research, as it enables the researcher to learn why, companies face various dilemmas in context of their supply chain and market selection and secondly, how, they overcome these issues.
Data collection was done through primary and secondary data sources.
Interview method was chosen as the main source of primary data because it provides flexibility and also helps to delve for meaning behind responses to questions during a research.
Semi-structured interviews were conducted to collect data from the respondents. It further helped in discovering unexpected data from the respondents.
Spiggle (1994) framework was used for data analysis.
Cross examining of data helped in enhancing the validity and reliability of this research.
42 CHAPTER FOUR
SAMPLE SELECTION FOR RESEARCH
This section discusses in detail about the interviews which were conducted during this research. It also throws light upon the samples selected for the interviews, followed by a subsection which gives information about the background of the sample companies, whose participants were chosen for conducting the interviews to accomplish this research.
4.1 INTERVIEWS: SAMPLE SELECTION For the interviews, five participants were selected, which comprised of two at the post of wholesaler sales executives (northern and central India) of two well known Indian diamond brands i.e. DeBeers and EROS diamonds. The prominent reason to choose these brands was to get an insight of the challenges encountered by them as they are the Indias leading branded companies dealing with diamond jewellery. Secondly, they also enjoy a good reputation overseas. Another two interviewees are the entrepreneurs of two diamond jewellery companies of Delhi (India) operating as wholesalers, who have a lot of experience in exporting diamond jewels. The last interviewee is a retailer, who has a direct dealing with the end consumers.
For this research, a range of different players from the industry (i.e. branded company, wholesaler and retailer) were selected. This was done to get an overall in- depth understanding of the issues (relating to supply chain and market selection), together with the innovative approaches practiced by the different companies for solving their problems, at each level of the supply chain. The interviews with the first two participants (EROS Diamonds and DeBeers) were taken face-to face. Other interviews were taken over the telephone. In an interview, it is very difficult and important to gain the trust of the respondent. Therefore, by telling them the importance of these interviews for this dissertation and by also giving them sufficient information about the course and the subject of the research helped the researcher in developing cordial relations with them. One of the sample interviews has also been attached in the appendix 1.
43 4.2 BACKGROUND OF SAMPLE COMPANIES CHOSEN The first company chosen for the interview is the EROS Diamonds company which is quite a new name in the Indian diamond industry. But due to its stunning and fine-looking designs and strong marketing promotions, the company has developed into a strong brand amongst the Indian customers of jewellery. The second company chosen is DeBeers i.e. a diamond brand that rules the whole diamond industry of the world. In India, more than 90% of the diamonds traded come through DTC, an arm of DeBeers. Therefore, the company holds a monopoly and tries to exploit the industry by charging high prices for its items. Another two firms chosen for the interviews are of Jindal diamonds and Champalal diamonds that operate as wholesaler manufacturers and are situated in Delhi. These firms have their dealings in some parts of northern India. The last firm chosen is under the name of Gajadhari jewellers. This firm operates at a retail level and has direct dealing with its customers.
SUMMARY POINTS
Five participants were chosen for the interviews, in such a way, that these participants represent players from every division of the supply chain of Indian diamond industry (i.e. branded company, wholesaler manufacturer and retailer).
Two of the interviews with the respondents from the branded companies (EROS diamonds and DeBeers) were taken face-to-face. Rest all the interviews were taken over the telephone.
44 CHAPTER FIVE
FINDINGS, ANALYSIS AND DISCUSSION
This section includes the findings and analysis from the responses of distinct interviewees and secondary data sources. For this part, key questions, in accordance with the research objectives, had been selected from the interviews followed by the views of different interviewees. With the help of the information gathered through interviews, content analysis was done, to arrive at possibilities, which impel the companies to choose various practices. This is followed by a discussion section, where the data collected from various interviewees is compared with the literature framework to examine the distinct viewpoints. The findings and comparison with the literature will help to derive the most successive tools for solving the issues that predominantly subsist in the Indian diamond industry.
5.1 FINDINGS AND ANALYSIS 5.1.1 SUPPLY CHAIN OF COMPANIES It was very important to include this question in the interviews as the main purpose of this research was to get an in-depth view of the supply chains of various companies and to understand the reasons that motivate them to adopt these supply chain models. Different companies implement different supply chains in their businesses in order to achieve their company objectives. Following are the supply chain models of various companies, whose management people were interviewed for this research.
EROS DIAMONDS (BRANDED COMPANY) According to the respondent (working with EROS diamonds), the company follows a very simple supply chain network. The company purchases its finished diamonds from its sole agent located in Mumbai (India), who have further dealings with agents in South Africa. The other raw materials (such as gold and gem-stones) are purchased from its approved suppliers. The company has its headquarters located in Jaipur which comprises of its head office (dealing with all paper work), the designing division, jewellery making section, cutting and polishing section and a 45 division for procuring raw materials. For the distribution purpose, the company has an extensive range of wholesalers, selected for different zones, which have direct dealing with the retailers all over the country and also match the demand of retailers situated overseas.
De Beers (BRANDED COMPANY) DeBeers is a legend and considered as a guardian of the diamond industry. According to the interviewee, the company buys its rough diamonds from its subsidiary company, i.e. DTC that procures its rough diamonds from more than twenty mines in Africa. The company has its own team of jewellery designers (regional as well as international). In India, the jewellery is manufactured in their in- house warehouse which is located in Mumbai (the most specialized in these operations). The company has its offices, located in every metropolitan city of India. The head office has assigned specific wholesaler for a particular region, to meet the demand of the retailers of that region. Apart from this, the company has also started to open its outlets across the country. Appendix 2 represents the model of supply chain followed by De Beers.
JINDAL DIAMONDS (WHOLESALER MANUFACTURER) According to the respondent (working with Jindal diamonds), the company meets its diamond requirement from its suppliers from Surat (Gujarat).The company has a head office situated in Delhi (India). It has a team of efficient jewellery designers, who conceptualize the various jewellery themes and frame various designs. Further, the company hires a workshop and gives the approved designs to the Karigars (goldsmith). The jewellery manufactured is sent to the head office, where it undergoes the tagging procedure. For the distribution purpose, the company has divided its area of operations into different zones. One salesman is appointed for managing the operations of one specific zone. It is the responsibility of the salesmen to meet the demand of different retailers of that particular region.
CHAMPALAL JEWELLERS (WHOLESALER, DIAMOND MANUFACTURER) As per the respondent of this company, the company has a manufacturing house situated in Delhi. Its major suppliers of finished diamonds are from Mumbai. This 46 company hires a team of efficient regional goldsmiths. All the manufacturing is done inhouse. The company has a wholesale cum retail business. It has one showroom and an office. The retailers approach them at their office and buy jewellery from them. Therefore, the company has characteristics of a pull-supply chain.
GAJADHARI JEWELLERS (RETAILER) As per the respondent of this firm, this firm manages a very simple supply chain network. The firm acts as an intermediary between the wholesalers and the end use consumers. The firm does not manufacture any jewellery of its own. It relies upon multiple wholesalers for meeting its jewellery demand. It has a direct dealing with the end users i.e. customers.
It is observed that companies follow different supply chains, in accordance, with their objectives and suitability. But for the diamond jewellery product, which is highly innovative and fashion-based, none of the above supply chains is responsive in nature.
5.1.2 DILEMMAS ENCOUNTERED DUE TO INEFFICIENT SUPPLY CHAIN MANAGEMENT The interviews were conducted with the aim to uncover the various problems that these companies were facing due to their inefficient supply chains. Each of these problems has been discussed in detail below.
EROS DIAMONDS According to the data collected through the interviews, it was found that even though the company had developed a robust system in context of its supply chain, it still had to face few problems due to its rigid pipeline. Firstly, the company has a problem within the internal supply chain co-operation amongst its various divisions. For example: there is always a misunderstanding between the orders placed (for gem- stones and diamonds) and the actual raw-materials received. This is due to the deviation in size/colour/shape of stones required and received. All this adds extra inbound cost and also delays the manufacturing process. Secondly, the company faces the problem of long order lead time. This means that if an order is placed by the retailer, it takes a lot of time to be fulfilled. Lastly, the company also faces tough 47 competition from the regional diamond merchants as the jewellery of this company is considered comparatively expensive, when compared to those manufactured by other regional companies and brands. This problem was also sighted by another interviewee (retailer), who is also an authorised retailer of this brand.
It seems that the lack of co-operation among various departments is due to the lack of effective communication between them. There appears to be a communication gap between the various departments which is hampering the effective functioning and co-ordination of the company. The company also doesnt make use of IT systems to keep a healthy co-ordination among the various departments.
De Beers As per the respondent, the company has a perfect supply chain which gives the company an advantage to become the market leader. However, the companys monopolistic approach has created problems in the past. Due to its monopolistic approach, the company is exploiting the market by charging high prices for its diamonds. With recent times, DeBeers items are facing a tough challenge from the items produced by regional manufacturers. This is evident from interview with another respondent (retailer), who believes that the diamond jewellery produced by regional manufacturers is very cheap, when compared with the prices of DeBeers.
Moreover, the company maintained contractual relationships with its suppliers such as mines in Africa. As per these contracts, DeBeers only purchased rough diamonds from them and did not make any effort to develop these countries by opening diamond processing centres in these countries. This has restricted the company from building long-term relationships with its major suppliers i.e. state- miners in Africa. Lastly, the technique of supplier of choice adopted by DeBeers further restricts the buyers from buying the finished diamonds from DeBeers freely. This creates an inflexible market purchase opportunities as it allows only its selected buyers, chosen by DeBeers, to purchase its diamond jewellery.
It is observed that even though DeBeers has a good reputation in the market but still the company has to suffer due to its monopolistic approaches. DeBeers items face tough challenges from the regional diamond manufacturers because of its high 48 prices. Also, from the customers viewpoint, a customer will always opt for items that are of a good quality and designs with cheaper prices.
JINDAL DIAMONDS According to the interviewee, the biggest dilemma faced by the company is associated with its assortment of jewellery designs i.e. it is extremely difficult to distinguish the fast-moving designs from an immense range of designs that are manufactured by them. The company also faces a dilemma of high order lead time.
It seems that both the dilemmas faced by the company appear to be complementary to each other. As the company is unable to categorize its fast-moving designs, it does not keep a bulk stock of their specifically fast-moving designs due to which, many times the company is unable to meet the demand of the retailers in time.
CHAMPALAL JEWELLERS As per the interviewee, there are a large number of unseen issues that lie in their supply chain. One of the issues identified is related to their raw-material procurement. It construes that many times there is a lot of difference between finished diamonds ordered and diamonds received, in terms of their size, colour, clarity, etc. because of which they have to be returned. Secondly, the diamonds given to the goldsmiths, for fabricating jewellery, are sometimes replaced by them. The goldsmiths use inferior quality diamonds in place of the good quality diamonds provided to them. As it is very difficult to differentiate these diamonds in the entire range of the jewellery, these inferior diamonds are also sold with the bulk stock. Due to this, the total quality maintained by the company gets disturbed. This is one of the uncontrollable dilemmas encountered by the company. Moreover, the company, like other players of this industry, has to face the problem of assortment of designs.
There are always some loop-holes in every supply chain which cannot be controlled by the company. The second dilemma mentioned above falls under such category. Other problems listed, such as assortment of designs and raw material procurement is common, that subsists in this business.
49 GAJADHARI JEWELLERS According to the interviewee, the biggest problem encountered by the firm is to manage the competition. As suggested by him, to meet the competition level, quality, price and quantity has to be maintained. As diamond jewellery is an expensive item, it is very difficult for the small retailers to stock large number of items of diamond jewellery; this reason chiefly contributes to the competition level. This is illustrated with an example, if a retailer stocks a wide variety of items, there are more possibilities that designs will appeal to the customers, and for the retailer to make a sale. Also, there is a problem of shop-theft i.e. from the entire range; the jewellery often gets stolen, which contributes to unmanageable losses which the retailer has to bear. Another problem encountered by the firm is that a certain percentage of its stock consists of the out-dated designs that just block a major part of the firms capital.
It seems that the first problem of facing competition is a common dilemma in every business. Secondly, the major cause of shop-theft is that diamonds attract everyone as they have a high value-to-weight ratio and are easily exchangeable for cash. This is the major reason for the people to target diamond jewellery for thefts. Another reason which accelerates shop theft is the availability of a huge range of stocks due to which, it is very easy to steal one or two items. Moreover, the issue of increasing out-dated stock is partially because of wrong assortment of designs.
5.1.3 INNOVATIONS ADOPTED BY COMPANIES TO ADDRESS THE SUPPLY CHAIN DILEMMAS There was a dual purpose of including this theme in the interviews. Firstly, it helped in analyzing the latest approaches which have been adopted by the companies to rectify the errors that subsist in their supply chains. Secondly, it identifies the reasons which impel the companies to still stick to their existing supply chains, even though it creates problems.
EROS DIAMONDS According to the interviewee, the company is focussing on a new technique known as Collaborative planning, forecasting and replenishment (CPFR).This 50 technique aims to assess and generate a unified demand through careful forecasting (using IT technology) and tries to manufacture its products accordingly. Further, for pushing the out-dated designs that exist with the retailers, the company rotates the sludge items from one retailer to other regional retailers.
It is observed that the company adopts very innovative approaches. The CPFR technique adopted will help the company in producing an adequate quantity of items required as per its demand plus it will reduce the over deployment of resources required. In addition, it will also help in solving the problem of assortment of its fast moving designs and therefore, reducing out-dated designs from the entire collection. Further, the technique used for out-dated designs will also help in pushing the sales of the slow-moving designs as the out-dated designs of one region can be sold in a different market as different markets have distinct tastes.
DeBeers As per the respondent, the company have started re-networking relationships with African Government by establishing their own diamond processing centres in Africa. This helped them in building confidence amongst the African government. Further, it shortened their diamond pipeline as diamonds are now sourced and processed at the same place. This enables them to cut down their manufacturing cost. It seems that it is an excellent move by DeBeers as it solves the major issues that exist in their supply chain.
JINDAL JEWELLERS According to the interviewee, the company has not made many changes in its pipeline. The assortment of designs dilemma is still same for the company. For solving the high order lead time problem, they have provided catalogues with enough designs to its retailers. For this, the company ensures that she has a ready stock of various designs and also produces the stock in bulk. Therefore, as soon as any order is received from any of the retailers, the particular item is dispatched immediately.
It is observed that the company has not made many changes in their supply chain. The approach taken by them to solve the high order lead time by producing 51 enough stock is still incomplete without a proper assortment of designs. This is so because if the company assorts its fast-moving designs and mainly focus on the production of only assorted designs, the company can deploy its resources more adequately.
CHAMPALAL JEWELLERS According to the data collected through interviews, the company has gained a good control over its assortment problem. The company kept an up-to-date record of the designs which had been more in demand as compared to the others. This was done periodically for six months. After six months, the fast selling designs were categorized and company rationalized the production of their slow moving stock.
It is observed that the company tried its best to overcome the assortment problem with a method similar to periodic inventory review. However, the company did not take any action for solving misunderstandings with their suppliers in context to the raw materials ordered. This is probably, due to lack of proper communication. According to the interviewee, the order for finished diamonds, to its suppliers, is done over the phone. It may be possible that, with the use of IT and web based programs, the problem can be resolved.
GAJADHARI JEWELLERS According to the interviewee, for meeting the problem of shop-theft, the firm has installed CCD cameras for viewing and recording every action in the showroom. It has helped in reducing the occurrence of shop-theft. Further, for ensuring enough variety of designs, the wholesalers provide a catalogue to retailers with enough designs. For the out-dated stocks no major steps have been taken.
It is observed that the move of installing the CCD cameras in the showroom, have acted as a good solution for the problem of shop-theft. Also, with the availability of catalogues with gamut range of designs, it is easier for the retailer to convince their customers.
52 5.1.4 FACTORS TO BE CONSIDERED WHILE SELECTING A NEW MARKET The main purpose of including this question in the interview was to identify the distinct factors that should be considered while selecting and entering a new market. In addition, it helps to identify the various possibilities for the companies to face problems while selecting a new market for operation.
As per the respondent from Eros diamonds, while selecting a new market, a number of factors have to be considered such as study of the prosperity index of the market like purchasing power etc., taste of people, market trends, competition level in the market, customers motive of buying jewellery i.e. for fashion or for investment purpose. Another respondent believed that the market structure and cultural differences also play a very significant role in the selection of the markets.
Interviewee of DeBeers suggests that apart from the external factors, the internal factors within the company should also be considered such as the companys past market selection experience, companys competitiveness i.e. its potential to work when exposed to a large and different business environment. Apart from the above, other important factors pointed out by the wholesaler, while selecting an overseas market are the availability of labour, government EXIM policy, tax structure. For instance, India is also blessed with availability of cheap labour for the cutting and polishing of the diamonds. This factor allows India to rule the cutting and polishing diamond industry in the world.
A careful analysis of all the above factors is very crucial before entering any market as they provide the guidelines for selecting any market for operations. The ignorance towards these factors can impel an organization to choose inappropriate markets, which may create problems for an organization. This may have an adverse affect on the companys growth. For instance, if the company does not have the potential to work in a huge business environment and still decides to compete with the big players, the company, most probably, will obtain results that are below their expectations. Therefore, it is very important that all the major factors should be 53 considered and only if the company is satisfied with the chief market factors and believes that it is appropriate for them, they should opt for it.
5.1.5 PROBLEMS ENCOUNTERED BY COMPANIES WHILE ENTERING A NEW MARKET AND STEPS TAKEN TO OVERCOME THEM The purpose of this question was to get an insight into the problems that were faced by the companies while entering a new market. Moreover, it also brings to light, the steps taken by them to overcome their problems.
As per the respondents of EROS diamonds, the company has to face various problems such as lack of awareness of the brand, competition from existing players and also, being a new brand, it was difficult for the company to build trust amongst the customers. However, these issues are solved by doing heavy advertising through print advertisements and media, marketing promotions, organizing shows, etc. As per the respondent of DeBeers, the company does not face many problems while entering any market as it has a good reputation worldwide, in the diamond industry. In India, in fact, the company has a monopoly as major part of the diamonds used in India are supplied by its subsidiary company i.e. DTC. Therefore, the company itself shapes the pipeline of diamond industry. However, one dilemma stated by the respondent was the issues created due to conflict diamonds which had cut down their sales significantly all over the globe. This problem was solved, by providing Kimberlite certificate with every item that certified that their diamonds are free from conflicts.
According to the respondent from Jindal diamonds, the company faced problems of convincing the retailers regarding the quality and prices offered by them. When asked about the companys exports, he disclosed that the company had a very bad experience while operating overseas. The company initiated its exports in collaboration with one of the dealers in USA. The business went very well initially, the orders were placed, delivered and the payment was made on a regular basis. But after sometime, the dealer vanished without making any payment to the company for the items that were consigned to him. Eventually, the company had to face a big loss.
54 The above interviews show that none of the above companies have used any marketing theories to analyse the market potential before entering a new market. According to Bora (2002), models such as the Uppsala model, Dunning eclectic paradigm, etc. are considered to be the key tools for analysing and entering any new market. On the basis of primary observation, the company cannot arrive at a decision, whether it will work or not. The ignorance of these marketing theories by the Jindal Jeweller, may contribute to the possible reasons, for the company to choose a wrong dealer for their operations.
The techniques of heavy advertising being used by EROS diamonds, helps the company to resolve its marketing dilemmas. But, on the contrary, the expenditure on these techniques may also have an influence upon the price of the items manufactured by them. Another problem of conflict diamonds was due to the ignorance of the company with regards to the working atmosphere, from where it mined its rough diamonds. This problem can be categorized under the criteria of country-of-origin. However, the company managed to solve this problem quite efficiently by providing certificates for the diamonds being conflict free.
5.2 DISCUSSION This research has helped to unfold certain realistic phenomenons that were not covered in any of the researches in the past. This part includes a detail discussion upon the dilemmas associated with the supply chain and market selection criterions, where the root causes of the dilemmas are analyzed. This is done by comparing the viewpoints of distinct researchers and the interviewees. This is followed by a critical evaluation of different remedial tools, by considering the various pros and cons, while implementing them
5.2.1 DILEMMAS ENCOUNTERED BY THE COMPANIES
WHY INDIAN DIAMOND IS LOSING MARKET IN USA AND OTHER PARTS The research helped in unfolding one of the possible reasons, which is responsible for the continuously mounting prices of Indian diamonds. These highly 55 elevated prices are accountable for the fall of demand for Indian diamonds in the US market, which is considered the biggest market for Indian diamonds since ages.
It is very surprising, that people in trade know that the prices of diamonds are very high. But people hardly try to find out the reason behind it. It is evident from the value chain analysis (Fig. 2) and also from the diamond pipeline graph (appendix 3) that the mining cost of diamonds is not very high. Even the diamonds are mainly processed in Indian cutting and polishing centres, situated in Mumbai and Surat (Rao et al, but still they have a very high price. This shows, that this elevated price for diamonds is maintained artificially by DeBeers, who has a monopoly in the supply of diamonds in India.
To solve this problem, the government should try to activate its ores available in Panna, Chattisgarh and other parts of the country (Radhakrishna, 2007). Also the Indian companies should try to go in for joint-ventures with mine-states directly in order to obtain diamonds at comparatively cheaper prices. This will help to obtain the rough diamonds at comparatively cheaper rate and then Indian diamonds can again find their place in the world diamond market.
SOME COMMON DILEMMAS PREVALENT IN THE PIPELINE
ISSUE OF ASSORTMENT OF DESIGNS The most common predicament that is being encountered by most of the players of this industry is associated with the assortment of designs. As it is one of the most creative sectors and is highly influenced by the fashion trend, it is very important for the diamond jewellery traders to have designs collection which conform to the requirement of their customers or else they have to bear the problem of dump- stock.
As synthesized from the various interviews and literature review, it becomes clear that this problem does not lie at one stage of the diamond industry. It lies throughout the supply chain i.e. starting from the sourcing of rough diamonds and continues till the items are sold to the end-users. As suggested by Kannabiran & 56 Bhaumik(2005), the root cause of this problem is the lack of communication between different departments.
For solving this problem, several researchers have provided distinct tools. As suggested by Simchi-Levi (2006), organizations may have multiple techniques to choose from such as PIR strategy and cycle counting practice to overcome the dilemma of assortment. Kannabiran and Bhaumik (2005) suggested that this problem can be solved effectively by the implementation of weekly indenting system. This is evident from the case of Tanishq, who implemented the weekly indenting system to solve its assortment problem and got immediate positive results.
On the other hand, majority of the interviewees also solved their assortment issue by using the similar techniques, mentioned by the researchers. But, one of the interviewees helped in discovering a very simple and useful tool by which multiple issues can be resolved by the implementation of a single approach. The CPFR approach suggested by one of the interviewee, plays a very significant role in this creative business as it reduces out-of-stock items, rationalises the over deployment of resources and improves the transparency in the supply chain. As explained by Fliedner (2003), it is a web-based effort to integrate the various activities of different supply chain trading departments by exchanging internal information with the use of web server. This technique aims to forecast and generate a unified demand across the supply chain. According to Fliedner( 2003), CPFR is the best technique to cope with fashion trends as it performs multiple functions including improvement in overall chain competitiveness, transparency and cost structure which are uprising issues in this industry. Therefore, it aims to transform, the current supply chain of diamond trading companies, into a more responsive or customer attuned supply chain, which is desirable for an innovative and fashion based product like diamond jewellery (Bidgoli, 2004).
However, the CPFR cannot be suggested as the best technique for solving the above issues. As stated by Fliedner(2003), there are certain limitations involved with the CPFR technique. As mentioned by Fliedner(2003), this technique aims to co- ordinate the various activities of different departments, for which, it assumes that all the departments have one shared target. However, in the realistic business scenario, 57 there always lie different targets for each department in a supply chain. Therefore, it contradicts the basic objectives of the CPFR technique. Further, the company should also consider the fact that it is extremely difficult to manage the forecast review processes, of both sales and order forecast, at the same time. Moreover, there always lies a possibility of lack of trust while sharing crucial information, which can possibly create problems while implementing the CPFR technique. But, if the company consider the major draw-backs before implementing the CPFR technique, it can overcome the limitations of CPFR technique.
ISSUE OF DUMP-STOCK Another issue of dump-stock is also very common in this creative industry. This problem gives rise to other issues such as it blocks the capital of the business on one side and forces the wholesalers/retailers to face loss of sales due to shortage of stock designs. This issue is also inter-related with the assortment problem. For instance, when the traders are not able to assort their fast moving designs, they tend to collect stock which is left as sludge.
For dealing with this problem, Kannabiran & Bhaumik(2005), suggested a new push strategy called impure to pure in which the prices are cut down for sweeping these out-dated designs. The interviews helped in discovering one more tool from the branded company point of view; in this the company rotates the sludge items from one retailer to another retailer. This tool is quite useful because designs which dont have demand at one place can have demand at other regions due to cultural differences. It is clear that the latter tool suggested by the interviewee is better than the former one, as no price is cut down and items are sold at the same profit.
ISSUE OF HIGH ORDER LEAD TIME For the high order lead time, the views given by the interviewees and distinct authors are quite similar. Both of them believes that this problem can be solved by assorting the fast moving designs and the manufacturers should have enough stock of its fast moving designs, so that, as soon as any order is received from the customer, the delivery is made quickly. It seems that the move by EROS diamonds of using CPFR technique will be helpful in solving this problem, as it will help in placing the orders quickly, with the use of the web-based IT programs. 58 SOME UNCOMMON ISSUES The research also pointed out some uncommon dilemmas such as shop-theft, lack of maintaining long-term relationship with suppliers, etc. All these were discovered during the interviews with the various respondents. The shop-theft dilemma creates obstacles specifically for the retailers. In order to overcome this problem, the retailers are using the CCD cameras to view and record the every movement in the showroom in order to check the occurrence of shop-thrift. However, I believe that the recent technology of Radio Frequency Identification (RFID), which is an important enabling technique of ambient intelligence, can also be used for checking shop-lifting in the jewellery retail sector. In fact, some jewellers such as Damas of UAE have already realized its significance and have starting implying this in their retail jewellery business (web 6, 2005)
5.2.2 FACTORS TO BE CONSIDERED FOR SELECTING AND ENTERING A NEW MARKET As suggested by various researchers, supply chain management goes hand in hand with the phenomenon of appropriate market selection. According to Mentzer and Min (2000), the theory of the marketing concept, a market orientation, relationship marketing and SCM cannot be divided. In order to improve the supply chain proceedings of a company, it is very essential for the company to study the market factors carefully before entering a new market. Kotler and Keller (2006) also argues that if the company does not consider all the major market based factors before choosing a market, she has to face obstacles which can hamper the company from achieving its expected goal. Therefore, there is no doubt that the consideration of vital market factors plays a pivotal role in the selection of an ideal market.
IGNORANCE TOWARDS FACTORS This research has helped in bringing up certain important factors, which were being overlooked by the people working in this industry, in spite of their relative significance while choosing an appropriate market for operation. While comparing the various factors enlisted by the distinct interviewees with that listed by the past researches, it was found that certain factors such as government EXIM policies and 59 tax structure, which hold immense importance while selecting new markets have been ignored in the past researches. However, it is also observed that the industry people tend to overlook certain key factors for selecting a new market such as companys strategic orientation, market selection experience, companys competitiveness, own/accessible resources, expansion sequence optimization and calculating market risk involved.
ROLE OF INTERNATIONALIZATION THEORIES Apart from the above factors, a company, while entering a foreign market, should also make use of internationalization theories such as Dunning eclectic paradigm and Uppsala model, which is considered to be the safest way of entering any market (Bora, 2002). It is considered as an incremental process which helps, the company, to familiarize with the market conditions for its smooth growth.
However, the interviewees ignored the use of these theories while entering a foreign market. This is one of the reasons that contributed to the loss suffered by one of the respondents firm who started trading in U.S.A. If the company had followed the international marketing theory or had considered the key factors listed above carefully, the chances of the occurrence of that incidence could have been very less. Therefore, these internationalization theories help in the smooth growth of (overseas) supply chain.
LACK OF AWARENESS OF BRAND Another issue brought up by one of the interviewees is that of lack of awareness of brand and also for new brands, the company cannot build trust amongst the customers. As suggested by one of the interviewee, this issue can be solved by heavy advertising on print and media, marketing promotions, organizing shows, etc. But, the company has to be very careful while designing its ad-campaigns. They should try to focus on the mass effluent segment. As stated by Kannabiran and Bhaumik(2005), Tanishq also faced problems due to wrong ad-campaigns. However, he solved this issue by redesigning his ad-campaigns which now focused upon mass effluent segment i.e. middle class people.
60 SIGNNIFICANCE OF MAINTAINING LONG-TERM RELATIONS IN A SUPPLY CHAIN This research has highlighted the significance of maintaining long-term relations within a supply chain. This is evident from the case of DeBeers, which had contractual relationships with the mines in Africa and other parts. This contractual relationships did not give chance to these mine-ore countries to develop with full- fledge (Economist print, 2004). Therefore, these state-mines have realized this and have started making direct transactions with other companies of the world. As per the respondent, DeBeers realized this point and have started re-networking relationships with African Government by establishing production centres in African mining countries and thus making an effort to shorten the diamond pipeline. This is also evident from the literature review (Economist print, 2004). This will help them to build confidence amongst African governments. Moreover, it will help them to cut down the cost of manufacturing by integrating the stages of diamond manufacturing at one place which was earlier scattered all over the world i.e. they use to buy rough diamonds from one place, process it at other place and sell it at different place.
SUMMARY POINTS
Organizations encounter various dilemmas associated with the assortment of designs, high order lead time, lack of co-operation, procurement of raw- materials, issue of dump-stock, issues associated with shop-theft, issues associated with the appropriate market selection.
High price of Indian diamonds is due to the monopolistic game being played by DeBeers. This accounts for the fall of demand for Indian diamonds in the world market.
Companies face dilemmas because of communication gap between the internal departments, their ignorance towards the important market-factors.
61 There are several remedial tools such as PIR strategy, cycle counting practice, weekly indenting system, and CPFR technique to overcome the dilemmas in context of the supply chain.
CPFR technique gives a multiple solution but has certain drawbacks such as lack of trust in sharing information, wrong assumption of shared targets for all the departments in a supply chain.
For solving the problems related with the market selection, it is required that the organizations should carefully consider factors such as purchasing power of people, taste of people, market trends, competition level in the market, customers motive of buying jewellery, availability of labour, government EXIM policy, tax structure. The importance of internationalisation theories such as Uppsala model and Dunning eclectic paradigm should also be taken into consideration, while entering a new market.
62 CHAPTER SIX
CONCLUSION AND IMPLICATIONS
This section includes the conclusion derived from this research. Firstly, it will highlight the certain predicaments that were unnoticed by the industry. Secondly, it will give a series of managerial implications to overcome such problems. Lastly, it discusses some of the probable reasons which contribute to the limitations of this research.
This dissertation has helped to capture certain unseen issues that are prevalent in the Indian diamond industry due to inappropriate supply chains and market selection practices. Further, this has helped in discovering certain competitive tools that can be applied by organizations to overcome their major predicaments that are related to their supply chain and market selection phenomenon.
6.1 IDENTIFICATION OF DILEMMAS
6.1.1 DILEMMAS IN RELATION WITH SUPPLY CHAIN MANAGEMENT This research identifies a gamut of flaws that prevail in the supply chain system adopted by various organizations, operating diamond jewellery business in India. The biggest issue currently being faced by the industry is related with the sourcing of its rough diamonds. The majority of rough diamonds that are traded in the Indian diamond industry come through the DTC channel (Mining review Africa, 2005). DTC charges an artificially high price for her diamonds as she has a monopoly in the rough diamond supply in India. Further, as diamonds move down the supply chain and undergo various processes of cutting, polishing, jewellery manufacturing and retailing, the dilemmas keep on increasing.
At the manufacturing stage, the chief dilemmas that lie are associated with the assortment of fast-moving designs, misunderstandings between the manufacturer and its suppliers and problem of long order lead time. Even the wholesalers experience the similar issues that are encountered by the manufacturers of diamond 63 jewellery. Apart from these common issues, some of the unexpected dilemmas encountered by the retailers are associated with shop-theft and dump-stock.
It is also observed that the monopolistic approach (followed by DeBeers) such as exploiting the countries of Africa (having abundance of mining ores) have created difficulties in maintaining long-term relationships with its suppliers, which has immense importance in gaining trust, support and co-ordination of the suppliers in a supply chain. Beside this, other dominating practices such as charging high prices for its diamonds and choosing supplier of choice have raised serious issues for DeBeers.
6.1.2 DILEMMAS IN RELATION WITH MARKET FACTORS FOR SELECTING APPROPRIATE MARKET It is also observed during the research that organizations have ignored the importance of marketing factors while implementing their supply chain practices. They do not consider all the major market based factors, before selecting any market. The major factors unfolded during this research are the companys strategic orientation, its past market selection experience, companys competitiveness and its potential, own/accessible resources, expansion sequence optimization and calculating market risk involved, government EXIM policies and the tax structure applicable in the market selected (Koch, 20001). Ignorance towards these factors may impel the organizations to choose inappropriate markets for their operations, which may raise various issues for organizations and therefore, hamper the companys growth.
Another important issue that was notified during this research was the lack of knowledge among the market players regarding the significance and applicability of internationalization theories while exposing the domestic supply chain at the international level. However, several researchers such as Bora (2002) believe that these theories should be the key steps for selecting and entering any foreign market. The theories such as Uppsala model and Dunnings eclectic paradigm help the companies to grow step by step. It also enables a company in gaining a better understanding of the market factors. This enables the company to grow smoothly in a new market. Therefore, the companies must consider the internationalization theories 64 coupled with above mentioned market factors while selecting and entering a foreign market.
The research also brings into light an important reason which is the lack of Indian governments support in promoting the market for diamond jewellery in other countries. This highly accounts for the fall of demand for Indian diamond jewellery in U.S.A. This is evident from the case of Israel where a Government body of IDI helps to promote the Israeli diamond industry in other potential markets of the world (web3, 2006).
6.2 MANAGERIAL IMPLICATIONS For solving these problems, several methods have been recommended in this research. One of the most common dilemmas of assortment of designs can be solved by implementation of PIR strategy, Cycle counting practice or CPFR technique. For reducing the misunderstandings between various departments, the CPFR approach gives the best solution as it helps in sharing information with the use of latest web - based technology (Fliedner, 2003). Further, for dealing with the dump-stock, two methods were discovered stock rotation and selling items at a cheaper price. It is believed that the former method of stock rotation has an upper hand over the latter as the companies do not have to bear loss by selling the items at lower prices.
On the whole, it is recommended that the organizations should try to use a single tool of CPFR which shall give solutions to multiple problems encountered by the industry players at different stages. It will help in transforming the current Indian diamond industry supply chain into a more responsive one, which is desirable for innovative and fashion based products such as diamond jewellery (Bidgoli, 2004). However, while implementing the CPFR technique, the company should also consider its drawbacks. The major drawbacks involved while implementing the CPFR technique in any supply chain is related with its aim to co-ordinate the various activities of different departments for which it assumes a shared target for all the departments. However, in a realistic business scenario, there always lie different targets for each department in a supply chain. Therefore, this contradicts the basic objectives of the CPFR technique. Further, the company should also consider the fact 65 that, it is extremely difficult to manage the forecast review processes of both sales and order forecast at the same time. Also, as stated by Fliedner (2003), there always lies a possibility of lack of trust while sharing crucial information. Therefore, all the above drawbacks should be considered while implementing the CPFR technique.
For solving the issue related with sourcing of rough diamonds, the government should try to understand the significance of diamond ores for a countrys development and should try to overcome this issue by making serious efforts to activate the diamondore bodies such as of Panna, Chattisgarh and other parts of the country (Radhakrishna, 2007). Further, the government should also try to go in for joint- ventures directly with the mine-ore countries like Africa, Russia, and Australia etc. to overcome the monopolistic game played by DeBeers, through its subsidiary company, DTC. Also, the government should try to promote the Indian diamond jewellery by organizing shows, exhibitions and thus, create a profitable market in other parts of the world.
6.3 LIMITATIONS OF THIS STUDY Even though, throughout the research, several precautions were taken to avoid any kind of limitations in this research. However, there is a possibility that this research suffers from certain drawbacks. Firstly, as this study is merely a starting point of research in this area, there was no specific yardstick to follow. Secondly, answers given by the respondents, during their interviews, may have been biased as it could not be cross examined by other participants of the same company. Lastly, the solution tools suggested to solve certain issues may not always bring successive results, as stated in this study. This is because all the markets are divergent in respect of their characteristics (size/ market structure/market factors etc.) and it may not be suitable to imply these remedial tools in all the companies with divergent characteristics.
6.4 GUIDELINES FOR FUTURE RESEARCH Although this research is merely a pioneer attempt in this field, it still gives directions for researchers to explore this topic in-depth and dig out the facts about the dilemmas that are being encountered by the Indian diamond industry due to 66 inappropriate supply chain and market selection phenomenon. This is one of the most sensitive areas of investigation as it will help in identifying and curing the major dilemmas that hinder the Indian diamond industrys growth. This study will also have an important commercial viability as it will give guidelines to the organizations involved in diamond jewellery business to frame competitive SCM strategies to improve the structure of their supply chains to match the ever changing market requirements and address different issues that exist in this industry.
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75 APPENDIX 1
Interview with a participant of EROS Diamonds .
1. How has been the market position of EROS diamonds over the years?
Eros, considering the fact that it is only three years old, has enjoyed a reasonably good position in the industry. It has developed a strong brand recall amongst the customers of jewellery. And has gone on to become the market leader in India, in the area of coloured stones and diamond jewellery.
2. How is your experience working with the company?
It has certainly been an exhilarating experience working with Eros. I have grown both personally and professionally with Eros. Each day has brought in new learning and challenges. And the whole experience can be compared with that of raising a child.
3. From where does the company buys/ mines its raw diamonds?
The company doesn't buy raw diamonds but only finished ones from the sole agent from Mumbai that further have dealings with agents in South Africa.
4. What steps does it undergo while manufacturing its diamond jewellery?
The steps are as follows:
Conceptualization of various themes Designing of jewellery based on the selected themes Procurement of raw materials like gold, diamonds, pearls, etc. Cutting and polishing of gemstones required as per the design Master making Casting of jewellery piece Rhodium polishing
5. How each manufacturing steps adds value to the final product?
As the basis for any diamond jewellery is its superb designs which attract most of the customers segment. Therefore, a main step in our manufacturing process is the designing of the jewellery. After that, the product value 76 increases gradually with every step i.e. collection of raw materials followed by cutting, polishing of gemstones and rhodium polishing. After an ornament is ready the company adds its profit percentage to its cost price and fixes the price of the final ornament.
6. How cost expenditure is ranged during every step of production?
The cost expenditure varies with every step of manufacturing. The maximum cost expenditure is incurred on the procurement of various raw materials. Further the company also pays its jewellery designers who play a vital role. Then the company also has to consider the various advertising, inbound, fix and variable expenses which Eros Diamond incurs. The final cost also includes the companys profit as well as the profit of its authorized wholesalers and retailers.
7. How does the company currently manages its supply chain network i.e. from its raw- materials to its finished products in the market?
After the design is finalized, following steps are taken:
Procurement of raw materials like gold, diamonds, pearl from approved suppliers Cutting and polishing of gemstones required as per the design is done in-house (The company's primary business is of manufacturing and export of loose coloured stones) Casting of jewellery piece and finishing Various levels of quality control checks Tagging of jewellery piece with details like contents and price with bar-codes Packaging The jewellery is than issued to the wholesalers, appointed for different parts of the country and the world, for distribution to the authorized retailers. All the paper-work is managed by the head office situated in Jaipur.
8. What dilemmas are faced by the company?
Although, it is quite a robust system with accountabilities at various levels but there is always some scope of improvement everywhere, especially in the field of long order lead time. There is also a problem of maintaining the internal supply chain co-operation among various departments such as the suppliers of the raw materials (diamonds and other gemstones) and the jewellery designers who do not approve the gems stones sent by their suppliers (many times the suppliers send stones which cannot be used for the jewellery designed due to confusion with the size/ colour/ shape of stones).Also, the company faces problem of competition from the regional diamond merchants.
8. Did the company use any innovative techniques to overcome the dilemmas, faced by the company? 77
With respect to jewellery, accountability at all levels is of extreme importance, and so is safety. Therefore, it is important for a jewellery company to forecast the demand of its products and should produce the product accordingly. As inspired by foreign companies such as Wal-Mart, etc. the company has started focusing on a new technique of collaborative planning, forecasting and replenishment (CPFR). In this, the company tries to generate a single demand by forecasting the requirement of the product in future. Also, it makes use of IT-web based technology which combines the activities of all the trade players of Eros diamonds Supply chain. This is turning out to be a useful tool as it helps the company to develop co-ordination among the internal departments. Also, it has checked the problem of assortment of designs which is common in this business. Lastly for meeting dilemma of dump-stock that lies with the retail dealers of the company, EROS diamonds has started to rotate its items from retailer of one region to retailer of other region. This has proved quite handy for the company.
9. Does Eros diamond is an international brand. How many countries the company has its dealing with?
Yes, Eros Jewellery is an international brand with its supplies to the USA, UAE, Qatar, Bahrain, Morocco, Nepal and Japan.
10. What things do the company has to consider when it enters into a new market?
Study of the prosperity index of the market like purchasing power, etc. Taste of people Market trends Competition level Have to study the factors like whether people buy jewellery as fashion or as an investment tool
11. What are the general problems that are faced by the company while entering a new market?
Lack of awareness of the brand Competition from existing players In jewellery, it takes a substantial amount of time to build trust amongst the customers Convincing retailers to try the brand or to try something new
12. How does the company currently deal and will deal to overcome such problems?
By advertising heavily on both print and electronic media 78 Marketing Promotions Organizing shows and events to show case the collection for the retailers A strong sales drive consisting of the an experienced team, to educate the retailer and its staff about the jewellery and new concepts Sales calls at selected retailers to appoint them dealers
13. How does the company deals with its competitors?
By introducing newer designs By marinating the quality standards Keeping prices competitive By introducing various sales schemes for the customers By providing target oriented incentive programs to the retailers By organizing annual sale cum exhibition at all retailers
14. Did the movie Blood Diamond or conflict diamonds created any problems for the company?
No. Not such because the company provides the certificates with every purchase That their diamonds are free from blood/ conflict diamonds.
15. What general suggestions you would like to give to the company in order to reach the top position in the diamond industry?
Maintain the quality Keep pricing under check Keep providing incentives to the retailers to ensure good sales Hire new designers from different schools to ensure freshness of the brand Introduce newer concepts and some accessories too Be on a constant look-out for cost-effective marketing opportunities
NAME: KAPIL BHAGIA
DATE: 30/06/07 DESIGNATION: WHOLESALER SALES EXECUTIVE (NORTH & CENTRAL INDIA)