Australian Precious Stones and Jewelry market exported to Japan Essay Example

Australian Precious Stones and Jewelry market exported to Japan Essay Example Australian Precious Stones and Jewelry market exported to Japan Paper Australian Precious Stones and Jewelry market exported to Japan Paper 1.0 Executive Summary The Australian jewelry industry is somewhat unique when compared to various others. One of the primary factors is that it enjoys a large natural resource base from which it can draw from to produce and manufacture its products. This is particularly true when it concerns precious and semi-precious stones such as diamonds, opals and pearls. As things stand, the Japanese market is one that appears to be significantly lucrative to enter for an Australian jeweler. In spite of the economic downturns facing the country, its economy is many times larger than the Australian economy thus ensuring that trade opportunities will continue to exist even in the face of the economic stagnation. Additionally, the changing status of jewelry to little more than just another fashion trend means that jewelers who are able to bypass the many steps in the distribution channel and/or have access to raw materials without additional import charges will be able to catch the shift in market layout as more importance is placed on affordability and fashion. Furthermore, statistics has shown that there continues to be a steady demand for jewelry thus providing an opportunity to adaptable businesses as specialist stores suffer a withdrawal of customers who appear to frequent the supermarkets for jewelry. 2.0 Background The Australian jewelry industry has a variety of raw materials to draw from for its production of jewelry. First and foremost of all is the supply of diamonds from the Argyle mines which fall into the three categories of pink, champagne and white diamonds. Being the not only the sole mine in Australia to produce diamonds, but among the largest in the world, the Argyle diamond mine is responsible for more than a third of the worlds supply of diamonds and thus is one of the most technologically advanced mines in existence. Since its conception in 1986, the Argyle mine has produced diamonds in an increasing number from the 29 million carats in the first year of production to steadying out at an average of 35 million carats from 1994 onwards. Not only are Argyle diamonds unique to other diamonds due to their hardness, the fact that the rare, highly valued pink diamonds can be steadily sourced from the mines means that Australian jewelers have a monopoly on the sale of such rare stones th rough an exclusive network set up by Argyle. Australia also enjoys significant natural deposits of high quality opal which totaled at $120 million for the year 1996-1997 alone. In fact, the deposits are so large that Australia accounts for almost 100% of the worlds top quality opal since natural deposits elsewhere are situated near volcanic regions with the exception of Brazilian opal and are generally of inferior quality. The only downside to this particular industry is the fact that mining is usually carried out on an individual business and thereby resistant to vertical integration and more efficient large scale mining operations. 3.0 Business Environment 3.1 PEST Analysis Political In terms of political factors influencing the exporting of gemstone decorated jewelry, there are several in effect. The first of these factors would be the tariffs that effect gold silver and platinum jewelry. Any silver and platinum jewelry would be subject to a general tax of 6.2% while jewelry using other precious metals would be subject to a 6.6% tariff (JETRO, 1998). Additionally, the tariff rates for each type of jewelry depends on whether it receives preferential, WTO, temporary or general rates (Appendix 12). Preferential rates have no tax whatsoever and are applied only imports meet conditions stipulated by statute and the administration. WTO rates are applied if and when its rates are lower than temporary and general rates. There are no legal restrictions regarding the importation of jewelry to Japan save for its Customs Tariff Law which prohibits counterfeit coins and designs which infringe trademark and design rights as well as the Washington Convention ratified in 1980 prohibiting trade of materials containing ivory or coal (Jewelry Trade Commission). Although there are no official regulations in regards to the sale of jewelry, there is however an identification program established voluntarily by the industry known as the Whole Mark and Quality Mark Program. The Whole Mark is used as proof of pure precious metal content in products stated to have them and usually consists of symbols indicating home country and level of quality. The Quality Mark on the other hand is almost the same but has the added measure where the mark is created and registered by the Japan Jewelry Association and is used to establish the responsibility of the labeler and guaranteeing the quality of the jewelry (JETRO, 1998). One example of this quality mark can be found on Appendix 13. Economic In the recent years, Japan has noted a distinct slowdown in its economy and is becoming somewhat stagnant despite several hundred trillion yen being spent on economic stimulus packages by the government. Despite this trend, some changes are occurring which could possibly contain news of benefit to the Australian gemstones/jewelry industry. One of the first factors of note is that the Japanese economy is 12 times larger than the Australian economy (Austrade). As such, despite the economic growth stagnation that Japan is facing, its sheer size means that an opportunity for Australia will continue to exist barring any catastrophic occurrences. Social One of the interesting things to note in regards to the social perception to jewelry is the effects that it has had on the market share that various distribution channels have. In this aspect, it should be noted that supermarkets have gained an increase in jewelry sales while those of department stores remain mostly flat (JETRO, 1998). This would appear to be a direct consequence of reducing prices of jewelry and its increasing acceptance as just another fashion good. Based on the popularity of the royal family of Japan, it would appear that their usage of cultured pearls as apparel has significantly increased its popularity among the Japanese consumers (Austrade). As such, demand exists for South Sea pearls as well especially of the pinkish and naturally golden ones Another trend to note is the changing demand for jewelry types. As shown in Appendix 3, there was a 10% increase demand in volume for earrings and a minor increase of 1% in demand for pendants at the expense of demand for rings with the exception of engagement rings between the years 1992 to 1996. Additionally, Appendix 4 shows that there is a significant jump in spending on ornamental wear among certain age groups especially in the 25-29 years and 50-54 years age group. Technology Much of the technological concern in regards to the jewelry industry falls into two categories. One is the actual production of jewelry and the other would be the post sales service in terms of modifications and maintenance of jewelry with mechanical parts (i.e. watches). Almost all retail stores in Japan involved in the sale of jewelry devote considerable resources to after sales services which involve cleaning, repair, reworking and resizing and redesign services as part of an effort to maintain and expand their customer base (JETRO). However, certain repair operations simply cannot be carried out in Japan due to technical/logistical issues and require a return to the parent country before repairs can be carried out thus necessitating the need for foreign suppliers to maintain repair facilities for just such an occurrence. 3.2 SWOT Strengths One of the primary strengths that the Australian jewelry market has over others is that in terms of supply, Australia is among the largest suppliers of natural diamonds across a wide variety of stones as well as being the undisputed primary supplier of high quality commercial opals. As such, Australian jewelry utilizing locally acquired natural precious stones will be able to cover wide range of markets due to their extensive range of raw gemstones to draw from. Additionally, with the exception of Brazil, all non-Australian opals are located in or near volcanic regions (Costellos). Australian opals and are typically mined by individuals and small groups and are located in comparatively more hospitable areas. This fact of heavy competition, combined with the factor that Australia is reputed to supply 95% of the worlds opals, means that there is significant pressure to provide and to corner as much of the possible market share as possible. As a result, prices for raw opals cannot command a high rate since the market structure would resemble a near perfect-competition market. With pearls, the Australian industry has an advantage over other producers as the Australian Cultured Pearl is of such high quality at harvesting that it requires no bleaching, tinting, dying or skinning in order to prepare it for setting (Costellos). Since these steps are not required, the net price of the pearls would be lower in comparison to other competitors offerings. Weaknesses One of the primary weaknesses of the industry is that its primary diamond mining operations in Australia is solely dependent on a single diamond mine known as the Argyle diamond mine located in the Kimberley region (Costellos). In the event that unforeseen circumstances curtail or disrupt the mining operations and adversely affects the supply, the regular supply of local diamonds for the entire Australian jewelry industry would be halted. As a result, the entire chain of production and distribution would be disrupted, possibly causing loss in market share as competitors step in to fill up the gaps. Another weakness facing the industry is that due to the fragmented nature of opal mining operations, the existence of a coordinated and well organized supply structure is virtually non-existent. Just as the fragmented nature of the opal mining operations prevents a monopoly or dominant supplier from existing; it also prevents producers from utilizing vertical integration. Added to this problem is the fact that the opal fields are beginning to run out indicating that prices will begin to rise as supply dwindles (Costellos). Opportunities Japan is completely dependent on foreign sources for all of its precious stones and metals with the exception of quartz, onyx and pearls (Austrade). As matters stand, the combined economic size and sheer dependence on foreign sources for materials, the Australian jewelry industry will find a more than receptive market for its products. Additionally, Appendix 1 indicates that although there is some fluctuating in the sale of jewelry with precious stones during the years 1988 to 1996, the overall sales volume is stable and does not appear to be susceptible to any drastic fluctuations in the near future. As shown in Appendix 6, despite the reduced average price that was indicated during the years 1992 and 1996, overall volume of sales for all types of jewelry (gold, silver and platinum) increased. Despite the economic downturn of 1991, the increase in volume and value of jewelry sold is a good indicator that the market for jewelry is still active and demonstrates significant growth potential. Threats Major threats facing the Australian jewelry industry is the existence of rival competitors from various other countries. Already, market leaders in terms of volume exported exist among various countries such as Thailand with its export of 23.1% in the year 1996 (Appendix 7, Appendix 8) and the United States coming in at 2nd place with a total export amounting to 17.6% of the total jewelry exports to Japan. 3.3 Market Analysis Entering the Japanese market is not a simple matter. Corporate networks in Japan are closely knit and in some ways, similar to the traditional communal family structures found there. As such, finding a good importer to purchase the products will require at least an introduction into the network by an intermediary of some prominence and influence. Without such an introduction, entry into the market by exporting alone would be difficult since distributors would be likely to be more wary about a new exporter who acks endorsement unless the company already enjoys an international reputation. However, this difficulty of entering the market is somewhat lessened by the fact that there are no tariffs or quotas to the import of the colored stones. With the economic prospects for Japan still uncertain, high priced products have begun to lose market share as lower priced jewelry takes the center stage. As such, consumers have begun to be more price-sensitive and are far more likely to choose an alternate source of jewelry in the event that they find it to be too highly priced for their tastes. At the moment, there are several leading exporters of jewelry and precious stones to Japan. Among them are brands such as Tiffany, Cartier, Bulgari and other well known brand names (Appendix 10). However, these companies are on the high end range of the market and usually position their products as top quality fashion items thus allowing them to place premium prices on their products and target the richer segment of the populace. However, medium and low cost jewelry suppliers who utilize retailers such as supermarkets also have a portion of the market and with the current growth in total sales of jewelry in supermarkets (Appendix 11), it is likely that their particular segment has significant growth potential. In fact, despite its small market share compared to other distributors, it is the only retailer to have experienced such a high growth in sales (22.9%) in the year 1992 indicating that market trends are shifting to increase demand for fashionable, yet affordable jewelry.