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DTC to Extend SoC Contract Period
Diamond Trading Corporation (DTC), the world's leading diamond seller
By: Administrator
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Jul 6 2005 12:00AM
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Reference: 1314  

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India has a fantastic consumer segment with 70% below 35 years. DTC to continue and invest in marketing in India: To create more consumer choice and consumer excitement.

The Diamond Trading Corporation (DTC), the world's leading diamond seller, began the year with an increase in rough prices by 3%, leaving the Indian diamond industry, which has 32 DTC Sightholders, reeling under pressure over obtaining rough. DTC production in the last couple of years has seen a steady drop. DTC sales edged up only 3% in 2004 compared to 7% and 15% in 2003 and 2002, respectively. Thus the rough shortage would continue into this year unless DTC has another strategy up its sleeve. Probably another market which has a huge consumer segment. Say China?...

Mohana Ravindranath, calls upon Varda Shine, the Sales Director for DTC, to get a clearer picture of the strategies and plans before DTC for the year ahead. In an interview, it was revealed that DTC plans to increase SoC contract period. Excerpts...

The Indian market in the last 10 years has been growing at an average of 15%. We believe there are still huge opportunities here. India is a country which has a population where 70% is below the age of 35. There is a fantastic consumer segment and thus it will be going. We definitely wish to continue and invest in marketing to create both generic demand and also work on what we call flagships which is program like Nakshatra, Asmi and Sangini to create more consumer choice and consumer excitement. Our Sightholders, the ones who have invested in creating brands for India, are seeing that there is excitement on the consumer side and we will see another going year for India.

DTC increased prices of rough by 3% in the beginning of this year. If we look at the growth in polished prices as well in the last few years, there is till going to be a nice business. When you look at prices at a point of time it would not make any sense. In the last 20 years that I have been with the industry, people say there is no link between rough and polished prices. Overall whenever we increase prices we are actually doing it based on a very robust assessment of what is the polished coming out of this rough, what is the price and making sure that we are not just increasing prices because of market premiums but it is all done through assessment. We believe that it is still a very interesting business.

The first contract of the Supplier of Choice is ending at the end of June. We have seen fantastic results of the SoC over the last couple of years. Not just India but on the global level too. We have seen 5% growth on an average over the last five years in consumer demand for diamond jewellery compared to the previous five years which were declining by half a per cent. So from a market declining slowly, we have managed to transform the industry into a growing market and constantly too. We have seen a lot of excitement in brands and magazines, not just in India but worldwide. There is a huge uplift in the skills and capabilities of the undertaking. The industry is much more aligned. But the whole thing is that we are seeing the industry moving towards a more ethical, more professional and more transparent undertaking. We believe it is a real big win. And moving into the future like any other industry the pace is going to move up a bit.

From the next Supplier of Choice contract we are planning to enhance the contract period. We are looking at the length of the contract. From two years we want to move the next contract to two-and-a-half years. We are hopeful thereafter the following contracts will be three years. It gives people the time when they actually invest in marketing initiatives to start seeing the results coming in during the contract period. One of the other things that we are going to do is to top up our product proposition or services proposition. If you look at other industries, say IBM, which is a good example, just 20 years ago they were only in main frame and today 50% of the revenue comes from services, you will see that going into services and creating a differentiation to your proposition has happened in all other places.

We believe that we have a lot to offer beyond out diamonds to customers which is going to create a differentiation. In the next 10 years, when you look at the amount of diamond that is coming out it will be going in single digit numbers. Therefore, it is important to know, what is it that the clients can do with the diamonds. To enhance their preposition so that they are able to get better returns they are actually able to differentiate from any other diamantaire. A part of the new contract will be services which will be announced to the press soon.

The 2% excise on jewellery isn't necessarily going to make a big difference that is what the clients feel. But it is early to try and understand what does it actually mean. Once there is more clarity what is in the bill and how is it going to affect the business... I don't think it's going to be easy to translate because the tax is going to be on jewellery and the diamond content in jewellery is not 100%. You can't just add up the price of this (3% hike in rough prices) and this (2% excise duty on jewellery). The issue is much more complex because the rough price increase will only influence the polished while the 2% will influence the whole jewellery and the combination of the two together will be more than the 2% excess tax. It is difficult to add up numbers and look at it; it's more a question of wait-and watch.

That's because of the stocks. We basically had stocks with full efficiency in our pipeline. We have managed to reduce these stocks. How does that influence our bottom-line is because the stock already belonged to us. We bought it. When we sell it, it actually gets more cash into out bottom line. But it's one off. It is not a question of profitability on business. So it is just efficiencies. It is like cutting costs because that's what it actually did. We have cut the capital employed in the business. For 2005 there will be a small increase in the production level.

De Beers has signed a Memorandum of Understanding with India & we currently have a team of 90 people working here. Exploration & research have started. We have already found kimberlite but at present none of them look sufficient to be actually worth mining. But definitely we are investing & exploring in India.

One of the things we don't know even if we find a mine is... like we have discovered a few mines in Canada which we hope will start producing by end of 2007 or beginning of 2008. It takes a long time from the moment you discover a mine until it actually becomes productive. There is lot of work involved in it. We are talking about what will happen in five to 10 years time, then there will be many other factors influencing India then just a diamond mine.

We are planning to re-enter into Angola. What is happening in South Africa is that we have seven mines. Out of them five have been in the red. That is because of the exchange rate. We sell diamonds in dollars and the rand has been strengthened very substantially against the dollar. Because of that the operational expenses have actually increased significantly. We are now looking at DBCM (De Beers Consolidated Mine), company of mines in South Africa, which has an initiative called "five at five" that is plan all your business so that you can cope with $1to 5 rand. They are going through efficiencies and making improvements to their business so that they can make sure that they can keep all the mines.

DTC has been involved with China more or less the same time it has been involved with India. This year it will be 10 years we have been involved in the consumer market in India. We started in China at a similar time. China as a consumer market has a huge potential. It's 10 years we have been there and we have seen growth in consumer demand but not as big as India. Special initiatives like diamond wedding ring or diamond engagement rings in the big cities - we have found no one buying them. We now see that in a couple of big cities, seven out of 10 new wives actually acquire a diamond ring which is a huge success. Again for the future, China has a big potential to go but for the moment the range of goods they buy, the range of jewellery they buy, they mainly buy solitaire rings and mainly small sizes and really no range of color and quality. So there is a still a long way to go, but China has potential.

The cost of labour in China isn't cheap, if anything it's much more expensive than India. The reason why more & more Indian manufacturers are setting up offices in China is for two reasons:
  • The first one is to be able to have presence in the Chinese market and then get access to the consumer market when it expands.
  • And the second, is probably about spreading the risk. There is merit in having operations in both places.

Consumer confidence is a good message. It is important to make sure that people are thinking about the consumer and about making sure that the consumer is confident to buy diamond and at the end of the day we are all dependent on the consumer that we have his or her willingness to spend money. Looking at from where we are now, we have best principles, where we are ethical, we don't deal in 'Conflict Diamonds'; not involved in child labour, making sure that we are not spying, what we are doing as well as disclosing treated diamonds and synthetics. There is nothing worse than a consumer buying what she thinks is diamond & finding out later that it is synthetic. Once one or two cases are gone into the newspapers, the risk is that the consumer will just decide 'I don't want to but any diamonds'. So if we look at consumer confidence and synthetics & the future of the diamond industry we believe that it is extremely important to make sure that people are disclosing how ethical we are and ensuring the consumer that when they want to spend money they can spend it on diamond because they are not hurting anyone.

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