RAPAPORT... In the midst of the 2009 world financial crisis, the Chinese market became a new frontier for international suppliers to explore. As other diamond and jewelry markets plummeted to record lows, China’s appeal was that it showed stability — and even pockets of strength. But those foreign companies entering this market for the first time said they found it very challenging and highly competitive and many of them admitted that they weren’t as successful as they had hoped.
Some Chinese buyers only wish to work with the top five or ten suppliers from other regions, or they want to stick with their existing supply channels, making it difficult for small to medium-sized companies to grow their business. Market veterans, however, have valuable opinions and solid advice on how to be successful in China. Becoming a member of the Shanghai Diamond Exchange (SDE), or working with a member of SDE, is considered the best first step in entering China because it serves as an introduction to domestic companies.
Speaking the Language
Unfamiliarity with local market conditions and regulations is another common problem for new suppliers in the market. The intense competition in the retail market, especially among website-based diamond retailers, further compresses the wholesale profit margins. And the Chinese buyers appear to prefer credit terms. Most successful companies also rely on Chinese natives as part of their management team because they have been living, learning and working in China and understand the local culture and market much better than any foreigners.
Experienced trade members caution that, since the competition is much more severe than two or three years ago, it is difficult to make a big profit right away. Instead, persistence, the ability to learn and competitive marketing will be necessary to penetrate the market. Many suppliers, they note, indeed succeed with hard work and a well-informed strategy.
What the Shows Deliver
There’s no doubt that the three major Hong Kong shows — each March, June and September — are the most accessible international shows for buyers from Mainland China. As the amount of international purchasing trends upward, the shows provide excellent opportunities to meet foreign suppliers and to buy from the source. The 27th Hong Kong International Jewellery Show, organized by the Hong Kong Trade Development Council (HKTDC), closed on March 9 to positive reviews.
During the five-day show, an estimated 32,000 buyers from 123 countries and regions attended, including 21 percent more buyers from Mainland China than visited in 2009. Approximately 2,600 exhibitors from 44 countries and regions participated. This show is not as big as the September Hong Kong show but it is still very popular with Chinese buyers because of the strong presence of international diamond exhibitors, many of them representing diamond manufacturers.
Resisting Higher Prices
Encountering strong prices from the exhibitors was a very common topic among the Chinese buyers, most of whom were trying to source 0.30-carat to 1-carat round diamonds with certificates. Many of the potential buyers said offering prices at the show were at least 3 percent to 5 percent higher than before the show.
There also were reports that the strongest price resistance came from Chinese visitors. Some exhibitors said there was a lot of negotiating on the show floor, but that buyers eventually raised their offers. Milin Jhaveri, the marketing director of Mumbai-based D.A. Jhaveri, noted that even though the Chinese initially found the goods expensive, they eventually bought “because there is a shortage of goods on the market.” The fact that sales did occur at the show proved that market confidence has increased.
On the same day the Hong Kong show ended, the China International Gold, Jewellery & Gem Fair opened in Shenzhen, the city adjacent to Hong Kong. Approximately 260 exhibitors participated, certainly a much smaller show compared to the Hong Kong event.
According to Lawrence Ma, chairman of the jewelry advisory committee at the HKTDC, Hong Kong’s jewelry exports to Mainland China increased by 68 percent year-on-year in 2009, despite the world financial crisis. “A cautious mood prevails among major markets, so Hong Kong’s manufacturers are diversifying their efforts and marketing among emerging markets,” said Ma.
The Marketplace
• Demand is greatest for 0.30-carat to 1.10-carat round stones in D-J, VVS-SI, GIA-certified and preferably EX cut. While traditional retailers are more lenient on cut grade than web-based retailers, consumers are becoming more aware of cut.
• Demand is rising for 1-carat diamonds, especially in major cities like Shanghai and Beijing. Diamonds of 1-carat round in G-H, SI1 have become more popular and are sometimes hard to find.
• Demand is also good for round and some fancy shapes in 1 carat in I-K color, SI or I clarity, to be set as jewelry pieces and sold as promotional items. There is some demand for fancy shapes of the same color and clarity, as well.
• Silver jewelry always has its market share, and mostly targets younger consumers with fashion sense. Diamond-and-silver jewelry has only recently been introduced to the Chinese market.
Article from the Rapaport Magazine - April 2010. To subscribe click here.