An Analysis of Porter’s Five Forces Framework in Diamond

Industry

Kriti GuptaRoll No. 1062

Sem III

Porter Five Forces Analysis

• Porter five forces analysis is a framework to analyse level of competition within an industry and business strategy development.

• They consist of those forces close to a company that affect its ability to serve its customers and make a profit.

• Porter’s five forces include- three forces from “horizontal ‘ competition and two forces from ‘vertical’ competition.

The Diamond Industry

• India is the biggest consumer in the world when it comes to rough diamonds.

• India is the largest diamond cutting and polishing center in the world, it enjoys 60% value share for diamond cutting and polishing.

• In and , the nation’s imports of diamonds rough were worth approximately $11 billion while the export of polished diamonds were priced at about $28 billion.

• Indian Diamond Industry currently constitutes about 15% of Rs. 900 crores approx. of the market and is growing at the rate of 40%.

Developments in the Diamond Industry

• India has recently emerged as world’s third-largest market for diamond jewelry.

• The annual sales is of $8.5 billion, about 12% of global demand, surpassing japan, the European Union and Gulf region.

• Demand for all kinds of jewelry is rising at 19% per year since 2005.

• Diamonds’ share of Indian jewelry market has grown from 24% in 2005 to 27% in 2011.

Trends in Diamond Industry

• The jewelry retail environment is large and diverse, with more than 300,000 stores, ranging from tiny storefronts in Mumbai’s Zaveri Bazar to lavish specialty stores in stylish shopping malls.

• The retail landscape is highly fragmented, and about 95% of purchases are from independent local boutiques.

• Family-owned shops remain a key part of the ecosystem, as Indian consumers are highly loyal to their local jewelers, which their families in many cases have patronized for generations.

Organised Retailers

• Gitanjali and Tanishq are leading the transformation of the retail landscape .

• Gitanjali’s market coverage, with about 1,100 outlets, is second to none, while Tanishq tops all comers in brand recognition and sales.

• Many other chains are spreading across multiple regions of the country, with particular focus on Tier-2 and Tier-3 cities such as Coimbatore, Nagpur and Vadodara. With relatively sparse store coverage in such regions, chain retailers will have ample room for growth for years to come.

Porter’s Five Forces Analysis

Threat of New Entrants

• The cartel like character of the diamond industry had created a barrier to entry, making it impossible for new entrants into the industry.

• The changing trend in the industry has also made it possible for mid-tier or junior companies to come on stream.

• In fact to • enable them have a stronger hold in the industry, the

past few years has seen the merging and • acquisition between these mid-tier companies.

Bargaining Power of Suppliers

• Entrance of new rivals comes with its own share of problem – oversupply.

• This has led to buying up and stockpiling to prevent the huge flood of supply in the market and as a result, increase supplier bargaining power.

Bargaining Power of Buyers

• The structure of the diamond industry had never given buyers the bargaining power they might have enjoyed in other industries until the global economic crisis hit the diamond industry, causing a fall in demand, which invariably meant oversupply and reduction in price.

• The effect of this created low supply of diiamonds and now with increasing demand of diamond in new markets like China, the diamond industry is seeing a shift from dmand-control to supply-control.

Threat of Substitute• For the diamond industry, modern technology poses a new threat

as it has made the production of synthetic diamonds a reality.• It pose a serious threat to natural diamond industry as it could-1. Destroy the carefully constructed public perception of the

diamond as a product of nature and symbol of purity2. Conquer at least a part of the market due to their cheap price3. Undermine the market for natural diamonds if their quality were

similar to the real ones 4. Due to the fact that they are laboratorial grown, they cannot be

classified as conflict diamond5. They satisfy the issue of environmental sustainability, as they do

not involve mining.

Industry Rivalry

• The major competition is amongst the established brands like Tanishq and Gitanjali.

• Also, the consumer pay more reliance on the unorganised sector jewelers which form the major part of the diamond sales in India.

• This is also a major threat in the Diamond industry for the organised sector.

Thank You!