gold jewelry manufacturing and retail shop

8/9/2019 Gold Jewelry Manufacturing and Retail Shop

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Pre-Feasibility Study

GGoolldd JJeewweellr r yy MMaannuuf f aaccttuur r iinngg aanndd R R eettaaiill SShhoo p p

Small and Medium Enterprises Development AuthorityGovernment of Pakistanwww.smeda.org.pk

HEAD OFFICE

6th Floor LDA Plaza Egerton Road, LahoreTel (042)111 111 456,

Fax: 36304926-7

[email protected]

REGIONAL OFFICE

PUNJAB

REGIONAL OFFICE

SINDH

REGIONAL OFFICE

KHYBER PAKTUNKHWA

REGIONAL OFFICE

BALOCHISTAN

8th Floor LDA Plaza,

Egerton Road,Lahore.

Tel: (042) 111 111 456,

Fax: (042) [email protected]

5TH Floor, Bahria Complex II,

M.T. Khan Road,Karachi.

Tel: (021) 111-111-456


Ground Floor

State Life Building The Mall,Peshawar.

Tel: (091)111 111 456, 9213046-7


Bungalow No. 15-A Chamn

Housing Scheme Airport Road,Quetta.

Tel: (081) 2831623, 2831702


August, 2012


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Pre-feasibility Study Gold Jewelry Manufacturing & Retail Shop

PREF-87/August, 2012/ Rev 2

1

1 EXECUTIVE SUMMARY................................................................................................................. 4

2

PURPOSE OF THE DOCUMENT ................................................................................................... 5

3

CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT ..................... 5

3.1

SWOT A NALYSIS ............................................................................................................................. 5

3.2

E NTREPRENEURIAL FIT ..................................................................................................................... 7

3.3

BUSINESS MODEL: I N-HOUSE MANUFACTURING VS. OUTSOURCED MANUFACTURING .................... 8

4

PROJECT PROFILE ......................................................................................................................... 8

4.1 OPPORTUNITY R ATIONALE ............................................................................................................... 8

4.2 PROJECT BRIEF ................................................................................................................................. 9

4.3 MARKET E NTRY TIMING ................................................................................................................... 9

4.4 PROPOSED BUSINESS LEGAL STATUS ...............................................................................................10

4.5 PROJECT CAPACITY AND R ATIONALE ..............................................................................................10

4.6

PROJECT I NVESTMENT .....................................................................................................................11

4.7

PROPOSED PRODUCT MIX ................................................................................................................11

4.7.1

Product Mix - Workshop Operations .......... .......... ........... .......... ........... .......... ........... .......... ..11

4.7.2

Preferred Karatage ........... .......... ........... .......... ........... .......... .......... ........... .......... ........... .......12

4.7.3

Item Wise Stock Composition ......... .......... ........... .......... .......... ........... .......... ........... .......... ....12

4.8

PROPOSED LOCATION ......................................................................................................................13

4.8.1

Location for Workshop Unit ................... ........... .......... ........... .......... ........... .......... ........... .....13

4.8.2 Location for Retail Unit ........... .......... ........... .......... ........... .......... .......... ........... .......... ...........14

4.9 K EY SUCCESS FACTORS / PRACTICAL TIPS FOR SUCCESS ................................................................14

4.9.1 Key Success Factors for Workshop Unit .............. ........... .......... ........... .......... .......... ........... ..14

4.9.2 Key Success Factors for Retail Unit ........... .......... ........... .......... ........... .......... ........... .......... ..15

4.10 STRATEGIC R ECOMMENDATIONS ................................................................................................15

4.10.1 Marketing .......... ........... .......... ........... .......... ........... .......... .......... ........... .......... ........... .......15

4.10.2 Ratio of Order to From-Counter Purchase .......... .......... ........... .......... ........... .......... .........15

4.10.3 Nature of Stock Keeping ............. ........... .......... ........... .......... ........... .......... ........... .......... ..15

4.10.4

Pricing Policies: ............... .......... ........... .......... ........... .......... ........... .......... .......... ........... ..15

4.10.5

Mode of Payment ................ .......... ........... .......... ........... .......... .......... ........... .......... ...........15

4.11

PRODUCT R ANGE IN TERMS OF DESIGNS, ITEMS AND QUALITY ..................................................16

5

SECTOR & INDUSTRY ANALYSIS ..............................................................................................16

5.1

I NDUSTRY STRUCTURE ....................................................................................................................16

5.1.1

Average Workshop .......... .......... ........... .......... ........... .......... ........... .......... ........... .......... .........17

5.2

EXPORT MARKET .............................................................................................................................18

5.2.1

Major International Market Players ........... .......... ........... .......... ........... .......... ........... .......... ..18

5.2.2

Pakistan‟s Jewelry Export .....................................................................................................19

5.3

MARKET POTENTIAL ........................................................................................................................19

5.3.1

Customer Loyalty ...................................................................................................................20

5.3.2

Trends ....................................................................................................................................20

5.4

TARGET CUSTOMERS .......................................................................................................................20

6

PRODUCTION PROCESS ...............................................................................................................21

6.1

PRODUCTION PROCESS FLOW ..........................................................................................................21

6.1.1

Contracting out an order .......................................................................................................23

6.1.2

Jewelry Designing ............... ........... .......... ........... .......... .......... ........... .......... ........... .......... ....23

6.1.3

Gold Refining and Mixing .....................................................................................................23

6.1.4

Converting Gold Ingots into Gold Sheets and Wires .............................................................23

6.1.5 Transfer of Design / Pattern Making .....................................................................................24

6.1.6 Engraving .................... .......... .......... ........... .......... ........... .......... ........... .......... ........... .......... ..24


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PREF-87/ August, 2012/ Rev 2

3

DISCLAIMER

The purpose and scope of this information memorandum is to introduce the subject

matter and provide a general idea and information on the said area. All the material

included in this document is based on data/information gathered from various sources and

is based on certain assumptions. Although, due care and diligence has been taken to

compile this document, the contained information may vary due to any change in any of

the concerned factors, and the actual results may differ substantially from the presented

information. SMEDA does not assume any liability for any financial or other loss

resulting from this memorandum in consequence of undertaking this activity. The

prospective user of this memorandum is encouraged to carry out additional diligence and

gather any information he/she feels necessary for making an informed decision.

For more information on services offered by SMEDA, please contact our website:

www.smeda.org.pk

DOCUMENT CONTROL

Document No. PREF-87

Prepared by SMEDA-Punjab

Issue Date August, 2012

Issued by Library Officer

http://www.smeda.org.pk/http://www.smeda.org.pk/http://www.smeda.org.pk/


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4

11 EEXXEECCUUTTIIVVEE SSUUMMMMAAR R YY

A lack of passion for gold jewelry in Pakistan, and even amongst the Pakistaniexpatriates, is hard to imagine. It is a cultural idiosyncrasy within the South Asian

Region. Gold jewelry is perceived not only as a decorative item but a symbol of status.The perception pervades in all classes. Another reason for the vitality of the gold jewelry

market is that all domestic jewelry products are priced by weight, which results in the factthat people perceive gold jewelry as a means of security net for the future because gold

alone has an internationally agreed price.

Global trade for Gems and Jewellery has shown a positive growth trend showing

increasing demand for these valuable fashion articles in international market. United Nation’s Statistics showed that India is the market leader right now.

The subject enterprise of this pre-feasibility study is an integrated business gold jewelry

manufacturing and retailing business. In the subject pre feasibility study we assume the

60% of total jewelry sold will be traditional jewelry normally available in gold jewelryshop, while 40% of total jewellery will be of designer made, which is of premium quality

and high price. This designer made jewelry will target the elite class of society.

Total projected cost of the project is estimated at Rs. 12.418 million. The internal rate of

return (IRR), Net Present Value (NPV) and payback of the project are 56%, Rs.78.805million and 3.48 years respectively.

This pre-feasibility is being prepared by SMEDA and is intended to provide general

information on the opportunity for an investor in the Gems and Jewelry sector to establish

a Gold Jewellery designer made retail outlet and workshop. This would allow the project

to manufacture Gold Jewellery and gems for local market and Global market as well,thereby, adding value and maximizing profits.


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5

22 PPUUR R PPOOSSEE OOFF TTHHEE DDOOCCUUMMEENNTT

The objective of the pre-feasibility study is primarily to facilitate potential entrepreneursin project identification for investment. The project pre-feasibility may form the basis of

an important investment decision and in order to serve this objective, the document/study

covers various aspects of project concept development, start-up, and production,marketing, finance and business management. The document also provides sectoral

information, brief on government policies and international scenario, which have some

bearing on the project itself.

The purpose of this document is to facilitate potential investors in gold jewelrymanufacturing and retail enterprise by providing them a macro as well as a micro view of

gold jewelry business with the hope that such information as provided herein will aid the

potential investors in crucial investment decisions.

The need to come up with pre-feasibility reports for undocumented or minimally

documented sectors like jewelry manufacturing and retailing sector attains greater

imminence as the research that precedes such reports reveal certain thumbs of rules; best practices developed by existing enterprises by trial and error, and certain industrial norms

that become a guiding source regarding various aspects of business set-up and it’ssuccessful management.

This particular pre-feasibility is regarding “Gold Jewelry Manufacturing and Retail

Shop”, which comes under a broader “Gem and Jewelry Sector”.

33 CCR R UUCCIIAALL FFAACCTTOOR R SS && SSTTEEPPSS IINN DDEECCIISSIIOONN MMAAK K IINNGG FFOOR R IINNVVEESSTTMMEENNTT

Below are some factors and variables that have a great bearing on setting up jewelry

manufacturing and retailing enterprise:

33..11 SSWWOOTT AAnnaallyyssiiss

Before stepping into any venture, one has to analyze the strengths, weaknesses,opportunities and threats (SWOT). An industrial / sectoral SWOT analysis is given

below. A prospective entrepreneur would have to conduct a micro-level SWOT analysis

on the basis of the intended city / town / village for his business.


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6

SWOT Analysis

Strengths

1. Stock of skilled craftsmen;2. Low manufacturing cost;

3. Low capital investment inmachinery;

4. Price inelasticity of demand forgold jewelry implying the relative

ease with which an entrepreneurmay pass on increase in costs to

the customer.

5. Easy exit since gold stock can beresold easily (though capital gains/ loss possible due to change in

gold price);

6. Premium mark-up is accepted ingeneral by customers if they perceive that the jewelry item they

are purchasing is unique or has a

designer’s value. Thus there isgreater opportunity for an

entrepreneur to charge higher

mark-up on exclusively positioned

jewelry line.

Weakness

1. Weak sharing of information and best practices within the industry. Trade

secrets tend to be kept within family;2. Maintaining exclusivity of designs is

difficult due to absence of copyright

laws within the industry. Investment

in exclusive designers is thus risky.3. Highly skilled craftsmen are

concentrated in few clusters, mainly

in Karachi and Lahore;

4. Practice of hallmarking products forexport is low, thus non-hallmarked

items are less reliable abroad than

competitive but hallmarked jewelry.

Opportunities

1. Increasing population thusexpanding potential domesticmarket;

2. Gold price is perceived to beoutmatching inflation thus purchase

of gold jewelry is more readily justified in terms of future security.

3. Increasing demand for 22k gold jewelry abroad amongst South

Asian expatriates;4. Increasing demand of 18k jewelry

within Pakistan providesopportunity for jewelers to increasetheir stock size and range with

lesser investment in gold.

5. Increasing participation of femalesin work-force, thus greater purchasing power of women to

Threats

1. Improving trade relations with Indiamay lead to import of competitive jewelry items into Pakistani Market;

2. Competition from Far-East Asiancountries is already somewhat visible;

3. Proper designing matching the markettaste is crucial to sales, if designing

does not match the market demand,

the entrepreneur may be stuck with

slow conversion of stock to sales.4. Frequent turnover of key craftsmen

risks loss of quality and exclusivity;5. Economic Condition of Pakistan;6. Artificial Jewelry trend.


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7

purchase jewelry items;

6. Increasing trend and inclination inthe market to pay premium for

exclusive designs / brands has a

created a niche market for products

bearing higher profit margin.

33..22 EEnnttrreepprreenneeuurriiaall FFiitt

The prospective investor will need to assess an entrepreneurial fit in the sector in light of

the sectoral SWOT analysis. Table 3-1 below gives an example of crucial traits

contributing to entrepreneurial fit in the jewelry sector, and course of action to be taken in

case the crucial trait is present, and also if it’s lacking.

TTaabbllee 33--11:: EEnnttrreepprreenneeuurriiaall FFiitt

ENTERPRENURIAL FIT

CRUCIAL

TRAITSImportance If Positive Action Needed if Negative

Family

Background

Source of process

knowledge;

Prevents costly

managerial mistakes

more probable in trial

and error based

decision making;

Better knowledge/

guidance of the

market in terms of

trends, suppliers,

craftsmen..etc.

Entrepreneurial

advantage;

Lower risk than if any

industrial background is

lacking.

Intensive industrial and

sectoral study in terms of

processes, modes of quality

control, workers'

management practices;

Preferred technology;

Preferred suppliers, etc.

Process

Know How

Effective quality

control;

Feasibility

assessment of

selecting production

technology

Entrepreneurial

advantage;

Effective quality check;

Less risk in management

and ownership of retail /

manufacturing unit.

Acquire process know how;

Delegate Quality Control

function to employee or

partner who has the process /

production know how

Flair for

designing /

Ability to

gauge

trends

Unique selling

proposition;

Premium pricingCustomer Loyalty

Entrepreneur is able to

determine the stock of

jewelry items in terms ofdesigns and variety.

Prospective customer's

feedback on preferred / not

so preferred styles;Advice of established

jewelers catering to similar

target market;

Hire graduates from

designing / arts' institutions;

Greater investment in

jewelry catalogues.


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8

33..33 BBuussiinneessss MMooddeell:: IInn--HHoouussee MMaannuuf f aaccttuurriinngg vvss.. OOuuttssoouurrcceedd MMaannuuf f aaccttuurriinngg

The entrepreneur - assuming sufficient financial resources - then needs to decide on his business model in terms of having his workshop in-house, or outsource jewelry

production. The following table gives advantages and disadvantages of the two options.

TTaabbllee 33--22:: PPrrooss aanndd CCoonnss oof f IInn--HHoouussee vvss.. OOuuttssoouurrcceedd MMaannuuf f aaccttuurriinngg

Pros and Cons of In-House vs. Outsourced Manufacturing

In-House Outsourced

PROS CONS PROS CONS

Greater control on

qualityGreater total set-up cost Lower set-up cost

Less convenient in terms of

quality control

Greater chance of

securing design

exclusivity

Greater investment risk lower investment riskDifficult to keep designs from

being copied by competitors

Optimal order

processing

Greater labor cost inorder to prevent

craftsmen's turnover

feasible for small

scale jewelers

Lesser control over order

completion time

Better process

control when

production under

one roof

Cases of design

leakages and craftsmen

refusing to work

exclusively for one

jeweler commonly

reported

Possible to

rationalize on total

labor cost for small/

medium size business

Not feasible for small

scale jewelry business

Greater range of

choice in terms of

craftsmen to be used

44

PPR R OOJJEECCTT PPR R OOFFIILLEE

44..11 OOppppoorrttuunniittyy R R aattiioonnaallee

A lack of passion for gold jewelry in Pakistan, and even amongst the Pakistaniexpatriates, is hard to imagine. It is a cultural idiosyncrasy within the South Asian

Region. Gold jewelry is perceived not only as a decorative item but a symbol of status.

This perception pervades all classes.

Another reason for the vitality of the gold jewelry market is that all domestic jewelry

products are priced by weight, which results in the fact that people perceive gold jewelryas a means of security net for the future because gold alone has an internationally agreed

price (although there is no regulated appraisal system for selling second-hand jewelry,more often people get much less money than they have paid when they try to return the jewelry).

On the supply side, gold jewelry manufacturing is labor intensive. The skill of most of

the craftsmen is passed on from generation to generation or through a process of intense

apprenticeship. Gold jewelry manufacturing units tend to specialize in terms of process,


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9

thus they all tend to form a cluster of independent units that utilize each other’s service to

complete a jewelry item. This makes it easier for a new entrant to identify craftsmen in

terms of skill, reliability and quality.

In case the entrepreneur wishes to set-up an integrated business (retail andmanufacturing), most of the machinery used is now locally made (largely in Gujranwala)

and is considered almost at par with the Italian machines for the same purpose. Hence,initial capital investment in machinery is less and does not pose a great barrier to entryinto enterprise of gold jewelry manufacturing and retailing.

44..22 PPrroo j jeecctt BBrriieef f

The subject enterprise of this pre-feasibility study is an integrated business gold jewelry

manufacturing and retailing business. In the subject pre feasibility study we assume the

60% of total jewelry sold will be traditional jewelry normally available in gold jewelry

shop, while 40% of total jewellery will be of designer made, which is of premium qualityand high price. This designer made jewelry will target the elite class of society.

The manufacturing unit known as the workshop is a self sufficient unit that out sourcesonly the following processes: gold refining and mixing, mechanized chain and banglemaking.

A Gold Jewellery Manufacturing and Retail Shop with a capacity of 3600 tolas a year

started in a rented shop and workshop, require total capital investment estimated at Rs

2.555 million for purchasing machinery & equipments, furniture & fixtures and for pre-operating expenses. Rs. 9.864 million is estimated for working capital that should be used

to purchase raw material, pay building rent and for cash in hand. The total project cost is

estimated at Rs. 12.418 million.

TTaabbllee 44--11:: PPrroo j jeecctt OOuuttccoommeess

Project Outcomes

Net Present Value Rs. 78,805,233

Internal Rate of Return 56%

Discounted Payback (years) 3.48

44..33 MMaarrk k eett EEnnttrryy TTiimmiinngg

The gold jewelry retailing sector faces a seasonality factor that becomes apparent in the

sales. Sales tend to peak during the wedding season. The wedding season fall in winters(October - March).

As far as the importance of timing of setting up a gold- jewelry business is concerned, it’s

preferable that the business be set up in the wedding season.

This would not only help the initial cash flows but also render any promotional tactic(even if it may be just an attractive façade of the shop or a well designed jewelry) more

effective by having greater number of prospective gold jewelry buyers in the market.


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10

44..44 PPrrooppoosseedd BBuussiinneessss LLeeggaall SSttaattuuss

Since majority of Gold Jewelry business are family owned, most of these enterprises hold

the status of registered partnerships. The other option mostly taken up is that sole-

proprietorship. The latter two options are preferred over the option of incorporationmainly due to requirement, in the case of incorporation, of periodic disclosure of

financial information.

44..55 PPrroo j jeecctt CCaappaacciittyy aanndd R R aattiioonnaallee

The capacity of the workshop is defined as the volume of output the workshop is can

produce when working to full capacity at a given period of time. In this case, the capacityof the workshop is defined as the amount of gold jewelry in terms of grams (weight) that

the workshop can produce in a year when working at its full capacity. The research,

based on interviews with gold jewelry making craftsmen suggests that on average, a

skilled craftsman can produce gold jewelry worth 575 grams of gold in a month or 6900grams (600 Tolas) worth of jewelry in a year. Since majority of gold jewelry is handmade

and only small portion, if any, of the jewelry involves casting process, number of gold

jewelry manufacturing craftsmen is the key variable determining the capacity of theworkshop.

The capacity of the retail unit in gold jewelry industry, on the other hand, is described in

terms units of gold invested in stock of jewelry prepared by a jeweler at any one time.

Table 4-1 shows how a manufacturing unit and gold jewelry retail enterprise is describedin terms of capacity and scale.

TTaabbllee 44--22:: CCaappaacciittyy DDeessccrriippttiioonn

Capacity Description

Capacity Description for Workshop Unit

Scale Number ofCraftsmen

Output / year (grams) Output / year (tolas)

Small 3 - 5 20,700 – 34,500 1,800 – 3,000

Medium 6 - 10 41,400 – 69,000 3600 - 6000

Large 11 or more 75,900 - more 6,600 - more

Capacity Description for Retail Unit

Scale Stock Level (Grams) Stock Level (Tolas)

Small 1150 - 2300 100 - 200

Medium 2300 - 8050 200 - 700

Large 8050 or more 700 or more

This pre-feasibility report suggests that to enter the gold jewelry manufacturing and retailindustry with an integrated business of manufacturing and retailing, the new entrant

should enter with at least a medium scaled workshop and also a medium scaled retail

unit. The medium sized workshop and retail business is the minimum feasible scale forintegrated unit since the larger number of overheads (as compared to if manufacturing

and retail were separate independent businesses) require a minimum level of sales for the

overhead costs to be met. This minimum level of sales is met with operations at medium


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11

scale. Medium scaled workshop can provide jewelry items for its own retail units where

generating greater profit margins. Starting at a larger scale would expose the entrepreneur

to greater risk while starting too small, with given fixed and administrative costs, can push the break even period for the project too far ahead. For example, with the given

cost parameters described as assumptions, starting with workshop of 4 craftsmen and

retail unit with a stock of 2300 grams of gold can push the discounted payback period tomore than 10 years.

The financial model given at the end of this report assumes initial capacity of workshop

to be manufacturing of gold jewelry worth 41,400 grams / year (3600 tolas / year).

This model shows that the workshop will initiate its operations at 50% of its capacity in

year 1, and the level of operations will increase as manufacturing unit receives more

orders from its own retail unit. The maximum capacity of manufacturing unit is assumedat 95%.

44..66 PPrroo j jeecctt IInnvveessttmmeenntt

Table 4-2 below gives an estimate of the initial investment required to set up a workshop

with annual capacity to manufacture gold jewelry items worth 41,400 grams.

TTaabbllee 44--22:: IInniittiiaall IInnvveessttmmeenntt

Description Amount (in Rs.)

Capital Investment

Machinery & equipment 311,800

Furniture & fixtures 1,545,800

Office equipment 273,000

Pre-operating costs 424,000

Total Capital Cost 2,554,600

Working Capital

Equipment spare part inventory 5,750

Raw material inventory 8,157,813

Upfront building rent 1,200,000

Cash 500,000

|Total Working Capital 9,863,563

Total Investment 12,418,163

44..77 PPrrooppoosseedd PPrroodduucctt MMiixx

44..7 7 ..11

P P r r ood d uucct t M M ii x x -- W W oor r k k s shhoo p p OO p peer r aat t iioonn s s

The workshop operations will be based on orders from on gold jewelry items sold

directly through self-owned retail unit of the model. Workshop operations are expected

to be distributed between output made on order for designer made jewelry and outputsold through retail outlet of traditional jewelry.

The following subsections refer to product mix of the gold jewelry retail unit:


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12

44..7 7 ..22 P P r r ee f f eer r r r eed d K K aar r aat t aa g g ee

Pakistanis and Indians abroad and at home prefer 22-karat jewelry. The West and Far

East prefers jewelry of 18 – 14 karat gold. Because Pakistanis consider gold jewelry an

asset, a trend towards preferring low karat jewelry by the mainstream local market isunlikely in the foreseeable future.

However, a niche for 18 karat jewelry has emerged. This niche constitutes largely of

working women belonging to age group 25 years - 40 years.

The business model in this report assumes traditional / mainstream customers who prefer

22 karat gold jewelry as the target market.

44..7 7 ..33 I I t t eemm W W ii s see S S t t oocck k C C oomm p poo s siit t iioonn

Based on the interviews of established jewelers, one is able to establish “rule of thumb”for stock composition of total amount of gold invested in stock of jewelry available for

display.

One is also able to establish an average amount of gold per item type and average number

of units stocked per item type. Table 4-3 below shows average gold content in grams per jewelry item:

TTaabbllee 44--33:: AAvveerraaggee GGoolldd CCoonntteenntt

AVERAGE GOLD CONTENT (Grams) PER ITEM

Item Gold Content (grams) - Range Average Gold

Content / Item80% of items of

same category sold

20% of items of

same category sold

Earrings 3.5 7 4.2

Rings 3 7.5 3.9

12 Bangles' Set 43 34 41.2Bracelets 10.25 24.75 13.15

Chains 15 7 13.4

Necklaces 34.5 37 35

Pendants 3.25 4 3.4

Teeka 4.375 3 4.1

Bridal Set 57.5 115 69

Jhoomer 11.5 17.25 12.65

Calculation of average gold content for earrings (as an illustration) is calculated thus: 3.5

grams * 0.8 + 7 grams * 0.2 = 4.2 grams Table: 4-3 is to be read as, for example, of the total units of earrings kept as stock for

sale, 80% weigh around 3.5 gms, while 20% of earrings kept in stock weigh about 7grams.

Given the average weight of gold (gms) per jewelry item and the information regarding

average item wise stock composition of jewelers participating in this research, Table: 4-4


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13

below gives an idea as to how, percentage wise, total gold available for jewelry stock

may be distributed among various jewelry items.

Furthermore this distribution is translated into number of units per jewelry for initial

stock level of gold jewelry items worth 4600 grams (400 tolas).

It is of note that smaller items have higher sales turn-over than larger jewelry items.Thus, though small items like earrings, rings and pendants utilize together only 16 % of

total gold available for stock, unit wise they constitute 61% of total units prepared as

stock.

TTaabbllee 44--44:: WWeeiigghhtt wwiissee ddiissttrriibbuuttiioonn oof f ggoolldd mmeettaall

WEIGHT WISE DISTRIBUTON OF GOLD METAL STOCK AMONG JEWELRY ITEMS

Item Item-wise Distribution of

Gold Stock (%)

Units per Item Type given

4600 gms (400 tolas) of Gold

Earrings 4% 40 units

Rings 9% 108 unitsBangles' Design (four

bangles per design)

14% 16 units

Bracelets 7% 24 units

Chains 3% 10 units

Necklaces 43% 56 units

Pendants 3% 42 units

Teeka 0% 2 unit

Bridal Set 17% 12 units

Jhoomer 0% 0 units

TOTAL 100% 310 uni ts

It is important to note that as such jewelers in Pakistan do not compose their stock on the

basis of any hard and fast rule. The stock size and its composition are improved as theretailer gains experience of the market itself and as the sale increases. If sales remain low

or constant, the stock of jewelry would be decreased because Gold is expensive item and

your money will be tied up in your stock.

44..88 PPrrooppoosseedd LLooccaattiioonn

44..88..11 L Looccaat t iioonn f f oor r W W oor r k k s shhoo p p U U nniit t

The ideal location for workshop would be within a jewelry cluster often referred to as

Sirafa Bazaar in main urban cities. The advantages of locating the workshop are manyand some of them relate to the fact the cluster is almost self sufficient in terms of supply

of raw material, small tools and equipment, ancillary services such as machine repair, and

also in terms of gold jewelry making processes that may need to be outsourced. More

important are the advantages in terms of networks and links developed with suppliers,gold jewelry retailers who may be potential customers, and with potential craftsmen who

may be recruited when required.


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The downturn of locating the gold jewelry manufacturing workshop that integrates many

processes that are usually outsourced (eg. Polishing and buffing, casting) is that the space

required for the model workshop will be far greater than the average workshop found inSarafa bazaar. Sarafa bazaars are often located in the oldest part of the city. Finding

rentable space is hard and if available, space in terms of complete room is often small.

This implies that the workshop may have to be set up in two different rooms / tiers.Also, the rents and rates of space in a jewelry cluster is almost double that of space forworkshop outside the cluster. The difference becomes greater the further one goes from

the cluster. For example, space 20 by 25 square feet may be let at Rs. 25,000/ month if

located within the cluster but may cost Rs. 12,000/ month in old part of the city but far

from the cluster.

44..88..22 L Looccaat t iioonn f f oor r R Reet t aaiil l U U nniit t

An ideal location for setting up a jewelry shop would be in main market or shoppingcenter where more females tend to shop frequently. Ideally that location should not only

have a wide range of shops in terms of clothes, shoes etc but also have a cluster of

competing jewelry shops.The latter characteristic is important for jewelry buyers tend to shop around for designsand variety before making a purchase, and because it is convenient for a prospective

buyer to window shop amongst clustered shops, they are less likely to enter a recently

set-up, and not so renowned shop located in isolation.

It’s noted that even shops of established reputation ultimately shift to main market areasto boost their sales.

In short, factors important in considering the location of the shop would be:

Accessibility

Security Area frequented by female shoppers Cluster of competing jewelers

44..99 K K eeyy SSuucccceessss FFaaccttoorrss // PPrraaccttiiccaall TTiippss f f oorr SSuucccceessss

44..99..11 K K ee y y S S uuccccee s s s s F F aacct t oor r s s f f oor r W W oor r k k s shhoo p p U U nniit t

The key success factors in gold jewelry manufacturing business are:

Quality of craftsmanship

Managing turnover of key craftsmen;

Establishing a reputation of reliability (in terms of honest and timely processing oforders) and quality;

Networking to attract and ensure sufficient orders to cover overhead costs;

Networking to identify suppliers and service providers who are reliable and provideadequate quality.

Housing as many processes in-house so as to provide as many services under one roof.

Location


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16

depends on relationship building and we keep a customer’s ability to pay advance at a

given moment under consideration.

On the Spot Payment: On the spot purchases of displayed items are paid for at the time of

the purchase.

Credit: Credit sales are neither an industry norm, nor encouraged by the jewelers. In therural areas, however, payment if not purchase coincides with the harvesting of crops.

44..1111 PPrroodduucctt R R aannggee iinn TTeerrmmss oof f DDeessiiggnnss,, IItteemmss aanndd QQuuaalliittyy

The type of jewelry items in term of design and quality depends on the clientele of the

jeweler. The type of clientele, in its turn depends on the location of the shop.

The choice of target customers may be gauged by the general trend as seen via the

jewelry items sold by other jewelers in the same or similar area and by trial and error.

However, the jeweler’s vision and his understanding of the market trend have a great bearing on the range and variety of jewelry items displayed in his shop.

55 SSEECCTTOOR R && IINNDDUUSSTTR R YY AANNAALLYYSSIISS

55..11 IInndduussttrryy SSttrruuccttuurree

Pakistan’s jewellery sector is basically retail driven due to a huge local market. Karachi

and Lahore are the main hubs for jewellery manufacturing. Dubai is the main exporter of

bullion to Pakistan. The dominant reason for the purchase of jewellery in Pakistan ismarriage, as gold is perceived as a form of savings and it is accumulated for this purpose

over several years. However, with increasing awareness and education, along with other

emerging investment opportunities, jewellery is now gaining preference as more of a

fashion symbol.The range of jewellery items produced by the jeweller is very wide. The popular items of

Pakistan’s jewellery are Teeka, Pendants, Bazuband, Jhoomer, Bangles, Nose Pins, Kara,

Earrings, Rings, Balian, Pazeb and Necklace.

Jewellery industry is highly fragmented, with very few players having complete in-house production facilities. Most of the players outsource manufacturing process to small

vendors. The trade consists of small companies (generally up to 15 workers) with

freelance craftsmen. The workforce works in the traditional manner sitting on the floor at

low benches rather than seated at conventional workbenches, which are more comfortableand productive. The tools and technology employed are mostly basic. The use of high-

tech machinery is missing throughout the value chain.

Each of the major cities of Pakistan has a “Sarafa Bazaar”, consisting of hundreds of

small showrooms, bullion dealers and casting shops. Major cities and their markets are:

KARACHI Zaibunisa Street (Saddar), Tariq Road & HyderyLAHORE Gulberg, the Mall Road, Suha Bazaar

RAWALPINDI/ISLAMABAD Muree Road, Mareer Chowk, & Jinnah Super

Market


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17

The industry structure is very fragmented and one with high degree of operational /

functional specialization. For a polisher of gold jewelry will not do anything but polish.

Thus a polisher can be an independent unit in manufacturing process and may cater tomultiple jewelers. Complete jewelry manufacturing and integrated retailing units are rare

in the industry.

The market’s preference leans towards exclusive designs. Thus jewelry manufacturing isvery labor intensive, and unlike in the West, degree of mechanization and production ofstandardized items except in case of generic gold chains and perhaps bangles is very low.

Hence, every process of jewelry making requires high level of expertise and skill – as

jewelry manufacturing is closer to being a form of art. It is an art in the sense that when

it comes to making of handmade jewelry, each process has more than one way of doingit, and the quality of work depends on the skill of an individual worker/ craftsman.

Because jewelry manufacturing is spread over number of specialized units in terms of

process, jewelry making industry tends to be clustered or geographically concentrated.

These clusters of workshops are found in Lahore, Karachi, and Rawalpindi in what arecalled the Sarafa Bazaars.

Large and renowned jewelers tend to have their workshops preferably in Karachi or in

Lahore due to exceptional skill level developed there over time. In order to supervise the

quality of workmanship and design of their jewelry item, jewelers not located in the main jewelry manufacturing cities but having their workshops there then have a representative

or an agent in the city where their jewelry is being manufactured.

55..11..11 A Avveer r aa g g ee W W oor r k k s shhoo p p

An average gold jewelry manufacturing workshop tends to be a 200 (10x20) square feet

covered area that is located within or near a jewelry manufacturing cluster if the

workshop depends on outsourcing some of the processes as gem setting or polishing.

Workshops visited in the jewelry manufacturing clusters (Sirafa Bazaars) were furtherspecialized in terms of bangle manufacturers alone; makers of plain jewelry only; makers

of studded jewelry only, making gold balls to be sold to other workshops etc. Acompletely self-sufficient workshop is seldom found in the industry.

Average number of workers in a typical gold jewelry manufacturing workshop found

within a cluster like Sirafa Bazars is 5 to 6 craftsmen. These craftsmen tend to be

generally the “pattern makers”, or those craftsmen who transfer the design on to the gold.Few workshops have a “polisher” and a “finisher”, and even fewer have a “stone setter”

in the same workshop. Within the workshop, however, workers tend to be specialists in

terms of their functions. For example, a workshop will have one worker who specializes

in copying designs from catalogues; another, a maker of studded jewelry; another, a

maker of plain jewelry, or a worker who only makes bangles etc.

The average working hours of a craftsman are 9 hours a day, six days a week. Workers

are often part of a local union.

The recruitment of craftsmen is based on references and personal recommendations.

According to some jewelers the turnover rate of workers recruited on the basis of


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18

personal recommendation / reference tends to be low since the workers recruited in this

manner would not like to lose the confidence of their referees.

The remuneration of the craftsmen is a combination of base salary and performance (in

terms of units made and / or quality of work).

55..22

EExxppoorrtt MMaarrk k eett

55..22..11 M M aa j joor r I I nnt t eer r nnaat t iioonnaal l M M aar r k k eet t P P l l aa y yeer r s s

Global trade for Gems and Jewellery has shown a positive growth trend showingincreasing demand for these valuable fashion articles in international market. If we look

at the statistics, we found that India is the market leader in exports followed by China,

USA and Switzerland. From the below table we can see that in near future china will

surely become the market leader. Pakistan is also doing exports of jewellery but on a verysmall scale. Total export of gold jewellery from Pakistan was only

1 541,943,862.19 US

Dollar’s.

Table 5-1: Top Exporting Countries2

1http://www.fbr.gov.pk/TradeStatistics/PCTSUMMARY411.ASPX?view=ExternalLink&ActionID=+&Artic

leID= (HS Code of Gold Jewelry is 7113.1910)

2http://comtrade.un.org/pb/CommodityPagesNew.aspx?y=2008&v=true:„ 897‟ SITC Code Revision

CountryValue

(Million US $)

Avg.

Growth

(%)

06-10

Growth

(%)

09-10

World

Share

(%)

India 9149.9 16.5 -32.9 11.8

China 8971.2 29.3 131 11.6

USA 7075.2 5.7 12.3 9.1

Switzerland 6161.6 13.6 25.2 8.0

Italy 5772.8 0.3 29.9 7.5

Hong Kong 5630.2 4.1 21.3 7.3

United Kingdom 4458.1 5.6 18.2 5.8

United Arab Emirates 3720.1 47.5 21.4 4.8

Thailand 3437.1 16.0 25.4 4.4

Singapore 2559.5 41 52.9 3.3

http://www.fbr.gov.pk/TradeStatistics/PCTSUMMARY411.ASPX?view=ExternalLink&ActionID=+&ArticleID=http://www.fbr.gov.pk/TradeStatistics/PCTSUMMARY411.ASPX?view=ExternalLink&ActionID=+&ArticleID=http://www.fbr.gov.pk/TradeStatistics/PCTSUMMARY411.ASPX?view=ExternalLink&ActionID=+&ArticleID=http://comtrade.un.org/pb/CommodityPagesNew.aspx?y=2008&v=truehttp://comtrade.un.org/pb/CommodityPagesNew.aspx?y=2008&v=truehttp://comtrade.un.org/pb/CommodityPagesNew.aspx?y=2008&v=truehttp://www.fbr.gov.pk/TradeStatistics/PCTSUMMARY411.ASPX?view=ExternalLink&ActionID=+&ArticleID=http://www.fbr.gov.pk/TradeStatistics/PCTSUMMARY411.ASPX?view=ExternalLink&ActionID=+&ArticleID=http://www.fbr.gov.pk/TradeStatistics/PCTSUMMARY411.ASPX?view=ExternalLink&ActionID=+&ArticleID=


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19

Table 5-2: Jewellery Imports3

Country

Value

(Million

US$)

Avg.

Growth

(%)

06-10

Growth

(%)

09-10

Market

Share

(%)

USA 10306.7 -2.4 16.4 16.8Switzerland 8844.6 30 45.9 14.4

Hong Kong 6758.1 21.3 52.3 11

United Arab Emirates 6349.2 16.5 17.7 10.3

United Kingdom 3806.2 -4.1 10.9 6.2

Singapore 2892.2 27.6 53.7 4.7

France 2501.8 9.7 23.4 4.1

Japan 1847.5 -2.4 20.7 3.0

Germany 1787.1 7.5 16.0 2.9

Italy 1472.3 9.8 40.9 2.455..22..22 P P aak k ii s st t aann‟ ‟ s s J J eewweel l r r y y E E x x p poor r t t

Pakistan’s export of jewelry targets mainly the South Asian expatriates in Dubai, USA

and UK. Several factors contributing to an insignificant share of world jewelry export

contributed by Pakistan is that firstly, the industry is still fragmented and not welldocumented. Secondly, the designs produced by the jewelers are very traditional and are

made in 22 carat. No hall marking or branding system exists. The larger export market,

on the other hand demands 18, 14 and 8 carat jewelry with new and lightweight designs.The giftware market is negligible.

Small and Medium Enterprises Development authority (SMEDA) has identified

Pakistan’s jewelry industry as a sector with major potential. To support this sector,

SMEDA formed Pakistan Gems And Jewelry Development Company which providestechnical training to the craft men and students for jewelry manufacturing on cost basis.

Most of the jewellery exported from Pakistan is purchased by Pakistani expatriates. There

is a need to improve our understanding of international designs and trends to increase our

customer base beyond our traditional cliental.

55..33 MMaarrk k eett PPootteennttiiaall

The consensus amongst the jewelers spoken is that the demand of Jewelry in Pakistan isdecreasing day by day due to high rise and instability in Gold Price. In last five years

gold prices in the world market increases by 145.18%

4

. Due to high rise in gold price purchasing power of purchasers influenced diversely, people prefer artificial jewelry on

original gold jewelry for even wedding events.

3 http://comtrade.un.org/pb/CommodityPag esNew.aspx?y=2008&v=true „ 897‟ SITC Code Revision 3

4 http://www.goldprice.org/gold-price-history.html#10_year_gold_price

http://www.goldprice.org/gold-price-history.html#10_year_gold_pricehttp://www.goldprice.org/gold-price-history.html#10_year_gold_pricehttp://www.goldprice.org/gold-price-history.html#10_year_gold_price


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20

One big problem in this sector is that the price of gold varies dramatically on daily

basses, which cause loss for the goldsmith/jeweler.

55..33..11 C C uu s st t oommeer r L Loo y yaal l t t y y

Customer loyalty in urban areas and cities is less than in rural areas. Urban customers

tend to shop around for an item before making a purchase. The loyalties of thesecustomers have to be retained via good designs, long product range and relationship

building.

55..33..22 T T r r eennd d s s

The main driver of demand for jewelry tends to be weddings whereby shopping for

jewelry to be given in dowry starts years back and goes on till few days before the event.Larger, prominent and gem studded jewelry, thus, constitutes the traditional demand.

However, with increasing rate of females working and earning a salary for themselves;

and greater exposure to outside culture through magazines and TV the demand for

smaller and contemporary western designs is emerging in the main urban cities. The ruraland semi rural areas tend to present a more traditional demand.

55..44 TTaarrggeett CCuussttoommeerrss

The gold jewelry manufacturing and retail enterprise will have two broad sets of target

market. Given the proportion of workshop output, the main set of target market are thetraditional consumers (purchasers) of gold jewelry. The other is designer made jewelry

which is for elite class.

The first set of target market – consumer market – can be sub-defined in terms of how the

enterprise decides to position its gold jewelry items. Tapping an exclusive niche that falls

under “Designer Jewelry” may require lower initial investment in terms of stock pergross margin. However, that position strategy would have additional demands of offering

exclusive and appealing designs and range to the target market. For this purpose, it issuggested to hire in house designers who could design different styles of jewelry to meetthe demand of target market.

The positioning strategy, that is, whether the prospective jeweler (retailer /manufacturer)

decides to cater to a local niche or mainstream market; or to the export market has crucial

bearing on gamut of decisions ranging from site and décor of the showroom to production process / feasibility of mechanization of process.

The following table depicts how the choice of target market affects some of the decision

variables.


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21

TTaabbllee 55--33:: IImmpplliiccaattiioonnss oof f VVaarriioouuss PPoossiittiioonniinngg SSttrraatteeggiieess

Implications of Various Positioning Strategies5

Target

Market

Price Promotion Product Distribution

NICHEMARKET /

DESIGNER

Designer'sPremium for

exclusivity

Exhibitions;Fashion

Shows;

Fashion

Magazine

shoots / Ads

22 karat - 18 karat;Exclusive designs;

Low duplicity;

Labor Intensive

processes

Location in themain market is not

crucial;

Décor of showroom

must support the

brand image

LOCAL

MAINSTREA

M MARKET

Competitive

pricing;

Lesser

profit

margin than

in designer

products.

Word of mouth;

Window

displays;

If justified by

capacity,

fashion

magazine

advertisement

near seasonal

peaks.

22 - 21 karat items;

High stock to sales

ratio;

Larger range of

jewelry items

available for

display;

Variety of smaller

(high turnover

items)

High importance of

central location in

a busy shopping

centre, or in a

cluster of jewelry

shops

EXPORT

MARKET

(Expatriates

from the Sub-

Continent)

Competitive

in the

foreign

market

Exhibitions 21 karat;

Studded jewelry

preferred;

Both Asian and

contemporary

designs; Smaller /

lighter jewelry

Importing agents;

Own agent abroad;

Exhibitions

EXPORT

MARKET

(Non-Expatriates)

Competitive

in the

foreignmarket

Trade

promotion

18- 14 karats;

Contemporary

designs; Smaller /lighter jewelry;

Mechanization

feasible for mass

distribution

Importing agents;

Own agent abroad;

Exhibitions

66 PPR R OODDUUCCTTIIOONN PPR R OOCCEESSSS

66..11 PPrroodduuccttiioonn PPrroocceessss FFllooww

Figure 6.1 below shows the production process flow from contracting an order and

completing an order. The production process depicted in Figure 5.1 is described in detail

later.

5 Note: Th is model is based on cateri ng to the local mainstream market. The vari ous target markets

mentioned above, however are not mutual ly exclusive. For example a gold jewelr y manufactur ing and

retail ing enterpr ise may have mainstream local market for volume of sales as the primary target mark et

but can have separate product l ines for exclusive / niche and expor t market for greater prof it margi n as

secondary target market


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23

6 6 ..11..11 C C oonnt t r r aacct t iinn g g oouut t aann oor r d d eer r

There are two main ways a jeweler contracts out an order. Firstly, if a jeweler has his /her own basic workshop, then he/she assigns the task of manufacturing a particular

jewelry item to the workshop supervisor / lead craftsman in the workshop. The person to

whom the task is assigned in effect becomes the project manager for the manufacturing ofthe assigned jewelry item.

The other route is that the jeweler himself takes the order through different

manufacturing process located in independent specialized units like Gold Mixing Unit;

independent designing and crafting unit, the polishing unit, and the stone / gem settingetc.

The latter route is more costly and time consuming, however the jeweler can apply

greater quality control and be more satisfied with the end result.

6 6 ..11..22 J J eewweel l r r y y D Dee s sii g g nniinn g g

The design of the jewelry offered is crucial to a cash flow favorable stock-turnover.

There are several sources of jewelry designs:Copy of designs from jewelry magazines and catalogues;

Hiring of professional jewelry designers with a related educational and professional background;

Jewelry design may be provided by the client himself / herself;

Jewelry designing by the jeweler himself / herself.

Once the jewelry design is provided to the craftsman / pattern maker, the latter makes a

sketch of the design and shows it to the jeweler / entrepreneur for approval. This processtill the approval may take about 2 days.

6 6 ..11..33 GGool l d d R Ree f f iinniinn g g aannd d M M ii x xiinn g g

The jeweler commissioning the manufacture of a gold jewelry first purchases gold in

form of ingots amount more than what that item would take. For example for a 1 tola

(11.5 gram) gold item, the jeweler would purchase 1.5 tolas of gold) from goldwholesalers in Sarafa bazaars.

Next, the gold is mixed to get the desired karatage. The mixed gold is molded into small

bars and given to the craftsman who manufactures the order.

If the jewelry design requires setting of gems / stones, they too will have to be bought.

The quality of the stones can be checked by the Gem Corporation.

6 6 ..11..44 C C oonnvveer r t t iinn g g GGool l d d I I nn g g oot t s s iinnt t oo GGool l d d S S hheeeet t s s aannd d W W iir r ee s s

In accordance with the design requirements, the craftsman converts the gold ingots intogold sheets and wires with thickness required by the design. The gold sheets and rods are

made from a machine locally called sheet and wire making machine (Patra or Ari ki

Machine). This machine compresses the gold fed into it in one end to produce sheets /wires according to the setting from the other end.


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6 6 ..11..55 T T r r aann s s f f eer r oo f f D Dee s sii g g nn / / P P aat t t t eer r nn M M aak k iinn g g

There are two main ways a craftsman may transfer the design into a jewelry item:

Direct transfer of design on Patra (flat gold sheet) by the “Engraver” locally referredto as “Ari ka Kaam Karrney Wala”;

Casting.

The direct transfer of design is a more popular method. The disadvantage of directtransfer of design on gold sheet is that one requires more gold than is required to make an

item. The excess gold at the end of the process is then melted and re-used in other items.

However, the jewelry item itself requires less gold through the direct method than itrequires if casting method is used. Jewelry made via casting is heavier for it requires

more gold. Same design made via casting, taking 30g of gold may be prepared by hand

using 20g of gold.

Casting method is used for repeated designs. Casting designs are those that are used

currently either as piece in a jewelry item or a jewelry item itself.

Cast process follows thus: First, a model referred to as a “dye” is prepared on an ironsheet. The model is then used to prepare rubber casts / moulds. These models are used in

a “casting plate” (Casting Machine) to make the gold jewelry. Wax casting is used for

Kundan and very light jewelry, like Dhaka or Bangal’s jewelry. Kundan making skills areconcentrated in Lahore, Multan, Bahawalpur, Sargodha and Karachi.

The Casting method is time saving. A casting plate has a capacity of 50 tolas. Unless

casting work of 50 tolas is not lined up, the machine will not (or cannot) operate. Because

casting method is not popularly used, casting work is not sufficient at any given time to

operate the machine.

Hence, workshops having their own casting shop set specific days of a week for casting.

For example, a workshop may set two days in a week for operating the casting machine,

and the craftsman may have to wait for these days for his work-in-process to proceed.

This is one reason why the casting process is often outsourced by workshops toindependent casting units in the jewelry cluster. These independent units run their

casting plates every day; hence the casting process does not prove to be a bottleneck for a

craftsman.

On getting the casted design, the craftsman gives a finishing to the casted pieces.

Locally manufactured casting machine and it’s accessories would cost about three and

half lacks-, whereas imported machines German or Italian are much costly then these.

6 6 ..11..6 6 E E nn g g r r aavviinn g g

Most jewelry design often requires engraving whereby intricate patterns are etched onto

the gold base. Basic engraving may be done at the workshop. However, engraving is a

specialized task, and sophisticated engraving may need to be outsourced to anindependent engraver in the market.

Engraving mainly requires basic chip forming tools such as miniature chisels made of

hardened steel. In proper engraving a sharpened tool is set against the metal at a specific


26/37



25

angle and pressure applied both own-ward and forward. The tool buries itself into the

sheet, forms a chip, and pushes that curl of metal ahead of it as it cuts.

6 6 ..11..7 7 F F iinnii s shhiinn g g

Once the design has been transferred, engraved and design pieces soldiered to form one

item, the craftsman gives the piece a finish technically called “deburring” before the itemis sent for polishing. Deburring is the removal of all sharp edges, air bubbles and burrs on

a piece.

6 6 ..11..88 P P ool l ii s shhiinn g g aannd d B Buu f f f f iinn g g

Polishing is the use of abrasives to get general surface finish improvement. Buffing is the

step to get a smooth, bright, high luster final finish. There are many different polishingand buffing compounds. An often-used breakdown of compounds is:

Cutting Compounds: These include the brown Tripoli and bobbing compound

Intermediate Compounds: These include Gray Tripoli, Graystar, white diamond, andcrocus. Platinum Tripoli and yellow bobbing compound.

Polishing Compounds: Some polishing compounds are red rouge, yellow rouge, whiterouge, black rouge, green rouge.

Super Finish Compounds: Blue rouge, Blue magic, Fabuluster, and Zam.

The Polishing and Buffing process is performed on buffing wheels. There are buffingwheels to go with different types of compounds being used. There are cotton wheels,

chamois wheels, bristle brush wheels and more. Cotton buffing wheels are the most

common, felt wheels are also popular as are the brushes. Chamois wheels are great forfinal buffing, but they are also fairly expensive.

Polishing may take one to three days depending on the item being polished and buffed.

The polisher is paid in kind that is considered as wastage by the jeweler. A polisher sets

his rate in terms of 500mg on 11.5g (1 tola) of gold. This means that if a polisher is given

13g of gold to polish, and after polishing the weight of gold goes down to 12.5 g, then500mg was his compensation. If the weight lessens by more than the set rate, the gold-

jeweler will write the excess amount payable by the polisher and will be adjusted at the

end of a month when the polisher will melt his gold and pay off the excess to the jeweler.

6 6 ..11..99 B Beeaad d iinn g g aannd d S S t t oonnee S S t t uud d d d iinn g g

Beading and gem studding process occurs after the finishing, polishing and buffing of the

main gold base of the jewelry item.

Beading is the stringing of gem beads on to the main gold jewelry item. There is often a“beader” in every workshop whose job is only to put on the beads on to the gold jewelry. Gem studding is fixing of gem stones on to the jewelry. While some workshops may have

their own gem studder, most of the workshops outsource the gem / stone studding to an

independent stone setter. Stone setting may take two to three days.


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6 6 ..11..1100 GGool l d d R Reeccoovveer r y y

On completing the gold jewelry items the craftsman must return to the jeweler who had

given the order the same amount of gold in terms of jewelry and scrap net of a fixed rate

of wastage. For example, if the jeweler had given the craftsman 30g of gold (24k) for anecklace requiring 15 grams of gold, then the craftsman has to return gold in terms of 15

grams constituting the necklace and 13.2 grams in scrap gold after netting wastage at 6%(1.8 grams of gold).

66..22 CCaassttiinngg PPrroocceessss aanndd MMaacchhiinneerryy R R eeqquuiirreemmeenntt

If a new design is to be casted, the first step to casting is making a model of the design byhand either with gold, silver or iron. The model is then used to make a rubber mold

known as “dye”. For this process, rubber that comes in rolls and is known as Casting

Rubber is heated, using a Dye Press Machine, under pressure and flows around the

prototype making a mold. When cool it is then is cut apart leaving a cavity in the rubberin the shape of the original piece. Wax Injector machines are used to inject molten wax is

into the rubber mold creating a wax copy of the original. The wax model is attached to a

rubber base with a heating pen like device known as Waxer with a number of others intoa tree like form in the process known as “sprueing”.

The wax tree is then surrounded by a metal cylinder called a flask which fits onto the

rubber base. This cylinder is then filled with plaster which has been mixed under vacuum

in a vacuum machine to draw out the air it contains. The plaster encases the wax piecesand then hardens. The base is removed and the assembly is placed in a Gas Furnace. The

flasks with the plaster encased waxes are heated overnight to 1350 degrees which burns

away the wax leaving cavities in the plaster in the shape of the original pieces.

Gold is melted in a flask like attachment on a casting machine. The flasks of plaster that

are ready from the Gas Furnace are put on the Cast Machine that is turned on. The caste

machine, using system of pressure makes the molten gold travel into the plaster moldwhile at the same time removes trapped air and gases.

When the process is done, the plaster is broken off and the tree is then put under a

motorized pressure machine that washes away any remaining plaster. The gold tree isthen dipped into nitric acid and heated with a blow torch to get the gold color on the gold

caste pieces. The caste pieces are then cut away from the base and are sanded and filed

to remove traces of the spruce, mold lines and any imperfections. The pieces areoxidized if required and undergo a multiple step tumbling process using different grit

media to achieve the final desired finish.

6 6 ..22..11 S S uu p p p pl l y y oo f f M M aacchhiinneer r iiee s s

As mentioned above, most of the gold manufacturing machinery is made in Pakistan.Gujranwala is the hub where most of the locally made gold manufacturing machinery ismanufactured. The suppliers are concentrated in Sadar bazaar of Gujranwala. Simple

machines like motorisd polishing and buffing machines can be bought from any Sarafa or

old city bazaar of main urban centers.

Earlier, casting machines had to import from either Italy or German. The main suppliersthrough which the imported casting machines were bought are located in Karachi. Some

http://www.alpinecasting.com/finishes.htmlhttp://www.alpinecasting.com/finishes.html


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of the suppliers of imported casting machines have now started manufacturing (with

some imported parts) the casting machines and equipment themselves.6

66..33 JJeewweellrryy IItteemm MMaannuuf f aaccttuurriinngg TTiimmee

Table 6-1 below gives an average time for a medium sized workshop to produce the

respective jewelry items.

TTaabbllee 66--11:: JJeewweellr r yy IItteemm MMaannuuf f aaccttuur r iinngg TTiimmee

Item Time

Ring 1-2 days

Bangle 1 week

Earring 2-3 days

Chain 3 days

Necklace 1 week

Teeka 1 day

Jhoomer 3 days

Nose pin 1 day

Pendant 2 days

Baazoband 5 days

Bridal set 1 month

The time taken on completion of a small order is not far less than time taken for a bridal

set because of the way craftsmen schedules the work on order. Craftsmen prefer to work

on larger items since for almost a similar amount of concentration the craftsmen’s

earning on a large item is far greater than his earning on a smaller item.

66..44 R R aaww MMaatteerriiaall

Table 6-2 below lists the main raw material needs and the purpose for their use. The

monthly requirement assessment for each raw material is based on the workshop

operations at 41,400 grams / year.

6 One such supplier is “Ayub Brothers Engineering Works and Alay Casting Equipment”. Phone# 021-

2254747, Address: LR9/14, Amil Street, Wahab Road, Ghazi Nagar, Karachi 3.


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TTaabbllee 66--22:: R R aaww MMaatteerriiaall R R eeqquuiirreedd

Raw Material Purpose

Casting Rubber For making casting dyes for new designs

Whip Mix Jewelry Investment Powder(Plaster)

Required in the process of casting

Wax Required in the process of casting

Nitric Acid For bringing out the color of gold after

casting process and during polishing

Surf / Detergent Required during polishing and buffing

process

Coloring Chemicals Required to change color of gold jewelryitem after finishing process

66..55 MMiisscceellllaanneeoouuss EExxppeennssee

Miscellaneous office expense includes:

Stationary expense: Printing (receipt vouchers, business cards, etc), writing material(pens, pencils, ink pads...etc);

Tea and entertainment expense for loyal customers and employees;

Commuting expense (visits to workshops, suppliers…etc).

Other non-recurring expenses.

66..66 IInniittiiaall IInnvveessttmmeenntt iinn GGoolldd JJeewweellrryy SSttoocck k

The retail unit of the integrated modeled enterprise will begin operations with initial

stock level one month for Jewelry Manufacturing. Total raw material inventory for Year

0 will be of Rs. 8,157,813.

66..77 MMaacchhiinneerryy R R eeqquuiirreemmeenntt

A basic gold manufacturing workshop can be set up quite inexpensively. Cutting(separating materials), soldered construction and finishing are the three main things that

jewelers do. However the more processes included within the workshop, the greater the

level of investment. The model subject to this study includes the following processes andthe tools, equipment and machines required are in accordance.

The workshop of this model has the capacity to perform all processes. The only process it

out sources is gold refining and mixing. Processes performed in the workshop are:

1. Gold refining and Mixing

2. Handcrafting of jewelry by engravers and craftsmen3. Polishing4. Finishing5. Gem / stone Beading6. Gem Studding7. CastingFor this purpose the tools, equipment and machinery requirements are as follows:


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TTaabbllee 66--33:: DDeettaaiillss oof f MMaacchhiinneerryy && EEqquuiippmmeenntt

Machines, tools and

equipment

No. of

Units

Price /

unit (Rs)Total Cost (Rs)

Place of Origin

/Manufacturing

Wire Making Machine

and accessories1 20,000 20,000

Gujranwala,

Lahore

Plate Making Machineand accessories

1 20,000 20,000Gujranwala,

Lahore

Wax Casting Machine

& Equipment1 150,000 150,000

Karachi

Polishing Machine and

Accessories1 10,000 10,000

Gujranwala

Tool set for craftsmen 5 16,000 80,000 Gujranwala

Tools for gem studders 2 10,000 20,000 Gujranwala

Digital scale 1 11,800 11,800 Chinese / Italian

Total - - 311,800 -

Most of the above mentioned tools and machines are manufactured locally. Gujranwala

specializes not only in gold jewelry making tools, equipment and machinery, but also in

terms of furnishings (like special safes) required by gold jewelry retail outlet. However,some machines like gold plate making and wire making machines are also manufactured

in Faisalabad and Lahore.

There are clusters of Gold jewelry related tools and machine manufacturing and are

located in “Sadar bazaar” in each of the three main cities mentioned above.

The general practice amongst the jewelry manufacturers is to use locally made tools andmachinery. Machines generally imported are chain making, bangle making and casting

machines. The main origin of imported machines is primarily Italy or Germany. Tillrecently, casting machines had to be imported as electricity based casting machines werenot being manufactured in Pakistan. Casting machines are now being manufactured in

Karachi at a small scale. Interviews with users with locally manufactured casting

machines have expressed their satisfaction with the latter. Because the enterprise subjectto this model deals primarily with hand crafted jewelry and casted jewelry component or

whole items constitute only small portion of total output, the model enterprise invests in

locally manufactured casting machine and equipment.

66..88 FFuurrnniittuurree && FFiixxttuurreess

Furnishing and fittings required for a workshop is estimated to cost around Rs. 199,000/-

which includes design department furniture, work stations for craftsmen, chairs, safe andsplit Ac’s.

Furniture and Fixture of retail outlet will cost Rs. 1,358,600/-. The renovation of Out let

is estimated at Rs. 1,200,000/-. Beside this furniture include counters, office chairs,visitor chairs, safes, Split Ac, weighing scale and hand tools.

Table 6-4 below shows the break-up of the cost for furniture and fixture for both the

retail and the workshop unit.


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TTaabbllee 66--44:: FFuurrnniittuurree aanndd FFiixxttuurree

Cost Items Units Unit Cost Total Cost

Retail Unit

Counter Table 1 20,000 20,000

Counter Chairs 4 9,000 36,000Visitors Chairs 8 2,600 20,800

Renovation of Outlet 1 1,200,000 1,200,000

Safe 2 20,000 40,000

Office table and chairs for DesignDepartment

2 25,000 50,000

Hand tools (magnifying glass, gem

inspection glass, ring size gauge

.etc)

1 10,000 10,000

Work station for Craftsmen 6 4,000 24,000

Chairs for workers 10 2,500 25,000Air Conditioners (Split 1.5 ton) 3 40,000 120,000

Total Furniture and Fixture Cost 1,545,800

Mostly Gold jewelry retailers contract for fixtures like lockers and showcases anddecided upon after consultation with and recommendation of other jewelers who have

had experience in acquiring those items. The whole industry runs on the basis of trust and

word-of-mouth reputation. Jewelers tend not to recruit un-vouched for suppliers or

workers. However, Gujranwala specializes in specialized lockers for gold jewelry retailshops.

77

LLAANNDD && BBUUIILLDDIINNGG R R EEQQUUIIR R EEMMEENNTT 77..11 LLaanndd R R eeqquuiirreemmeenntt

7 7 ..11..11 R Reennt t

Rent varies with space and location. For workshop, the location may be within jewelry

cluster or outside it. The rents and rates within the jewelry cluster tend to be higher. For

example, a workshop within the jewelry cluster would seek rent of Rs. 25,000/- per

month whereas the same nature of space further to the jewelry cluster may seek only Rs.12,000/- per month. This model assumes a workshop located within the jewelry cluster.

Hence the monthly rent for the first year is Rs. 25,000/- per month with annual increase

of 10%.The rent for the gold jewelry retail shop of 500 square feet located in a central shoppingcentre of a major urban city, is estimated to be around Rs. 75,000/- month and is

estimated to increase at 10% annually.

The rent for both the workshop and retail shop is often pre-paid in terms of lease.


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99 FFIINNAANNCCIIAALL AANNAALLYYSSIISS

99..11

PPrroo j jeecctteedd IInnccoommee SSttaatteemmeenntt

Calculations SME

Income Statement

Rs. in a

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Y

Revenue 113,001,300 162,167,969 218,569,195 288,502,307 374,798,482 457,703,471 529,396,533 610,976,538 705,128,023 813,78 Cost of sales

Cost of goods sold 1 97,893,750 140,487,150 189,347,894 249,931,396 324,690,326 396,511,448 458,619,607 529,292,889 610,856,923 704,98

Operation costs 1 (direct labor) 2,691,000 3,059,992 3,361,272 3,691,291 4,053,037 4,458,534 4,903,376 5,380,776 5,904,656 6,47

Operating costs 2 (machinery maintenance) 34,500 45,045 55,235 66,332 78,400 87,106 91,663 96,246 101,058 10

Operating costs 3 (direct electricity) 466,500 513,150 564,465 620,912 683,003 751,303 826,433 909,077 999,984 1,09

Total cost of sales 101,085,750 144,105,338 193,328,866 254,309,931 329,504,765 401,808,391 464,441,079 535,678,987 617,862,621 712,67

Gross Profit 11,915,550 18,062,631 25,240,329 34,192,376 45,293,717 55,895,079 64,955,454 75,297,552 87,265,402 101,11

General administration & selling expenses

Administration expense 2,298,000 2,521,737 2,767,256 3,036,680 3,332,336 3,656,777 4,012,806 4,403,498 4,832,229 5,30

Administration benefits expense 68,940 75,652 83,018 91,100 99,970 109,703 120,384 132,105 144,967 15

Building rental expense 1,200,000 1,320,000 1,452,000 1,597,200 1,756,920 1,932,612 2,125,873 2,338,461 2,572,307 2,82

Electricity expense 538,500 592,350 651,585 716,744 788,418 867,260 953,986 1,049,384 1,154,323 1,26

Travelling expense 114,900 126,087 138,363 151,834 166,617 182,839 200,640 220,175 241,611 26

Communications expense (phone, fax, mail, internet, etc.) 172,350 189,130 207,544 227,751 249,925 274,258 300,960 330,262 362,417 39

Office expenses (stationary, entertainment, janitorial services, etc.) 229,800 252,174 276,726 303,668 333,234 365,678 401,281 440,350 483,223 53

Promotional expense 565,007 621,507 683,658 752,024 827,226 909,949 1,000,943 1,101,038 1,211,142 1,33

Depreciation expense 213,060 213,060 213,060 213,060 213,060 213,060 213,060 213,060 213,060 21

Amortization of pre-operating costs 84,800 84,800 84,800 84,800 84,800 - - - -

Subtotal 5,485,357 5,996,496 6,558,010 7,174,861 7,852,505 8,512,135 9,329,933 10,228,333 11,215,278 12,29

Operating Income 6,430,194 12,066,135 18,682,319 27,017,515 37,441,211 47,382,944 55,625,520 65,069,219 76,050,124 88,81

Other income (interest on cash) 15,000 - 147,231 577,318 1,369,642 2,696,330 4,509,155 6,694,357 9,291,538 15,70 Earnings Before Interest & Taxes 6,445,194 12,066,135 18,829,551 27,594,833 38,810,854 50,079,274 60,134,675 71,763,576 85,341,662 104,51

Interest on short term debt 202,614 218,878 16,264 - - - - - -

Interest expense on long term debt (Project Loan) 193,796 162,857 126,662 84,320 34,785 - - - -

Interest expense on long term debt (Working Capital Loan) 739,228 618,647 477,294 311,590 117,340 - - - -

Subtotal 1,135,638 1,000,382 620,220 395,909 152,124 - - - -

Earnings Before Tax 5,309,556 11,065,753 18,209,331 27,198,924 38,658,729 50,079,274 60,134,675 71,763,576 85,341,662 104,51

Tax 1,327,389 2,766,438 4,552,333 6,799,731 9,664,682 12,519,818 15,033,669 17,940,894 21,335,415 26,12

NET PROFIT/(LOSS) AFTER TAX 3,982,167 8,299,315 13,656,998 20,399,193 28,994,047 37,559,455 45,101,006 53,822,682 64,006,246 78,38


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99..22 PPrroo j jeecctteedd CCaasshh FFllooww SSttaatteemmeenntt

Calculations SMEDA

Cash Flow Statement

Rs. in actuals

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Operating activities

Net profit 3,982,167 8,299,315 13,656,998 20,399,193 28,994,047 37,559,455 45,101,006 53,822,682 64,006,246 78,387,555

Add: depreciation expense 213,060 213,060 213,060 213,060 213,060 213,060 213,060 213,060 213,060 213,060

amortization of pre-operating costs 84,800 84,800 84,800 84,800 84,800 - - - - -

amortization of training costs - - - - - - - - - -

Deferred income tax 38,975 - - - - (7,795) (7,795) (7,795) (7,795) (7,795)

Accounts receivable (2,167,148) (471,461) (1,012,295) (1,211,425) (1,498,089) (1,622,477) (1,482,447) (1,469,742) (1,685,096) (1,944,770)

Finished goods inventory (4,395,033) (1,651,345) (2,057,227) (2,548,120) (3,141,498) (2,985,589) (2,572,900) (2,968,246) (3,424,318) (3,950,541)

Equipment inventory (5,750) (2,133) (2,267) (2,648) (3,085) (2,646) (1,944) (2,098) (2,314) (2,551) 27,435

Raw material inventory (8,157,813) (4,134,813) (5,103,712) (6,714,232) (8,778,024) (9,283,094) (9,044,490) (10,847,843) (13,145,470) (15,929,746) 91,139,237

Pre-paid building rent (1,200,000) (120,000) (132,000) (145,200) (159,720) (175,692) (193,261) (212,587) (233,846) (257,231) 2,829,537

Accounts payable 4,529,949 1,960,682 2,284,431 2,851,056 3,454,386 3,323,682 2,998,465 3,444,890 4,006,896 122,114

Cash provided by operations (9,363,

gold jewelry manufacturing and retail shop

Documents