Malaysian Jewellery Industry Strategic Management

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Jewelry companies should also pay attention to national inflation rates and household savings rate. High inflation and low household savings rate can lead to decreased spending power and lower sales. It may lead to consumers switching to cheaper alternatives or purchasing less expensive gemstones such as silver, topaz, ruby and jade as opposed to diamonds. The companies can still earn above-average returns if they diversify their product range to meet demands under unfavourable economic periods.

- Political/Legal Segment

The segment explains the relationship between different bodies of laws and regulations and the organizations that place reliance on them. Organizations from different industries attempt to exert influence on the government and vice versa. The exchange of such influence has significant impacts on firm-level strategies (Hitt, Ireland & Hoskisson, pp. 46, 2011).

The nature of the jewellery business in Malaysia is such that the jewellery manufacturer has to incur a high input cost to purchase raw materials which comes from the high input tax upfront charged by suppliers while managing relatively slow moving sales. This nature has a significant impact on the working capital management of the manufacturer in terms of cash flow.

Fortunately, jewellery businesses that qualify for Approved Trader Status (ATS) status are able to apply for the Approved Trader Scheme (ATS) under the Approved Jeweller Scheme (AJS), issued by the Royal Malaysian Customs Department. The scheme will allow them to withhold payment of Goods and Services Tax (GST) on imported raw materials. Nevertheless, the amount withheld has to be declared in the GST return during the year of assessment for which the tax is incurred. This form of tax leniency will provide substantial relief to the business where the frequency of sales is not sufficient to support the high input tax in the purchase cycle (Guide on Approved Jeweller Scheme, 2015).

On the other hand, the import duties charged on certain retail goods which include jewellery was abolished as proposed during the Budget 2011 to boost the tourism industry in Malaysia (“Import duty waiver on tourism goods to boost sales”, 2010). Examples of such goods include silver, white gold, gold, bracelets, pearls, diamonds and necklaces (“Tax Free Policy”, 2015). The abolishment took effect on October 15, 2010 (Wong & Partners, p.3, 2010).

All of the mentioned legislations have significant impacts on firm-level strategies as they are able to provide the firm increased flexibility in resource planning and allocation. The reduced cost of business allow the firm to achieve above-average returns as well as maximising value to end consumers.

- Technological Segment

The segment is highlights the institutions and processes that allows the generation of new technological knowledge and the translation of such knowledge into meaningful business outputs (Hitt, Ireland & Hoskisson, pp. 47, 2011).

The technology behind the industry is constantly improving and the benefits derived from such improvements can be seen in the form of production quality, speed and efficiency.

Processes such as laser sintering introduces the three-dimensional printing technology to the industry where a machine that resembles a photocopier literally 'prints' out jewellery pieces such as gold rings with complex designs. The machine is able to produce such rings in a shorter period of time, which is one of its main advantages as opposed to traditional craftsmanship (Vallance, 2013).

In addition, less precious materials can be used in laser sintering, "objects which hitherto had to be cast in solid metal can be manufactured as hollow shapes" ("Vallance, 2013). Some of the implications of such technologies include increased in production volume, reduced relevancy of traditional craftsmanship, and higher quality products. If implemented correctly, the machine can be a valuable core competency for jewelry companies.

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Global Segment

Some of the aspects covered in the segment are changing existing markets, significant events in international politics and new global markets (Hitt, Ireland & Hoskisson, pp. 48, 2011).

McKinsey & Company expects the jewelry industry to be a global business by the year 2020, similar to the apparel industry due to internationalization of brands and industry consolidation. They observed that the industry is not internationally dominant and that only 12% of the global market was successfully captured by even the biggest names such as Cartier and Tiffany & Co. By the year 2020, it is predicted that regional jewelry brands such as Chow Tai Fook from China and Swarovski will perform industry consolidation by buying smaller, local jewelers to increase their foothold on the global market by almost two times (Dauriz, Remy & Tochtermann, 2014).

This recent development in global strategy by regional jewelry companies is largely influenced by the same events that occur in a different industry. The success in internationalization strategy implemented by the apparel companies has a major impact on the appropriate strategy of jewelry companies.

- Physical Environment Segment

The segment focuses on potential changes, whether beneficial or detrimental, in the physical environment and the corresponding business policies and practices that attempts to rectify the changes (Hitt, Ireland & Hoskisson, pp. 49, 2011).

Jewelry companies like Pandora intends to reduce the impact of their business practice on the natural environment and emphasizes on the concept of the 3Rs in production facilities in Thailand, which are reducing, reusing and recycling. According to Pandora's Corporate Social Responsibility (CSR) webpage, some of its key performance indicators, or KPIs, include the consumption of water and energy at its crafting facilities, carbon dioxide (CO2) emissions and percentages of recycled materials and wastes (Pandora, n.d.).

This level of transparency by the company should be an example to other similar enterprises and it builds public confidence on the environmental-focused initiative that is being undertaken. It is a sign that the company recognizes the threat of environmental destruction and its potential impact on its effort to achieve above-average returns.

- JEWELLERY INDUSTRY ANALYSIS

- Porter’s Five Forces Analysis

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