Go east: Your future in jewelry could be in China

China’s economy has moved from the factory floor,” says Harold Sirkin in a recent issue of BusinessWeek, “to the retail store and showroom.”

How should a jewelry leader, having created a successful retail operation but now facing the highly competitive and consolidating U.S. jewelry industry, build on his accomplishments? Almost by necessity he, or she, needs to explore overseas markets. Why not start with China?

My partners, many with Hong Kong and Chinese jewelry and acquisition experience, like Lyle M. Rose, our associate in Hong Kong, have created a simple, “Freshman 101” study outline for the jewelry executive considering a Chinese initiative.

1. What’s the mission?
   a. Reinvigorate sales growth
   b. Be acquired by Chinese company
   c. Acquire a Chinese retailer
   d. Acquire a Chinese supplier
   e. Other

2. Researching the Chinese culture and consumer market
   a. Characteristics of the Chinese consumer
   b. Geographic consumer concentrations: Tier 1, Tier 2, Tier 3?
   c. Popularity of silver vs. gold?
   d. Popular product price point?
   e. Competition (Chow Tai Fook, Luk Fook and others)?
   f. Brand importance?
      i. Quality
   g. Importance of anything American?
   h. Characteristics of the consumer environment
   i. Characteristics of government role

3. Developing cross-border alliance strategy
   a. Acquire a Chinese jewelry retailer
      i. Stock or asset purchase

   b. Merge with:
      i. Chinese manufacturer, retailer, other

   c. Joint venture with:
      i. Chinese manufacturer, retailer, other

   d. Alliances with:
      i. Chinese manufacturer, retailer, other

   e. Partnership with:
      i. U.S. organization

   f. Any combination of the above

4. Support/advisor team
   a. U.S.-based (New York), Chinese lawyer
   b. Consultant  with Chinese-based jewelry experience                                  
   c. Executive from Chinese Trade Association, (i.e. HKTDC, the Hong Kong Trade Development Council)
   d. M&A firm (investment banker) or M&A-experienced Chinese lawyer
   e. Hong Kong, or Chinese, jewelry supplier
   f. Public relations firm

5. Initial cross-border strategy
   a. Even with this information at hand, developing a cross-border market strategy takes brain power, research and intelligence. But whatever you decide there is, of course, no magic formula.

Don’t forget, while this précis may look complicated at first, jewelers will have to move away from their comfort zone. Instead of managing in-store salesmen or considering showroom décor -- things they have been doing for years -- they will be required to wrestle with the brain-numbing demands of estimating risk premiums, adjusting CAPM, computing cash flows and calculating the cost of capital.

They may no longer simply be known as a jeweler, but rather recognized as a sophisticated global businessman. From my experience in working with these leaders, the global market entry process transforms veteran jewelers into dynamic and enthusiastic strategic thinkers. Whether it’s due to their new strategies or exposure to innovative ideas, he or she seems to have a new outlook on life itself.