Since it was founded in 1984 by Town & Country Corp (T&C) of the US, Essex International has grown rapidly into one of Thailand’s top ten manufacturers of jewelry, accounting for five percent of the country’s total jewelry exports. Essex received Board of Investment (BOI) promotional privileges in 1986 and began manufacturing gold jewelry set with diamonds and colored gemstones, marketed under both its own “ESX” trademark as well as those of clients. It became a publicly listed company in July 1991 and 30 percent of the company is now owned by the public.

            T&C, the largest jewelry manufacturer in the US with 30 subsidiaries in various countries, provides Essex with raw material, technical training, design development and marketing assistance.

            About 70 percent of the company’s production is sold in the US. It hopes to expand its sales outside the US in this year through the use of agents, including Christile NV in Belgium and Garcia Canameras SA in Spain.

            Essex is currently located in a seven-storey building in the gem and jewelry center of Bangkok and employs 450 workers with an annual production capacity of 450,000 pieces.

            It recently began manufacturing at a factory in China through its affiliate company in Hong Kong, Anju Jewellery. It also plans to open two new factories in Chiang Mai, Thailand in 1993, increasing its jewelry production capacity by 1.2 million pieces per year. The B160 million (US$6.4 million) investment in the two factories will be financed by internal cash flows and have BOI privileges for 11 years.

            The first factory is a joint venture with Green Park Gems of New York and is set to begin operation by midyear. Known as Pacific Rim Gems Cutting Co, it will employ 300 at maximum capacity and produce 1.5 million carats per year. Most of the production will be for export, although Essex will also absorb some for its own jewelry production. The company’s Chiang Mai jewelry factory is scheduled to begin production by the end of the year. At full capacity it will employ 800 people producing 1.5 million pieces per year.

            Siri Subphon, managing director of Essex, joined the company in 1985. Unlike most of Thailand’s jewelry magnates, Mr. Siri does not come from a family with a long tradition of gemstones. His background is in business administration including the oil, garment and agriculture industries. Since entering the jewelry business he has seen the industry go through many drastic changes. In the following interview Mr. Siri talks about these changes and his company’s strategies for adapting to a rapidly evolving market.

 

JewelSiam: Why did you choose Chiang Mai as the site for your new factories?

 

Siri Subphon: We had to leave Bangkok to expand so that we could get BOI privileges. Also, the cost of labor is cheaper upcountry. With the recent minimum wage increase, the cost of labor in Bangkok will go up to B125 (US$5) per day but in Chiang Mai it will only increase to B110.

 

JS: Why did you choose Chiang Mai over other upcountry locations in Thailand?

 

SS: We looked at every place – north, south and the northeast – but we found Chiang Mai to be the best place. While Korat [in the Northeast] has only one flight a day on a very small plane, Chiang Mai has five flights from Bangkok each day. You can go in the morning and come back at night. It has an international airport so sometimes you can export to the US and Europe directly from there. We can also have a bonded warehouse at our factories in Chiang Mai.

 

There are already a few jewelry manufacturers in Chiang Mai and if you look and see what jewelry they are doing it is quite impressive. The people there are quite hard working. I find that people from cooler areas are usually more hard working than those from warmer ones.

 

In Bangkok we now employ 450. I think we are considered the biggest factory in the heart of the gem and jewelry district. We surveyed our Bangkok employees about opening operations in the north and 30 percent said they would prefer to work in Chiang Mai.

 

 

JS: Why did Essex decide to go into the gem cutting business?

 

SS: As a public company we need to seek more business and expand to satisfy investors. We didn’t want o do something out of the jewelry business, we wouldn’t dream of opening a restaurant, for instance. But we buy a lot of gemstones for our jewelry manufacturing so we hope a part of our own production can be used by us. Mainly we looked at the project in terms of cash flow. We think we can make it work very well.

 

JS: Who is your joint venture partner for the project?

 

SS: Greek Park Gems Inc is a New York-based business with cutting facilities in Sri Lanka and Korea. It also deals in stones, especially semiprecious. For our factory we hired a Korean manager and we will be using Korean machinery and technology. This is a little bit more sophisticated machinery than Thailand is used to and can cut semiprecious as well as precious stones. If we have a delay in the sourcing of precious stones we can switch to semiprecious so there’s no down time. The quality of our production will be very fine and very competitive.

 

JS: How about the jewelry factory you have planned for Chiang Mai – what type of jewelry will you be producing?

 

SS: At one time we were thinking about producing CZ jewelry but we think CZ is going to fade away. We researched it and realized that producing lower-end items does not really give us enough profit. So we’ve readjusted our strategy to higher-end items. We’re going to do platinum definitely because Japanese customers are asking for it and some in the US as well. We need to consider platinum now.

 

Strating the first year in Chiang Mai, however, we will be making jewelry at about US$50-$60 per item. In the first year we cannot do better than that but then we will slowly upgrade the capacity as we train the workers to make more complex jewelry. The key to success is to use high technology with proper training. Then wages can keep n going up but we can still remain competitive. If Thai companies don’t adapt to new technology our jewelry industry will be killed.

 

JS: What new technology is Essex using?

 

SS: We bought stamping machines to make the tongues for bracelets. Also we now use automatic soldering machines. It’s much faster than assembling bracelets by hand.

 

It’s just as important to have proper training for the use of more sophisticated machinery and foe higher efficiency and skill. We had a trainer from America come and make a study of our production beginning with the silver model. If you have a proper silver model you can come up with good wax items.

 

We divided the employees into groups that we call “cells.” We have a separate assembly line group and another one that does very high quality pieces. Before we used to mix everything together.

 

We spend B3-B4 million (US$150,000-$160,000) per year on training. Not many people will spend that much but we think it’s worth it. We find we need less time to complete an item.

 

Also, our company is high computerized, we have the EDI –Electronic Data Information—system. A customer can automatically send orders through this computer system and we don’t have to manually decode them and write order sheets. We save a lot of time. Of course, we also use the bar code system. We can track our jewelry anywhere along the line of production. We can track gold loss, everything. We have very tight control. We spent a lot of money, almost B20 million (US$800,000). You need to spend a lot of money today to remain competitive.

 

The buyers are so demanding nowadays you cannot delay or they will cancel their orders. In 1985 when I began with this company the industry was very different. The years 1988-1989 were very good. We could do anything we wanted to and the buyers were not fussy. It’s not so easy anymore. The buying power is not there. In some cases buyers want you to keep inventory for them. Now it’s buyers’ market.

 

JS: How about your factory in China?

 

SS: We have an associate company in Hong Kong by the name of Anju. We are using Anju as a bridge to China and our manufacturing there. We have a factory in Guangdong Province with more than 100 people but we can easily add 100 or 200 more. The factory is producing very simple items, such as one or two stone rings, or pieces with a lot of parts to fit together as in a bracelet. China is not strong with channel settings but prong settings they can do very well. Some items you cannot make cheaper than China can. The labor cost is very, very cheap, may be one-fifth or one-sixth there’s a lot more regulations and requirements that can add expense to doing business in China. It’s quite complicated to work there if you’re not Chinese.

 

JS: What is your opinion of jewelry manufacturing in India?

 

SS: India is very interesting. It’s coming up. Personally, I think they’re about three-five years behind Thailand depending on what company you compare it to. I’ve visited their manufacturing facilities and seen their sample lines. They’re quite strong in diamond jewelry but when it comes to colored stones they can’t compete. They have cheap labor. The craftsmanship is so-so but they can learn.

 

JS: Has Thailand’s value added tax hurt its competitiveness with other up-and-coming jewelry manufacturing centers?

 

SS: No. Actually I heard that the people who are complaining are the gold dealers. I just look at it as a whole. No matter how much VAT we pay we can get a refund from the government because we export. Under the old system, the business tax, we never got it back. Let me put it this way. Only the good people want to pay tax. in other countries you have to pay tax and Thailand has just come to that stage.

 

JS: But some companies complain that Thailand’s VAT system is too complicated and the cost of good accountants here is too high. Also, some gem dealers say they cannot pay VAT and survive due to problems with cash flow.

 

SS: It’s true cash flow will be tight for them. It’s not easy. And yes, there’s a shortage of accountants in Thailand just like there’s a shortage of doctors and engineers. Thailand is developing very fast.

 

JS: What are the current trends in the world jewelry market?

 

SS: This year the trend is for precious stones. Semiprecious is on the way out. I know from analyzing orders from the New York and Tokyo shows. Semiprecious is definitely on the way out, even in Japan. This is a very important trend.

 

In Europe our strongest market is Spain. Spain is ordering 18k gold jewelry set with diamonds and precious stones. They used to buy a lot of semiprecious, but not now. France is getting worse. Germany is okay. England is bad. The Scandinavian countries are becoming weak.

 

America is still a very important customer. When American wakes up, everybody else wakes up. Buyers are taking more risks because they know the Clinton administration is trying to squeeze the rich people and help the poorer people. The government has cut back on defense spending and has money to generate back to the people and create more jobs.

 

JS: What is your current marketing strategy in the US?

 

SS: Our parent company, T&C recently had to write off a $40 million debt from Zales. Now we are geared more towards direct sales through big catalogues and television shopping channels. For the television networks, the selling is not seasonal. They can sell every month and they are big, very big. For the TV people we must have 20 or 30 new items coming out every month. It’s hard for the design department. They have to come up with a lot of fresh ideas. The TV people like a big look but a cheap price, so when it appears on the TV screen you can quickly convey to the customer that they’re getting a very good idea.

 

We have a special division of the parent company, TC Imports, which deals strictly with sales and marketing foe Essex. That’s why we are very strong in sales. We have a separate department working just for us and they travel everywhere, carry out sample lines and get new orders every day.

 

We have a standardized computer system that allows them to key an order in an immediately come up with the same pricing formula. Everything can instantly be displayed on a computer screen so you save a lot of time.

 

The jewelry market is changing very fast. Buyers demand good quality, perfect quality. They are so demanding. They are even requiring special packing now. You have to know the market like a map. The catalogue people want orders very fast. The big department stores are very fussy.

 

JS: What’s your secret for meeting their demands?

 

SS: We do a lot of homework. We know what kind of price, design and stones each customer is looking for. Five or six years ago we showed a customer everything in our product line. Now we go direct to the price point. We know exactly what they want and we show them only five or six trays. But out of those five or six trays I guarantee there will be something they will buy. Nowadays, if you try to show everything to a buyer he will get bored and find an excuse to leave.

 

You have to understand a buyer’s habits. We know Mr. So-and-So doesn’t like seafood. We have all this computerized, you’d be surprised. Some ladies like flowers, others like chocolates. We need to know them very well. American customers are the most demanding, much more demanding than Europeans or Japanese. We know these people by their first names. We understand them. We visit them at their home offices to see what kind of products they display. We spend more money than other people but it’s worth it because when we meet with our buyers we talk the same language.