Pre-Feasibility Study

GOLD JEWELRY MANUFACTURING &

RETAIL SHOP

Small and Medium Enterprise Development Authority

Government of Pakistan
www.smeda.o rg.pk
HEAD OFFICE
st

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Lahore
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SINDH

REGIONAL OFFICE
NWFP

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Complex
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January, 2006

Gold Jewelry Manufacturing & Retail Shop

PURPOSE OF THE DOCUMENT ............................................................................................... 3

CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT..................... 4

2.1
2.2
2.3

SWOT ANALYSIS ................................................................................................................... 4

ENTREPRENEURIAL FIT ........................................................................................................... 6
BUSINESS MODEL: IN-HOUSE MANUFACTURING VS. OUTSOURCED MANUFACTURING ............... 7

PROJECT PROFILE .................................................................................................................... 7

3.1
OPPORTUNITY RATIONALE ...................................................................................................... 7
3.2
PROJECT BRIEF ....................................................................................................................... 8
3.3
MARKET ENTRY TIMING ......................................................................................................... 8
3.4
PROPOSED BUSINESS LEGAL STATUS ....................................................................................... 8
3.5
PROJECT CAPACITY AND RATIONALE ....................................................................................... 8
3.6
PROJECT INVESTMENT ........................................................................................................... 11
3.7
PROPOSED PRODUCT MIX ...................................................................................................... 12
3.7.1
Product Mix - Workshop Operations ............................................................................... 12
3.7.2
Preferred karatage........................................................................................................... 12
3.7.3
Item Wise Stock Composition ........................................................................................... 12
3.8
PROPOSED LOCATION ............................................................................................................ 14
3.8.1
Location for Workshop Unit ............................................................................................. 14
3.8.2
Location for Retail Unit ................................................................................................... 14
3.9
KEY SUCCESS FACTORS/PRACTICAL TIPS FOR SUCCESS .......................................................... 15
3.9.1
Key Success Factors for Workshop Unit ........................................................................... 15
3.9.2
Key Success Factors for Retail Unit ................................................................................. 15
3.10
STRATEGIC RECOMMENDATIONS ........................................................................................... 15
3.10.1
Marketing ................................................................................................................... 15
3.10.2
Ratio of Order to From-Counter Purchase................................................................... 15
3.10.3
Nature of Stock Keeping .............................................................................................. 15
3.10.4
Pricing Policies: ......................................................................................................... 16
3.10.5
Mode of Payment ........................................................................................................ 16
3.11
PRODUCT RANGE IN TERMS OF DESIGNS, ITEMS AND QUALITY ............................................... 16

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

4.1
4.1.1
4.2
4.2.1
4.2.2
4.2.3
4.3
4.3.1
4.4
4.4.1
4.4.2
4.5

INDUSTRY STRUCTURE .......................................................................................................... 16

Average Workshop........................................................................................................... 17
EXPORT MARKET .................................................................................................................. 18
Major International Market Players ................................................................................. 18
Pakistans Jewelry Export................................................................................................ 19
Export Regulations and Procedures ................................................................................. 20
LEGAL ISSUES REGARDING INDUSTRY ................................................................................... 24
Taxation .......................................................................................................................... 24
MARKET POTENTIAL ............................................................................................................. 24
Customer Loyalty............................................................................................................. 24
Trends ............................................................................................................................. 24
TARGET CUSTOMERS ............................................................................................................ 24

PRODUCTION PROCESS ......................................................................................................... 26

5.1
PRODUCTION PROCESS FLOW ................................................................................................ 26
5.1.1
Contracting out an order.................................................................................................. 27
5.1.2
Jewelry Designing ........................................................................................................... 27
5.1.3
Gold Refining and Mixing ................................................................................................ 27
5.1.4
Converting Gold Ingots into Gold Sheets and Wires ......................................................... 27
5.1.5
Transfer of Design / Pattern Making ................................................................................ 28
5.1.6
Engraving........................................................................................................................ 28

5.1.7
Finishing ......................................................................................................................... 29
5.1.8
Polishing and Buffing ...................................................................................................... 29
5.1.9
Beading and Stone Studding............................................................................................. 29
5.1.10
Gold Recovery............................................................................................................. 30
5.2
CASTING PROCESS AND MACHINERY REQUIREMENT .............................................................. 30
5.2.1
Supply of Machineries...................................................................................................... 30
5.3
JEWELRY ITEM MANUFACTURING TIME ................................................................................. 31
5.4
RAW MATERIAL .................................................................................................................... 31
5.5
MISCELLANEOUS E XPENSE .................................................................................................... 32
5.6
INITIAL INVESTMENT IN GOLD JEWELRY STOCK ..................................................................... 33
5.7
MACHINERY REQUIREMENT .................................................................................................. 33
5.8
FURNITURE & FIXTURES ....................................................................................................... 34
6

LAND & BUILDING REQUIREMENT .................................................................................... 35

6.1
LAND REQUIREMENT ............................................................................................................ 35
6.1.1
Rent................................................................................................................................. 35
6.2
UTILITIES REQUIREMENT ...................................................................................................... 36

HUMAN RESOURCE REQUIREMENT................................................................................... 37

FINANCIAL ANALYSIS............................................................................................................ 38
8.1
8.2
8.3

PROJECTED INCOME STATEMENT ........................................................................................... 38

PROJECTED CASHFLOW STATEMENT ...................................................................................... 39
PROJECTED BALANCE SHEET ................................................................................................. 40

KEY ASSUMPTIONS ................................................................................................................. 41

9.1
9.2
9.3

ASSUMPTIONS RELATED TO THE SCOPE OF OPERATIONS ......................................................... 41

INCOME RELATED ASSUMPTIONS ........................................................................................... 41
EXPENSE RELATED ASSUMPTIONS ......................................................................................... 43

Pre-feasibility Study

Gold Jewelry Manufacturing & Retail Shop

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

Jan 2006

Issued by

Library Officer

4
PREF-87/Jan, 2006/ Rev 1

PURP
URPOSE OF THE DOCUM
CUMENT

The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs

in 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,
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 jewelry
manufacturing 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 its
successful management.
This particular pre-feasibility is regarding Gold Jewelry Retail Enterprise, which
comes under a broader Gem and Jewelry Sector.

2
CRUCI
RUCIAL FACT
ACTORS
INVE
NVESTM
STMENT

& STEPS

IN

DECISION MAKIN
KING

FOR

Below are some factors and variables that have a great bearing on setting up jewelry
manufacturing and retailing enterprise:
2.1

SWOT Analysis

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.

1.
2.
3.
4.

5.

6.

1.
2.

3.
4.

5.

SWOT Analysis
Strengths
Weakness
Stock of skilled craftsmen;
1. Weak sharing of information and best
Low manufacturing cost;
practices within the industry. Trade
Low capital investment in
secrets tend to be kept within family;
machinery;
2. Demand for exclusivity prevails over
Price inelasticity of demand for
demand for standardized items. Thus
the degree of mechanization of the
gold jewelry implying the relative
ease with which an entrepreneur
jewelry manufacturing process tends
may pass on increase in costs to the
to be low;
customer.
3. Maintaining exclusivity of designs is
Easy exit since gold stock can be
difficult due to absence of copyright
resold easily (though capital gains
laws within the industry.
/ loss possible due to change in
Investment in exclusive designers is
gold price);
thus risky.
Premium mark-up is accepted in
4. Highly skilled craftsmen are
general by customers if they
concentrated in few clusters, mainly
perceive that the jewelry item
in Karachi and Lahore;
they are purchasing is unique or
5. Practice of hallmarking products for
has a designers value. Thus
export is low, thus non-hallmarked
there is greater opportunity for an
items are less reliable abroad than
entrepreneur to charge higher
competitive but hallmarked jewelry.
mark-up on exclusively
positioned jewelry line.
Opportunities
Increasing population thus
expanding potential domestic
market;
Gold price is perceived to be
outmatching inflation thus purchase
of gold jewelry is more readily
justified in terms of future security.
Increasing demand for 22k gold
jewelry abroad amongst South
Asian expatriates;
Increasing demand of 18k jewelry
within Pakistan provides opportunity
for jewelers to increase their stock
size and range with lesser investment
in gold.
Increasing participation of females in
work-force, thus greater purchasing
power of women to
6

PREF-87/Jan, 2006/ Rev 1

1.
2.
3.

4.

Threats
Improving trade relations with India
may lead to import of competitive
jewelry items into Pakistani Market;
Competition from Far-East Asian
countries is already somewhat visible;
Proper designing matching the market
taste is crucial to sales, if designing
does not match the market demand,
the entrepreneur may be stuck with
slow conversion of stock to sales.
Frequent turnover of key craftsmen
risks loss of quality and exclusivity;

purchase jewelry items;

6. Increasing trend and inclination in
the market to pay premium for
exclusive designs / brands has a
created a niche market for products
bearing higher profit margin.
2.2

Entrepreneurial Fit

The prospective investor will need to assess an entrepreneurial fit in the sector in light
of the sectoral SWOT analysis. Table 2-1 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 its lacking.
Table 2-1: Entrepreneurial
Fit
ENTERPRENURIAL FIT
CRUCIAL
TRAITS

Family
Background

Process
Know How

Flair for
designing /
Ability to
gauge trends

Importance

If Positive

Action Needed if Negative

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.
Effective quality
control;
Feasibility
assessment of
selecting production
technology

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.

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

Unique selling
proposition;
Premium pricing
Customer Loyalty

Entrepreneur is able to
determine the stock of
jewelry items in terms of
designs 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.

2.3
Manuf
nufacturing
ing

Busine
iness Model: In-House Manuf
nufacturing
ing vs. Outsourced
ced

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.
Table 2-2: Pros
Manuf
nufacturing
ing

and

Con
Cons

of

In-House

vs.

Out
Outsourced
ced

Pros and Cons of In-House vs. Outsourced Manufacturing

PROS

In-House
CONS

PROS

Outsourced
CONS

Greater control on
quality

Greater 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 risk

Difficult to keep designs from

being copied by competitors

feasible for small

scale jewelers

Lesser control over order

completion time

Optimal order
processing
Better process
control when
production under
one roof

Greater labor cost in

order to prevent
craftsmen's turnover
Cases of design
leakages and craftsmen
refusing to work
exclusively for one
jeweler commonly
reported
Not feasible for small
scale jewelry business

3
3.1

Possible to rationalize
on total labor cost for
small/ medium size
business
Greater range of
choice in terms of
craftsmen to be used

PROJECT PROFILE
Oppo
Opportunit
unity Rat
Rationale

A lack of passion for gold jewelry in Pakistan, and even amongst the Pakistani
expatriates, 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
jewelry as 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
8
PREF-87/Jan, 2006/ Rev 1

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

process,

9
PREF-87/Jan, 2006/ Rev 1

thus they all tend to form a cluster of independent units that utilize each others 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 and
manufacturing), 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 entry into enterprise of gold jewelry manufacturing and retailing.
3.2

Project
ect Brief

The subject enterprise of this pre-feasibility study is an integrated business gold jewelry
manufacturing and retailing business. The manufacturing unit known as the workshop
is a self sufficient unit that out sources only the following processes: gold refining and
mixing, mechanized chain and bangle making.
With required rate of return for the project being 21%, the project is with conservative
assumptions is expected to have a net present value (NPV) of Rs. 17,979,862/- and a
modified internal rate of return (Modified IRR) of 34.50%. The discounted payback
period is about 3.6 years.
Project Outcomes
Net Present Value
17,979,862
Modified IRR
34.50%
Discounted Payback (years)
3.6
3.3

Market Entry Timing

ing

The gold jewelry retailing sector faces a seasonality factor that becomes apparent in the
sales. Sales tend to peak during the wedding season. Wedding seasons fall in winters
(October - February); and in summers (June August).
As far as the importance of timing of setting up a gold-jewelry business is concerned,
its preferable that the business be set up to coincide with either of the wedding seasons.
This would not only help the initial cash flows but also render any promotional tactic
(even if it may be just an attractive faade of the shop or a w ell designed jewelry) more
effective by having greater number of prospective gold jewelry buyers in the market.
3.4

Proposed Busine
iness Legal Status

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
incorporation mainly due to requirement, in the case of incorporation, of periodic
disclosure of financial information.
3.5

Project
ect Cap
Capacity and Rat
Rationale

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
capacity of 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 6900
grams (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 the workshop.
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 3-1 shows how a manufacturing unit and gold jewelry retail enterprise is described
in terms of capacity and scale.
Table 3-1: Capacity Descript
iption
Capacity Description
Capacity Description for Workshop Unit
SCALE

Number of
Output / year (grams)
Output / year (tolas)
Craftsmen
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
retail industry 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 for integrated 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 scale. Medium scaled workshop can provide jewelry items for its
own retail units where generating greater profit margins. Furthermore, in order to keep
working capital required, especially in terms of investment in gold jewelry stock, the
manufacturing unit can offer its services to other gold jewelry retailers who outsource
manufacturing of gold jewelry items. 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 to more 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 69,000 Gms / year (6000 tolas /
year) and retail outlet with initial capacity in terms of gold jewelry stock at any one time
to be 5175 grams of gold (450 tolas) worth of jewelry.
The model as depicted in Table 3-2 shows that the workshop will initiate its operations
at
60% of its capacity in year 1, and the level of operations will increase as
manufacturing
unit receives more orders from its own retail unit and from other gold jewelry retailers.
It is estimated that the manufacturing unit will be able to operate at 90% of its
initial capacity by year 8.
The model also assumes that in initially, in year one, the proportion of workshop output
sold be self and that manufactured for others will be 60 % and 40% respectively. This
implies that in its initial year the modeled enterprise will rely on orders from another
jewelers due to limited capacity of the self owned retail unit to absorb the workshop
capacity and also as a risk managing strategy since the greater the proportion of
workshop output is to be sold be self owned retail unit greater the investment in stock
required of the entrepreneur, thus greater level of investment tied up in stocks. The ratio
of workshop output sold is self owned retail against that manufactured for other jewelers
increases as the self-owned retail unit marks its place in the market and gathers its
greater market knowledge that will ensure greater sales and thus greater capacity to
absorb the output of the workshop. Hence by year 10, the model assumes that the
business reaches equilibrium in terms of product mix whereby 85% of the workshops
output is sold by self and 15% is manufactured for other jewelers. This accelerating
ratio is based on the assumption that the marginal return on investment on selling gold
jewelry by self is greater than that on gold jewelry manufactured for others till the 85:15
of product mix.
Table
3-2:
Parameters

Capacity

and

Operations
Capacity and Operations Parameters

Annual
manufacturi
ng Capacity
= 69,000
grams
Level of
Operations
(ratio of
capacity) of
Workshop
Level of
workshop
Operations
(volume of
gold) grams

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

0.6

0.65

0.7

0.75

0.8

0.85

0.85

0.9

0.9

0.9

41,400

44,850

48,300

51,750

55,200

58,650

58,650

62,100

62,100

62,100

Stock Level of
Gold Jewelry
Items to be
Maintained by
Retail Unit at
Any Given
Time

5175

5399

6261

6469

6133

6924

6924

7331

7331

7331

Ratio of
workshop
output sold by
self-owned
retail unit
Ratio of
workshop
output
manufactured
for other gold
jewelry
retailers

3.6

0.6

0.65

0.7

0.75

0.8

0.85

0.85

0.85

0.85

0.85

0.4

0.35

0.3

0.25

0.2

0.15

0.15

0.15

0.15

0.15

Project
ect Investment

Table 3-3 below gives an estimate of the initial investment required to set up a workshop
with annual capacity to manufacture gold jewelry items worth 69000 grams and gold
jewelry retail unit operating initially with stock level of 5,175 grams (450 tolas).
Table 3-3: Initial Investment
Description
Shop Lease Down Payment
Retail Shop
Work Shop
Total Lease Payment
Furniture and Fixtures
Retail
Work Shop
Total Furniture & Fixture
Machinery
Wire Making Machine
Plate making machine
Wax Casting Machine
Polishing Machine and Accessories
Tools for craftsmen
Tools for gem studders
Scales
Total Machinery & Equipment
Raw Material + Jewelry Stock
Initial Gold Jewelry Stock
Nitric Acid
Wax
Total Raw Material
Fee
Licenses
Pre-Operating Cost (personnel cost)

Amount (in Rs.)

200,000
72,000
272,000
197,000
50,308
247,308
25,000
25,000
315,500
14,000
40,000
8,000
6,600
434,100
6,073,380
8,000
6,000
6,087,380
10,000
10,000
80,000

Minimum Cash Reserve

Total Investment
3.7

329,878
7,470,666

Proposed Produc
duct Mix

3.7.1
Produc
oduct Mix
Ope
Operatio
tions

- Workshop

The workshop operations will be based on orders from other gold jewelry retailers who
outsource gold jewelry manufacturing and on gold jewelry items sold directly through
self-owned retail unit of the model. Table 2.5.2 explained earlier shows how total
workshop operations are expected to be distributed between output made on order for
other jewelry retailers and output sold directly through self-owned retail unit.
The following subsections refer to product mix of the gold jewelry retail
unit.
3.7.2 Preferre
rred karatage
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 is
unlikely 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.
3.7.3 Item Wise Stock Compos
omposition
ition
Based on the interviews of established jewelers, we were able to establish rule
of thumb for stock composition of total amount of gold invested in stock of
jewelry available for display.
We were also able to establish an average amount of gold per item type and average
number of units stocked per item type. Table 3-4 below shows average gold content in
grams per jewelry item.
Table 3-4: Ave
Average Gold Con
Content
AVERAGE GOLD CONTENT (Grams) PER ITEM
Item

Earrings
Rings
12 Bangles' Set

Gold Content (grams) - Range

80% of items of
20% of items of
same category sold same category sold
3.5
7
3
7.5
43
34

Average Gold
Content / Item
4.2
3.9
41.2

Bracelets
Chains
Necklaces

10.25
15
34.5

24.75
7
37

13.15
13.4
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: 3-4 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 7
grams.
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: 35 below gives an idea as to how, percentage wise, total gold available for jewelry
stock may be distributed among various jewelry items.
Further more 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.
Table 3-5: Weight wise dis
distribut
ibution of gol
gold
metal
WEIGHT WISE DISTRIBUTON OF GOLD METAL STOCK AMONG JEWELRY ITEMS

Item

Item-wise Distribution of
Gold Stock (%)
4%
9%
14%

Units per Item Type given

4600 gms (400 tolas) of Gold
40 units
108 units
16 units

Earrings
Rings
Bangles' Design (four
bangles per design)
7%
24 units
Bracelets
3%
10 units
Chains
43%
56 units
Necklaces
3%
42 units
Pendants
0%
2 unit
Teeka
17%
12 units
Bridal Set
0%
0 units
Jhoomer
TOTAL
100%
310 units
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
the retailer gains experience of the market itself.

3.8

Proposed Location

3.8.1 Location
tion for Workshop Uni
Unit
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 many
and some of them relate to the fact the cluster is almost self suffieicient 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.
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 in sirafa bazaar. Sirafa 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 for
workshop outside the cluster. The difference becomes greater the further one goes fro
m the cluster. For example, space 22 by 88 square feet may be let at Rs.6000/month
if located within the cluster but may cost Rs.3000/month in old part of the city but far
from the cluster.
3.8.2 Location
tion for Retail Uni
Unit
An ideal location for setting up a jewelry shop would be in main market or
shopping center 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
designs and 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.
Its noted that even shops of established reputation ultimately shift to main market areas
to 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

3.9
Succe
Successs
3.9.1
Uni
Unit

Key Succe
Successs Factors/Practical Tips
ips for
Key Succe
Successs Factors for Workshop

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
of orders) and quality;
Networking to attract and ensure sufficient orders to cover overhead costs;
Networking to identify suppliers and service providers who are reliable and provide
adequate quality.
Housing as many processes in-house so as to provide as many services under one
roof.
Location
3.9.2
Uni
Unit

Key Succe
Successs Factors for Retail

The key success factor in gold jewelry retail business is the turnover which in turn
depends on:
Quality
Design
Variety and product range displayed under one roof.
Location
3.10

Strategic Reco
ecommenda
ndations

3.10.
ng
10.1 Marketi
keting
Marketing and promotional schemes are financially feasible only if you have sufficient
capital / stock in terms of finished product that you are able to satisfy a customers
need. Hence, unless one has a sufficiently wide range of jewelry items to cater to a
prospective buyer attracted by marketing scheme, the attraction of that customer to
your shop may not translate into sales but into higher average selling cost.
3.10.
10.2 Ratio
tio
Purchas
hase

of

Order

to

Fromom-Count
ounter

In the wedding season, purchases on order outnumber those from the displayed stock and
vice versa on other occasions.
3.10.
10.3 Nature of Stock Keep
eeping
Increase the average stock size to hedge against gold price increase if the trend in of
rising gold price is expected to continue for some time.

Some stock is kept of gold and those stones, precious and semi precious gems the type
of which have been used in displayed jewelry items to cater to the possibility
that a customer may want to purchase a displayed item with some alterations. Stock in
term of duplicates of displayed jewelry item is not kept.

3.10.
10.4
Polic
licies:

Pricing

Increased competition has reduced jewelers control in terms of price determination of

smaller, and relatively non-exclusive jewelry items. One is, however, able to charge a
premium on exclusivity and uniqueness of the design.
Price of gold jewelry item is extremely sensitive to price of gold. Furthermore since
gold jewelry has a high income elasticity of demand, the jeweler is not free to pass all of
the increase in cost of raw material to the customer but has to absorb some of it himself.
If a customer has ordered an item, then the rate of gold that a customer will pay is
established when the order is given by the customer and is largely the current market
rate at that time.
3.10.
10.5 Mode of Payment
Advance: Advance is normally taken when the jewelry item being sold is to be made on
order. There is no fixed percentage of the orders cost demanded since our business
depends on relationship building and we keep a customers ability to pay advance at a
given moment under consideration.
On t he Spo t 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
the
rural areas, however, payment if not purchase coincides with the harvesting of
crops.
3.11

Produc
duct Ran
Range in Term
erms of Designs, Items and Qua
Quality

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 jewelers vision and his understanding of the market trend have a great
bearing on the range and variety of jewelry items displayed in his shop.

4
SECTOR
ANALYSIS
4.1

&

INDUSTRY

Indus
ndustry Structure

Pakistans 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 is
marriage, 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 Pakistans jewellery are Teeka, Pendants, Bazuband, Jhoomer, Bangles, Nose Pin,
Kara, Earrings, Ring, 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
comfortable and 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
LAHORE
RAWALPINDI/ISLAMABAD

Zaibunisa Street (Saddar), Tariq Road & Hydery

Gulberg, the Mall Road, Suha Bazaar
Muree Road, Mareer Chowk, & Jinnah Super
Market

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 to
multiple jewelers. Complete jewelry manufacturing and integrated retailing units are
rare in the industry.
The markets preference leans towards exclusive designs. Thus jewelry manufacturing
is very labour intensive, and unlike in the West, degree of mechanization and production
of standardized 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
so mush so that jewelry manufacturing is closer to being a form of art. It is an art in
the sense that when it comes to making of hand made jewelry, each process has more
than one way of doing it, 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 are
called the Sirafa 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.
4.1.1 Aver
verage Workshop
An average gold jewelry manufacturing workshop tends to be a 10 by 20 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 further
specialized 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.
A
completely 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 number of hours worked 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
personal recommendation / reference tends to be low since the workers recruited in this
manner would not like to loose 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).
4.2

Export Market

4.2.1
Player
yers

Major Internati
onal Market
national
ket

Global trade for Gems and Jewellery has shown a positive growth trend showing
increasing demand for these valuable fashion articles in international market. For
Jewellery the total trade expanded from US$21.0 billion in 1999 to US$27.9 billion in
2003. Whereas for Gemstones trade expanded from US$44.7 billion in 1999
to
US$56.5billion in 2003. Following are the figures in terms of million US Dollars for top
ten Gems and Jewellery exporting countries:
Table 4-1:
Milli
llion)

Jewelle
llery

Exports

(US$

1999

2000

2001

2002

2003

Italy

4,979

5,317

4,864

4,857

4,537

Hong Kong

1,716

2,132

2,081

2,442

2,854

USA

1,938

2,180

2,596

2,718

2,768

India

865

1,019

1,208

1,443

2,175

Switzerland

1,283

1,346

1,537

1,970

2,056

United Kingdom

1,260

1,043

1,480

1,605

1,948

China

1,994

1,791

1,498

1,660

1,761

Thailand

901

890

1,062

1,202

Germany

788

795

805

816

1,035

France

680

842

1,013

966

1,018

Thailand
China 6%
8%

Germany
France
5%
1
0
%

United
Kingdom
9%
Switzerlan
d

India
10%

5%
Italy
2
1
%

USA
13%

Hong
Kong

13%

Source: UNSTAT 1

Table 4-2: Jewelle

llery Imports (US$ Milli
llion)
1999

2000

2001

2002

2003

USA

5,772

6,553

6,359

7,221

7,615

United Kingdom

1,713

1,627

1,988

2,320

2,843

Hong Kong

1,070

1,261

1,236

1,435

2,023

Switzerland

1,054

1,183

1,174

1,393

1,323

France

723

829

948

950

1,074

Germany

887

861

792

844

928

Singapore

582

552

529

604

Italy

307

374

408

434

550

Canada

283

404

388

386

432

44

78

101

158

Thailand
Source: UNSTAT

4.2.2
Expor
port

Singapore
3%
Germany
5%

Italy
3%

Cananda
2%
Thailand
1%

France
6%

USA
44%

Switzerland
8%
Hong Kong
12%

United
Kingdom
16%

Pakistan
ans Jewelry

The export of jewelry constituted only about 1.3% of the total exports made by Pakistan.
The export of jewelry had been around Rs.807 million (US$ 1,366,000) over the period
of July 2004 to March 2005. This was in effect a decrease of 16% over jewelry exports
reported over the period July 2003 March 2004, while the total exports showed an
increase of 18% over the period considered above.3
Pakistans 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
well documented. 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 jewellery with new and
lightweight designs. The giftware market is negligible.
Pakistans Export Promotion Bureau has identified Pakistans jewelry industry as a sector
with major potential. To support this sector, a gold assaying / hall marking facility is
being established in the proposed Dazzle Park in Karachi. The necessary ground work is
complete and funding has been lined up from the Export Development Fund.
Following tables contains information on Pakistans export performance in the
Jewellery
Sector for the last 5 years.
Table 4-3: Jewelle
llery Exports of Pakistan
(US$)

897 SITC Code Revision 3

897 SITC Code Revision 3

STATEMENT SHOWING EXPORTS OF SELECTED COMMODITIES DURING THE MONTH OF

MARCH, 2005 Ministry of Commerce, Pakistan.

Years
Amount
24,429,084
2003
30,145,136
2002
19,419,226
2001
23,800,144
2000
12,242,415
1999
110,036,005
Total
Table 4-4: Five Years Cumulative Export Figures with Major Trade Partners
(US$)
Country
Amount
50,003,601
Utd. Arab Emirates
34,405,920
USA
18,467,423
United Kingdom
2,543,479
Canada
825,053
Singapore
3,790,529
Other partners
110,036,005
Total
Source: Source: UNSTAT

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.
4.2.3
Procedu
cedurres

Expor
port

Regul
gulations
tions

and

The export of precious and semi-precious stones and gold jewelry is governed as
5
per special procedure notified vide S.R.O. 266(I)/ 2001, dated 7-5-2001.
3.2.1.1 General Rules:
(1) Export of gold jewellery shall be allowed by air, parcel post, courier service and
by sea, as accompanied or unaccompanied baggage.
(2) Export of gold jewellery shall be against advance payment, irrevocable letter of
credit firm order or contract, delivery or payment or delivery on acceptance (DP/DA), or
consignment sale, as well as on self-consignment basis through authorized
representative.
(3) In addition to registration under the Registration (Importers and Exporters) Order,
1993, exporters of jewellery and gemstones shall also be registered with the Export
Promotion Bureau as exporters for jewellery and gemstones on application in
the form as set out in Annexure A of S.R.O. 266(I)/ 2001, dated 7-5-2001.

897 SITC Code Revision 3

Reference : Export Promotion Bureau. (www.epb. gov.pk). Section 3.2.1 is abstracted from S.R.O. 266(I)/
2001, dated 7-5-2001.

(4) Exporters of jewellery and gemstones shall be required to be members of one of

the recognize Associations such as the All Pakistan Gem Merchants and Jewelrs
Association, Karachi, or the All Pakistan
(5) Commercial Exporters of Rough and Unpolished Precious and Semi Precious
Stones
Association, Peshawar. or any other Association for jewellery and gemstones
recognized by the Ministry of Commerce under the Trade Organizations
Ordinance,
1961 (XLV of 1961)
(6) Exporters of jewellery and gems stones shall maintain a Jewellery Pass Book
duly
authenticated by the Export Promotion Bureau and all export and import
transactions, as well as import entitlements and actual imports, shall be entered in
the Jewellery Pass Book and authenticated by the Export Promotion Bureau.
3.2.1.2. Export procedure:1. Export of gold jewellery shall be made according to the usual Form E
procedure of the State Bank of Pakistan.
2. The sale proceeds of gold jewellery and gemstones exported under any
provision of this notification shall be repatriated either wholly in foreign
exchange through
normal banking channels or partly in the form of gold up to one hundred per
cent weight of gold content of jewellery exported including wastage, and
gemstones,
and partly in foreign exchange for value addition.
3. Export of gold Jewellery and gemstones and import of gold and gemstones shall
be provided preferred handling by the Customs authorities for clearance of
related goods, and, in the weighment of gold, variation of one per cent shall be
allowed.
4. The exporter or his authorized representative shall produce the parcels or boxes
containing gold jewellery or gemstones along with export documents to the
Customs authorities for weighment and examination under strict security
and privacy.
5. The Customs authorities shall verify the weight of gold as per exporter's
declaration, and shall assess the minimum value addition norms as specified
in
this notification.
6. The export documents shall clearly indicate the type of gold jewellery, whether
plain or studded or embedded, and purity and karatage of gold used in making
the gold jewellery.
7. For gold jewellery studded or embedded with gemstones, the value of
gemstones shall be shown separately in the export documents including Form E,
clearly
indicating therein the kind, value and weight of gemstones of each article.
3.2.1.3. Entrustment scheme:- The Entrustment Scheme provides for export of
gold
jewellery and articles against import of gold supplied as partial advance payment, by the
foreign buyer, to the extent of the quantity of gold to be used including wastage, in the
manufacture of the items to be exported.
3.2.1.4 Export of gold jewellery and gemstones on self consignment basis:-In case of
export of gold jewellery and gemstones taken out by authorized representative of an

exporter on self-consignment basis, the following procedure shall be followed, namely:

i) The exporter shall submit to the Export Promotion Bureau, an application in the
form as set out in Annexure E. in duplicate for export approval and import
authorization and

such application shall be checked and verified by the Export Promotion Bureau and
entries shall be made in the Jewellery Pass Book;
(ii) The import authorization shall be valid for one hundred and twenty (120) days from
the date of departure of the exporter's representative for bringing back gold and
gemstones o_ export proceeds and any unsold gold jewellery or gemstones;
(iii) The Jewellery Pass Book, duly authenticated by the Export Promotion Bureau, shall
be produced by the exporter's incoming representative to the Customs authorities on,
arrival for clearance or release of gold, gemstones and any unsold gold jewellery and
gemstones
(iv) The sale proceeds shall be realized, within one hundred and twenty days from the
date of export in foreign exchange through normal banking channels or partly in the form
of gold content of the jewellery exported including wastage and gemstones;
(v) The unsold jewellery or gemstones shall be deposited with the Customs
authorities and shall be cleared against relevant entries in Jewellery Pass Book, and a
bill of entry shall be filed for such import of unsold jewellery or gemstones;
(vi) Import entitlement for gold and gemstones, as well as other imported inputs, shall
be entered in the Jewellery Pass Book; and
(vii) Bill of entry for gold and gemstones imported in lieu of foreign exchange and for
unsold jewellery or gemstones shall be produced to the bank, through which consignment
was exported, within a period of one hundred and twenty days from the date of export.
3.2.1.5. Import of gold and gemstone against export of jewellery (1) In case of exports
of gold jewellery made from locally procured gold and gemstones. where sale
proceeds are realized wholly in foreign exchange, the exporter shall be entitled to
replenishment of gold at one hundred per cent of gold content of jewellery exported
including wastage and gemstones actually used in the jewellery exported and the
exporter shall be entitled to claim import entitlement for the replenishment within one
hundred and eighty days from the date of realization of export proceeds.
3.2.1.6. Import entitlement:- Import of raw materials used in the production of gold
jewellery and gemstones shall be allowed to the exporters as replenishment according to
the following parameters, and such imports shall be freely transferable, namely:
a. Gold: Equal to the gold content of gold jewellery actually exported, including
wastage.
b. Gemstones: Up to seventy per cent of the f.o.b. value of gemstones used in
embedded or studded gold jewellery or loose gemstones actually exported.
c. Other raw materials and equipment: Import of the following raw materials and
equipment shall be allowed up to seventy per cent of value addition i.e., the f.o.b.
export value of gold jewellery and gemstones actually exported, less value of
gold

content including wastage and value of gemstones, up to maximum percentages

where indicated namely:
i.
Jewellery casting power.
ii.
Moulding rubber.
iii.
Injection wax.
iv.
Rhodium plating solution
concentrate.
v. Bright and chrome lacquering solution.
vi.
Alloys of silver copper and zinc for mixing the twenty four carats
gold.
vii.
Mounts and findii1g of gold, silver and platinum
jewellery. viii.
Steel balls and pins (different sizes) used for
polishing.
ix.
Jewellery casting machines and accessories. Diamond cutting tools
(different sizes).
3.2.1.7. Import duties and taxes:(1) Import of gold and gemstones under all schemes shall be exempt from normal
import tariffs. The import of other raw materials, tools, machinery and equipment as'
provided in section 3.2.1.5 and 3.2.1.6 shall be- allowed free of customs duties and
without payment of advance Income Tax in terms of the Notifications Nos. S.R.O.
592(1)/97, dated the 7th August, 1997, and S.R.O. 490(1)/2001, dated the 17th July,
2000, retrospectively.
(2) In case an exporter uses duty-paid raw materials procured .from the market, duty
drawback shall be admissible according to the standard duty drawback system in force.
Refund of sales tax, if paid on any raw material inputs, shall be allowed according to the
Sales Tax Refund Rules made under Notification No. S.RO 417(1)/2000, dated the 20th
June, 2000.
3.2.1.8 Advance import of gold:- Exporters .may also apply, in the form as set out in
Annexure, E, for advance authorization of import of gold and gemstones, before
export of jewellery, as per letter of credit or firm export order or contract, subject to
deposit, with their bank of cash margin equal to one per cent of the value of gold and
gemstones and in this case the procedures under the Entrustment Scheme in shall apply.
3.2.1.9 Sale of jewelry to foreign buyers and overseas Pakistanis: -Foreign national
and overseas Pakistanis shall be allowed to take out personally gold jewellery or
gemstones up to the limit of US Dollars ten thousand, against foreign currency
encashment certificate, with itemized purchase receipts(s) and, if the value exceeds US
Dollars ten thousand, the normal export procedure shall be followed.
3.2.1.10 Display or sale In international fairs and exhibitions: Exporters shall be
allowed to take out gold jewellery and gemstones, for display and sale in international
fairs and exhibitions, either as accompanied baggage or through parcel post or courier
service, according to the procedures of entrustment scheme and subject to the following
conditions namely: (a) Items not sold abroad shall be re-imported within forty-five
days of the close of the exhibition;(b) the gold content of items sold in such exhibitions
may be imported as replenishment within sixty days after the close of the exhibition;
and (c) exporters may take out as personal baggage gold jewellery and gemstones as
samples up

to a value of US Dollars one hundred thousand, for export promotion tours and
temporary display abroad, Such gold jewellery and gemstones shall be brought back
within forty- five days from the date of departure.
4.3

Legal Issu
ssues Regarding
ding Indus
ndustry

4.3.1 Taxation
tion
The gold jewelry manufacturer / retailer is exempt from paying sales and income tax as
long as the years profit before tax is less than Rs.5,000,000/- Once the profit moves
beyond the threshold of Rs.5,000,000/- the gold jewelry manufacturer / retailer is liable
to pay 15% sales tax and 0.75% income tax on the years profit before tax.
4.4

Market Potential

The consensus amongst the jewelers spoken to is that the demand driven growth
is definitely positive and potential of annual growth can be between 15% to 20% given
an adequate stock size, regardless of the state of the economy as experienced over past
five years.
4.4.1 Custome
omer Loyalty
lty
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
these customers have to be retained via good designs, long product range and
relationship building.
4.4.2 Trends
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 rural
and semi rural areas tend to present a more traditional demand.
4.5

Target Customers

The gold jewelry manufacturing and retail enterprise will have two broad sets of target
market. Given the proportion of workshop output sold by self, the main set of target
market are the consumers (purchasers) of gold jewelry. The other set of target market
are those gold jewelry retailers who outsource the manufacturing of gold jewelry. These
jewelers are potential source of orders for the workshop.
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 per gross margin. However, that position strategy would have additional demands
of offering exclusive and appealing designs and range to the 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 dcor 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.
Table 4-5: Implications of Var
Various Positioning
ning Strategies
Implications of Various Positioning Strategies
Target
Market
NICHE
MARKET /
DESIGNER

Designer's
Premium for
exclusivity

LOCAL
MAINSTREA
M MARKET

EXPORT
MARKET
(Expatriates
from the SubContinent)

EXPORT
MARKET
(NonExpatriates)

Price

Promotion

Exhibitions;
Fashion
Shows;
Fashion
Magazine
shoots / Ads
Competiti Word of mouth;
ve pricing; Window
Lesser
displays;
profit
If justified by
margin
capacity,
than in
fashion
designer
magazine
products.
advertisement
near seasonal
peaks.
Competiti Exhibitions
ve in the
foreign
market

Competiti
ve in the
foreign
market

Trade
promotion

Product

22 karat - 18 karat;
Exclusive designs;
Low duplicity;
Labor Intensive
processes

Distribution
Location in the
main market is not
crucial;
Dcor of showroom
must support the
brand image
High importance
of central location
in a busy shopping
centre, or in a
cluster of jewelry
shops

22 - 21 karat items;
High stock to sales
ratio;
Larger range of
jewelry items
available for
display;
Variety of smaller
(high turn over
items)
21 karat;

Studded jewelry

preferred;

Both Asian and

contemporary
designs; Smaller /
lighter jewelry

18- 14 karats;
Contemporary

designs; Smaller /

lighter jewelry;
Mechanization
feasible for mass
distribution

Importing agents;
Own agent abroad;
Exhibitions

Importing agents;
Own agent abroad;
Exhibitions

Note: This model is based on catering to the local mainstream market. The various target markets
mentioned above, however are not mutually exclusive. For example a gold jewelry manufacturing and
retailing enterprise may have mainstream local market for volume of sales as the primary target market
but can have separate product lines for exclusive / niche and export market for greater profit margin as
secondary target market

5
5.1

PRODUCT
DUCTION
ION PROCESS
Produc
duction Process Flow

Figure 4.2.0 below shows the production process flow from contracting an order and
completing an order. The production process depicted in Figure 4.2.0 is described in
detail later.
4.2.1 Contract
Order

4.2.2 Jewelry Designing

4.2.3 Gold Refining and Mixing

4.2.4 Converting gold

ingots into plates and
wires
4.2.5 Pattern Making

4.2.6 Engraving

4.2.7 Finishing

4.2.8 Polishing and Buffing

4.2.9 Beading and Gem Studding

4.2.10 Gold Recovery

5.1.1 Cont
ontracting
ting out an order
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
of the 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 setting
Etc.
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.
5.1.2
Designi
gning

Jewelry

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
process till the approval may take about 2 days.
5.1.3
Mixing

Gol
Gold Refining and

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
gold wholesalers in sirafa 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.
5.1.4
Wires

Conve
onverrting
ting Gol
Gold Ingot
ngots into Gol
Gold Shee
Sheetts and

In accordance with the design requirements, the craftsman converts the gold ingots into
gold 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.

5.1.5
Making

Trans
ansfer of Design / Patte
ttern

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
referred to as Ari ka Kaam Karrney Wala;
Casting.
The direct transfer of design is a more popular method. The disadvantage of direct
transfer 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
it requires 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 iron
sheet. 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 Bangals jewelry. Kundan making skills are
concentrated 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 to
independent 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 its accessories would cost about Rs.315,500/, whereas imported machines German or
Italian.
5.1.6 Engr
ngraving
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 an
independent 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

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.
5.1.7 Finishing
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
item is sent for polishing. Deburring is the removal of all sharp edges, air bubbles and
burrs on a piece.
5.1.8 Polis
lishing and Buffing
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
polishing and 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,
and crocus. Platinum Tripoli and yellow bobbing compound.
Polishing Compounds: Some polishing compounds are red rouge, yellow rouge,
white rouge, 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 buffing
wheels 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 for
final 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,
then 500mg 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.
5.1.9 Beadi
ading and Stone Studdi
udding
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.

5.1.10 Gol
Gold Reco
ecover
very
On completing the gold jewelry item /s the craftsman must return to the jewler 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 a
necklace 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).
5.2
Requir
quirement

Cas
Casting
ing Process and Machine
hinery

If a new design is to be casted, the first step to casting is making a model of the design by
hand 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 rubber in 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 into a 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 pieces
and 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 mold
while 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 wahes away any remaining plaster. The gold tree is
then dipped into nitric acid and heated with a blow torch to get the gold colour 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
are oxidized if required and undergo a multiple step tumbling process using different grit
media to achieve the final desired finish.
5.2.1 Suppl
Supply of Machineries
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 is
manufactured. 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 centres.
Earlier, casting machines had to import from either Italy or German. The main suppliers
through which the imported casting machines were bought are located in Karachi. Some

of the suppliers of imprted casting machines have now started manufacturing (with some
imported parts) the casting machines and equipment themselves.7
5.3

Jewelry Item Manuf

nufacturing
ing Time

Table 5-1 below gives an average time for a medium sized workshop to produce the
respective jewelry items.
Table 5-1: Jewelr y Item Manufact
actur ing T ime
ime
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 craftsmens
earning on a large item is far greater than his earning on a smaller item.
5.4

Raw Material

Table 5-2 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 41400 grams / year. The raw material assessment below suggests the
proportion of raw material cost to grams of output in terms of gold jewelry is Rs.6.4 /
gram.

One such supplier is Ayub Brothers Engineering Works and Alay Casting Equipment. Phone# 0212254747, Address: LR9/14, Amil Street, Wahab Road, Ghazi Nagar, Karachi 3.
7

Table 5-2: Raw Material Requi

quired
Raw Material Needs for Workshop output of 41400 grams in Year 1
Raw Material
Purpose
Total Monthly Cost
Casting Rubber
For making casting dyes
7000
for new designs
Whip Mix Jewelry Required in the process
10,000
of casting
Investment Powder
(Plaster)
Wax
Required in the process
2000
of casting
Nitric Acid
For bringing out the color
2000
of gold after casting
process and during
polishing
Surf / Detergent
Required
during
200
polishing and buffing
process
Coloring Chemicals
Required to change color
1000
of gold jewelry item after
finishing process
Table 5-3 below shows how proportion of raw material cost to output over the period of
10 years change and the respective expected annual raw material cost. The change in
proportion of the of raw material cost to output is based on the planned level of
production of the workshop and on 5% annual increase in raw material cost.
Table 5-3: Yearly Raw Material Cos
Cost
Expense
Variables

Year 1

Proportion of
Raw material
Cost to Output
(Rs / gram)
yearly raw
material cost
(Rs)

5.5

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

6.40

6.72

7.06

7.41

7.78

8.17

8.58

9.01

9.46

9.93

264,960

301,392

340,805

383,405

429,414

479,065

503,018

559,238

587,200

616,560

Miscel
cellaneous Expense

Miscellaneous office expense includes:

Stationary expense: Printing (receipt vouchers, business cards..Etc), writing material
(pens, pencils, ink pads...etc);
Tea and entertainment expense for favored customers and employees;
Commuting expense (visits to workshops, suppliersetc).
Other non-recurring expenses.

5.6

Init
nitial Investment in Gold Jewelry Stock

The retail unit of the integrated modeled enterprise will begin operations with
initial stock level of 5175 grams of 22k gold. Given the parameters below, the initial
investment in gold jewelry stock required is Rs. 6,073,380/Table 5-4: Parameters for Init
nitial Investment in Gold Jewelry
Stock
Parameters
Year 0
Initial Gold Stock (Grams)

5175

Gold Price (Rs) / Gm

905

Ratio of other material to value of gold used (Rs)

0.06

Direct Labour (Rs) / Gm with annual increase of 10%

160

Wastage Ratio to value of Gold Content

0.06

5.7

Machine
hinery Requir
quirement

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
and the 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 craftsmen
3. Polishing
4. Finishing
5. Gem / stone Beading
6. Gem Studding
7. Casting
For this purpose the tools, equipment and machinery requirements are as
follows:
Table 5-5: Details of Machine
hinery & Equipm
quipment
Machines, tools and
equipment
Wire Making Machine
and accessories
Plate Making Machine
and accessories
Wax Casting Machine
& Equipment
Polishing Machine and
Accessories
Tool set for craftsmen

No. of
Price /
Units unit (Rs)
1
25000

Total Cost (Rs)

Place of Origin
/Manufacturing
25,000
Gujranwala,
Lahore
25,000 Gujranwala,
Lahore
315,500 Karachi

25,000

315,500

7,000

14,000 Gujranwala

8,000

40,000 Gujranwala

Tools for gem studders

Manual scale

2
1

4,000
600

8,000 Gujranwala
600 Gujranwala,
Lahore,
local
market
Digital scale
1
6,000
6,000 Chinese / Italian
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 and
machinery. Machines generally imported are chain making, bangle making and casting
machines. The main origin of imported machines is primarily Italy or Germany. Till
recently, casting machines had to be imported as electricity based casting machines were
not 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 subject
to 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.
Table 5-6 below shows the casting equipment and machinery required and respective
cost.
Table 5-6: Cas
Casting Equipm
quipment and Machine
ine
Casting Machines and Tools
Units
Rate / Unit (Rs)
Die Press
1
13,000
Wax injectors
2
8,000
Waxer
1
500
Vacuum Machine
1
18,000
Automatic Gas Furnace
1
25,000
Caste Machine
1
230,000
Pressure Machine
1
18,000
Blow Torch
1
3,000
Total
5.8
Furnit
niture & Fixtures

Total Cost (Rs)

13,000
16,000
500
18,000
25,000
230,000
18,000
3000
315,500

Furnishing and fittings (including 2 heaters) required for a workshop (22 by 88 square
feet) is estimated to cost around Rs.50,000/- (Rs.50,308/- to be exact based on current
prices). The workshop requires very basic furnishing and fittings.

A simple furnishing of an 11 by 44 square feet jewelry shop can cost about Rs.197,000/(Rupees One hundred and ninety seven thousand) on average, including an air
conditioning unit and a heater. The fancier the fittings and the furniture, higher the cost.
Table 5-7 below shows the break-up of the cost for furniture and fixture for both
the retail and the workshop unit.
Table 5-7: Furnit
niture and
Fixture
Cost Items
Units
Retail Unit
Furniture (counters, chairs, wall
mirrors, lighting, installed safes)

Unit Cost
1

15,000

Total Cost
125,000

Cash Register
15,000
Digital Weighing Machine
1
2,000
7,000
Hand tools (magnifying glass, gem
1 set
5,000
5,000
inspection glass, ring size gauge
.etc)
Split Unit / AC
1
30,000
Heater
1
15,000
Total Cost on Furniture and Fixture - Retail Unit
197,000
Manufacturing Unit
Jute / date leaves floor matting
1452
4
5,808
work benches
11
2500
27,500
Safe
1
7,000
7,000
Heater
2
5000
10,000
Total Cost on Furniture and Fixture - Workshop Unit
50,308
Total Furniture and Fixture Cost
247,308
Mostly Gold jewelry retailers contract for fixtures like lockers and showcases
and decided 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 retail shops.

6
LAND
AND
REQUIREMENT
6.1

&

BUILDING

Land Requir
quirement

6.1.1 Rent
Rent varies with space and location. For workshop, the location may be within a
jewelry a cluster or outside it. The rents and rates within the jewelry cluster tend to be
higher. For example, a workshop space 22 by 88 square feet within the jewelry cluster
would seek rent of Rs.6000/- per month whereas the same nature of space further to
the jewelry

cluster may seek only Rs.3000/- per month. This model assumes a workshop space of 22
by 88 square feet located within the jewelry cluster. Hence the monthly rent for the first
year is Rs.6000/- per month with annual increase of 5%.
The rent for the gold jewelry retail shop 11 by 44 square feet, located in a central
shopping centre of a major urban city, is estimated to be around Rs.17,000/- month and is
estimated to increase at 5% annually.
The rent for both the workshop and retail shop is often pre-paid in terms of
lease.
6.2

Utilities Requir
quirement

A medium sized 324 square feet sized retail shop that is open six days a week for
about
10 hours / day, tends to incur electricity bill worth about Rs.84,000/. This amounts to
a
monthly average of Rs.7000/- after considering the fact that electricity bill tends to be
higher in summers and lower in winters. Yearly gas bill averages to Rs.12,000/-,
amounting to Rs.1000/- per month.
Currently established gold jewelry manufacturing workshops concludes that of utilities,
electricity and gas costs amounts to, on average Rs.5000/ month and Rs. 2000/ month
on average (use of casting machinery and equipment and wire and plate making machine
tends to high use of electricity and gas. The main electricity usage in the workshop
will be in terms of lighting and operation of machines such as wire and plate
making, polishing and most significantly, the casting machine. The gas expense will be
on heating in winters and use of gas furnace in the casting process.
Both the workshop and the retail shop will have at least one telephone line. The average
monthly bill for each line is expected to be Rs.1000/-.
Table 6-1 below shows the break-up of utility costs for year one. The cost of utilities is
expected to rise by 5% annually.
Table 6-1: Utilities
Utility Type

Estimated Monthly Bill

for Year 1

Retail Unit
Electricity
Gas
Telephone
Total Utilities Cost - Retail Unit
Manufacturing Unit
Electricity
Gas
Telephone
Total Utilities Cost - Manufacturing Unit
Total Utilities for Year 1

Estimated Annual Bill for

Year 1

7000
1000
1000

84,000
12,000
12,000
108,000

5000

60000

2000
1000

24000
12000
96,000
204,000

7
HUMAN
REQUIREMENT

RESO
ESOURCE
URCE

The model enterprise recruits two types of employees in terms of the latters
remunerations: salary based and performance based. Table 7-1 shows the remuneration
scheme for the employees employed in both the retail and manufacturing units. The
monthly salary cost of the retail unit is Rs.45,000/- while the monthly salary cost of the
planned workshop is Rs.13,000.
Within this scheme, all the employees in the retail unit are employed on the basis of
fixed monthly salary. However, the workshop employs three different sets of employees.
The chief craftsman is a also the workshop manager. He is paid a combination of
monthly salary and wage based on quantity of output produced. Other craftsmen are
employed, as is the practice in the industry, on performance based wage whereby they
are paid on the basis of Rs./grams of gold jewelry produced. The polisher is paid in
terms of wastage (grams of wastage / tola) and machine operators are paid on
basis of fixed salary. According to this scheme, the monthly fixed salary.
The annual salary fixed salary cost for the first year is Rs.696,000/- and this amount
increases with 10% annual increase in fixed salaries.
Table 7-1: Hum
Human Resource Requi
quired and Remune
uneration
Plan
Designation / Responsibility
Retail Unit
Shop Manager
Sales Assistant
Errand Boy
Guards
Manufacturing Unit
Chief craftsman

Number employed

Monthly Remuneration /
person

1
2
1
2

25,000
6,000
2,000
3000

5000 + Performance related

wage @ Rs.90/gram
@ Rs.90/gram
performance related wage @
36/gram on average
performance related wage @
60 / gram on average
Wastage
4000

Craftsmen
Beader

9
2

Studder

Polisher
Casting Machine operator

2
2

Pre-feasibility Study

8
8.1

Gold Jewelry Manufacturing & Retail Shop

FINANCI
NANCIAL ANAL
NALYSIS
Project
ected Income Statement

PROJECTED INCOME STATEMEN

Year 1
T e v e n u e f r o m s a le o f J e w e lr y S to c k
R
3 4 ,9 8 2 ,6 6
R e v e n u e f r o m m a n uf a c tu r in g f o r o th e r 9
j eowt ea l I n c o m e
T
3 27 ,8
,8 98 80 ,0
,6 06
9
C o s t o f G o o d s S o ld d ir e c tly
O p e n in g B a la n c e
Purchases
C lo s in g B a la n c e
C o s t o f m a n u fa c tu r e in g g o ld je w le r y fo
r ot
T or ta
G
o sl sCPo rs ot fo itf G o o d s / s e r v ic e s S o ld

6 ,0 7 3 ,3 8
0
2 9 ,5 6 1 ,2 2
4
3 61 ,4
,8 80 21 ,3
,8 82
4 6 ,0 7 8 ,8 4
5

G e n e r a l A d m in is tr a tio n & S e llin g E x p e n s e

U tilitie s
2 0 4 ,0 0 0
R a w m a te r ia l
2 6 4 ,9 6 0
P e r so nn e l E xp e ns e
6 9 6 ,0 0 0
S h o p L e a s e / R e n ta l E x p e n s e
2 7 2 ,0 0 0
O f fic e E x p e n s e ( S ta tio n a r y E tc .)
3 6 ,0 0 0
P r o fe ss io na l E xp e ns e ( L e g a l, A u d
2 0 ,0 0 0
it..) A ss o c ia tio n 's M e m b e r s hip F e e
1 2 ,0 0 0
D e p r e c ia tio n E x p e n s e
6 8 ,1 4 1
A m o r tiz a tio n o f P r e - O p e r a tin g C o s
2 0 ,0 0 0
T o t a l C o s t o f S a le s
1 ,5 9 3 ,1 0
1
O p e r a t in g I n c o m e
4 ,4 8 5 ,7 4
4

Year 2
4 2 ,0 0 5 , 8 2
3
4 35 ,0
,0 22 17 ,, 75 69
2

Year 3
4 9 ,8 8 8 ,2 1
8
5 32 ,0
,9 65 86 ,2
,4 57 8
5

Year 4
5 8 ,7 0 2 , 1 0
9
6 31 ,0
,7 11 35 ,, 45 67
7

Year 5
6 8 ,5 2 9 ,0 2
6
7 21 ,8
,3 25 87 ,6
,6 46
7

Year 6
7 9 ,4 6 1 ,0 7
4
8 21 ,4
,9 74 90 ,4
,5 85
4

Year 7
8 1 ,7 0 7 , 1 0
6
8 24 ,7
,4 23 74 ,, 45 23
5

Year 8
8 9 ,0 6 2 ,9 8
4
9 32 ,1
,2 73 69 ,6
,6 53
7

Year 9
9 1 ,8 0 0 , 4 0
0
9 35 ,4
,2 99 44 ,, 37 11
8

Year 10
9 4 ,7 4 3 , 7 0
1
9 38 ,8
,5 48 37 ,7
, 4459
0

6 ,4 8 2 , 3 8
0
3 6 ,2 2 1 , 2 7
2
3 77 ,6
,7 96 87 ,, 76 91
3 7 ,2 5 9 , 9 7
9

7 ,6 9 8 ,7 9 9
4 2 ,0 2 7 ,7 8
6
8 ,1 5 3 ,0 7 1
4 24 ,8
,3 07 58 ,2
,7 67 4
9 8 ,5 7 7 ,6 9 6

8 ,1 5 3 , 0 7
1
4 8 ,6 9 6 , 9 5
4
5 71 ,9
,6 37 13 ,, 65 09
4 0 ,0 4 1 , 9 8
1
2

7 ,9 3 1 ,6 0
0
5 8 ,3 7 2 ,8 0
5
5 99 ,1
,6 99 63 ,8
,7 80
8
1 1 ,6 6 3 ,9 5
9

9 ,1 9 6 ,8 8
4
6 6 ,4 7 7 ,5 1
9
6 98 ,4
,4 58 64 ,8
,5 41
5
1 3 ,4 5 6 ,0 3
9

9 ,4 5 6 , 8 4
1
6 8 ,9 4 0 , 6 3
0
1
70
0 ,3
,5 0
88
2 ,, 2
91
0
4
1 3 ,8 5 1 , 6 3
1

1 0 ,3 0 8 ,2 1
6
7 4 ,5 3 5 ,9 8
4
1
70
7 ,6
,1 2
25
3 ,0
,5 4
2
1 5 ,1 1 6 ,1 1
5

1 0 ,6 2 5 , 0 4
6
7 6 ,8 4 0 , 9 9
3
1
70
9 ,9
,6 6
95
5 ,, 7
10
3
8 5 ,5 9 9 , 5 8
1
0

1 0 ,9 6 5 , 7 0
6
7 8 ,9 5 3 , 0 8
4
1
80
2 ,9
,4 6
65
7 ,, 7
30
6
9
1 6 ,1 2 0 , 0 8
1

214,20
0
301,39
2
765,60
0
285,60
0
37,800
20,000
1 ,7 2 5 , 9 3
3
5 ,5 3 4 , 0 4
6

2 2 4 ,9 1 0
3 4 0 ,8 0 5
8 4 2 ,1 6 0
2 9 9 ,8 8 0
3 9 ,6 9 0
2 0 ,0 0 0
1 4 ,5 2 0
6 8 ,1 4 1
2 0 ,0 0 0
1 ,8 7 0 ,1 0 6
6 ,7 0 7 ,5 9 1

236,15
6
383,40
5
926,37
6
314,87
4
41,675
20,000
2 ,0 2 6 , 5 9
8 ,0 1 5 , 3 8
4

2 4 7 ,9 6
2 6 0 ,3 6
273,38
2 8 7 ,0 4
301,40
316,47
3
1
0
8
1
1
4 2 9 ,4 1
4 7 9 ,0 6
503,01
5 5 9 ,2 3
587,20
616,56
4
5
8
8
0
0
1 ,0 1 9 ,0 1
1 ,1 2 0 ,9 1
1 ,2 3 3 , 0 0
1 ,3 5 6 ,3 0
1 ,4 9 1 , 9 3
1 ,6 4 1 ,1 3
4
5
6
7
8
2
3 3 0 ,6 1
3 4 7 ,1 4
364,50
3 8 2 ,7 3
401,86
421,96
8
9
6
1
8
1
4 3 ,7 5 8
4 5 ,9 4 6
48,243
5 0 ,6 5 6
53,188
55,848
2 0 ,0 0 0
2 0 ,0 0 0
20,000
2 0 ,0 0 0
20,000
20,000
2 ,1 9 6 ,4 7
2 ,3 8 0 ,9 0
2 ,5 5 1 , 5 5
2 ,7 6 7 ,5 0
2 ,9 6 9 , 4 5
3 ,1 8 8 ,4 0 8
7
3
3
6
9
9 ,4 6 7 ,4 8 1 1 ,0 7 5 ,1 3 1 1 ,3 0 0 , 0 7 1 2 ,3 4 8 ,6 0 1 2 ,6 3 0 , 1 2 1 2 ,9 3 1 , 6 7
2
6
7
9
1
3

I n te r e s t o n S ho r t T e r m L o a n
I n te r e s t E xp e ns e o n L o ng T e r m D e b t
E a r n in g B e f o r e T a x

4 4 7 ,4 0
4 ,0 3 8 ,3 4
4

376,97
5 ,1 5 7 , 0 7
2

2 9 8 ,0 9
6 ,4 0 9 ,4 9 2

209,75
7 ,8 0 5 , 6 2
6

1 1 0 ,8 1
9 ,3 5 6 ,6 6
7

1 1 ,0 7 5 ,1 3
6

1 1 ,3 0 0 , 0 7
7

1 2 ,3 4 8 ,6 0
9

1 2 ,6 3 0 , 1 2
1

1 2 ,9 3 1 , 6 7
3

T a x a b le E a r n in g f o r th e Y e a r
Tax
NET PROFIT / (LOSS) AFTER TAX

4 ,0 3 8 ,3 4
4
3 ,4 0 2 ,3 0
5

5 ,1 5 7 , 0 7
2
4 ,3 4 4 , 8 3
3

6 ,4 0 9 ,4 9 2
1 ,0 0 9 ,4 9 5
5 ,3 9 9 ,9 9 7

7 ,8 0 5 , 6 2
6
6 ,5 7 6 , 2 4
0

9 ,3 5 6 ,6 6
7
7 ,8 8 2 ,9 9
2

1 1 ,0 7 5 ,1 3
6
9 ,3 3 0 ,8 0
2

1 1 ,3 0 0 , 0 7
7
9 ,5 2 0 , 3 1
5

1 2 ,3 4 8 ,6 0
9
1 0 ,4 0 3 ,7 0
3

1 2 ,6 3 0 , 1 2
1
1 0 ,6 4 0 , 8 7
7

1 2 ,9 3 1 , 6 7
3
1 0 ,8 9 4 , 9 3
5

B a la nc e B r o u g h t F o r w a r d
3 ,4 0 2 , 3 0 5
7 ,7 4 7 ,1 3 8
1 3 ,1 4 7 , 1 3 5 1 9 ,7 2 3 ,3 7 5 2 7 ,6 0 6 ,3 6 7 3 6 ,9 3 7 , 1 6 9
4 6 ,4 5 7 ,4 8 4 5 6 ,8 6 1 ,
188
6 7 ,5 0 2 , 0 6 5
T o ta l P r o f it A v a ila b le fo r A p p r o p r ia tio n
3 ,4 0 2 ,3 0 5
4 ,3 4 4 , 8 3 3
5 ,3 9 9 ,9 9 7
6 ,5 7 6 , 2 4 0
7 ,8 8 2 ,9 9 2
9 ,3 3 0 ,8 0 2
9 ,5 2 0 , 3 1 5
1 0 ,4 0 3 ,7 0 3 1 0 ,6 4
0,877
1 0 ,8 9 4 , 9 3 5
D iv id e n d
E a r nin g s u s e d f o r C a s h in H a n d f o r N e x t Y e a r
A d d itio n to r e ta in e d e a r n in g
3 ,4 0 2 ,3 0 5
4 ,3 4 4 , 8 3 3
5 ,3 9 9 ,9 9 7
6 ,5 7 6 , 2 4 0
7 ,8 8 2 ,9 9 2
9 ,3 3 0 ,8 0 2
9 ,5 2 0 , 3 1 5
1 0 ,4 0 3 ,7 0 3 1 0 ,6 4 0 ,

48
PREF-87/Jan, 2006/ Rev 1

8.2

Project
ected Cas
Cashflow Statement

PROJECTED CASHFLOW ST ATEYMeaEr

N0T

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Net Income
Depreciation and Amortization
(Increase) Decrease Current
additional Gold Jewelry
(Increase) Decrease in Prepaid
annual shop lease
Pre-Operational Costs
Increase (Decrease) Current
Short Term Loan
Cash Flow from Operations

3,402,305
88,141

4,344,833
88,141

5,399,997
88,141

6,576,240
88,141

7,882,992
88,141

9,330,802
88,141

9,520,315
88,141

10,403,703
88,141

10,640,877
88,141

10,894,935
88,141

(409,000) (1,216,419)

(454,272)

221,471 (1,265,283)

(259,957)

(851,375)

(316,831)

(340,660)

(43,806)

(48,186)

(53,005)

(58,306)

(64,136)

0
0
0
6,666,026 9,115,180 8,708,895

0
10,122,008

0
10,330,052

0
10,918,939

Initial Investment Expenditure

Furniture and Fixtures
Machinery + Equipment
Cash Provided (Used) from
Investments
Proceeds from Borrowings
Payments of Principal of Long
Term Loan
Payments of Principal of short
term loan
Issue Stock / Exercise Options
Cash Provided (Used) from
Financing
Increase (Decrease) to Cash
Beginning Cash Balance
Ending Cash Balance

0
0
(6,073,380)
(272,000)

(27,200)

(29,920)

(32,912)

(36,203)

(39,824)

0
3,054,246

0
3,186,635

0
5,000,954

0
6,849,648

3,728,333

(586,876)

(657,301)

(736,177)

(824,518)

(923,461)

3,728,333

7,456,666

(586,876)

(657,301)

(736,177)

(824,518)

(923,461)

329,878
0
329,878

2,467,370
329,878
2,797,248

2,529,334
2,797,248
5,326,581

4,264,777 6,025,130 5,742,565 9,115,180 8,708,895

5,326,581 9,591,358 15,616,488 21,359,054 30,474,234
9,591,358 15,616,488 21,359,054 30,474,234 39,183,128

10,122,008
39,183,128
49,305,137

10,330,052
49,305,137
59,635,189

10,918,939
59,635,189
70,554,128

(100,000)
0
(6,445,380)

(247,308)
(434,100)
(681,408)

8.3

Project
ected Balance Shee
Sheett

PROJECTED BALANCE SHEET Year 0

Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Assets
Current Assets
Cash & Near Cash Assets
329,878
2,797,248
5,326,581
9,591,358 15,616,488
21,359,054 30,474,234 39,183,128
49,305,137 59,635,189
70,554,128
Cash & Near Cash Assets
329,878
2,797,248
5,326,581
9,591,358 15,616,488
21,359,054 30,474,234 39,183,128
49,305,137 59,635,189
70,554,128
Closing Gold Jewelry Inventory
6,073,380
6,482,380
7,698,799
8,153,071
7,931,600
9,196,884
9,456,841 10,308,216
10,625,046 10,965,706
10,965,706
Pre-Paid Annual Shop Lease
272,000
299,200
329,120
362,032
398,235
438,059
481,865
530,051
583,056
641,362
705,498
Total Current Assets
6,675,258
9,578,828 13,354,500 18,106,461 23,946,324
30,993,996 40,412,939 50,021,395
60,513,239 71,242,257
82,225,332
Fixed Assets Furniture &
Fixture Machine and
Equipment Less: Depreciation
To Date
Total Net Fixed Assets

247,308
434,100
681,408

247,308
434,100
(68,141)
613,267

247,308
434,100
(136,282)
545,126

247,308
434,100
(204,422)
476,986

247,308
434,100
(272,563)
408,845

247,308
434,100
(340,704)
340,704

247,308
434,100
(408,845)
272,563

247,308
434,100
(476,986)
204,422

247,308
434,100
(545,126)
136,282

247,308
434,100
(613,267)
68,141

247,308
434,100
(681,408)
-

Pre Operation Costs

Less Amortization to date
Net Intangible assets

100,000
100,000

100,000
(10,000)
90,000

100,000
(20,000)
80,000

100,000
(30,000)
70,000

100,000
(40,000)
60,000

100,000
(50,000)
50,000

100,000
(60,000)
40,000

100,000
(70,000)
30,000

100,000
(80,000)
20,000

100,000
(90,000)
10,000

100,000
(100,000)
-

Total Assets

10,282,095

13,979,627

18,653,447

24,415,169

31,384,700

586,876
586,876

657,301
657,301

736,177
736,177

824,518
824,518

923,461
923,461

3,141,457
3,141,457

2,484,156
2,484,156

1,747,979
1,747,979

923,461
923,461

0
0

Shareholders' Equity
3,728,333
3,728,333
Paid-Up Capital
Retained Earnings
2,825,429
Total Equity
3,728,333
6,553,762
TOTAL CAPITAL & LIABILITI ES7,456,666 10,282,095

3,728,333
7,109,837
10,838,170
13,979,627

3,728,333
12,440,958
16,169,291
18,653,447

3,728,333
18,938,857
22,667,190
24,415,169

3,728,333
26,732,907
30,461,240
31,384,700

Liabilities & Shareholders' Equity

Current Liabilities
Short Term Loan
Current Long Term Debt
Total Current Liabilities
Long Term Liabilities
Long Term Debt
Total Long Term Liabilities

7,456,666

3,728,333
3,728,333

40,725,502

3,728,333
36,997,169
40,725,502
40,725,502

50,255,817

3,728,333
46,527,484
50,255,817
50,255,817

60,669,521

3,728,333
56,941,188
60,669,521
60,669,521

71,320,398

3,728,333
67,592,065
71,320,398
71,320,398

82,225,332

3,728,333
78,496,999
82,225,332
82,225,332

Pre-feasibility Study

Gold Jewelry Manufacturing & Retail Shop

KEY ASSU
SSUMPTION
IONS

9.1
Assu
ssumptions Related to the Scope of Operations
Aspect
Assumption
Scope
Gold Jewelry Retailing and Manufacturing
In-House Operations
Retailing and Manufacturing
Outsourced Function
Gold refining and mixing
Scale
Medium
Legal Status
Sole proprietorship
9.2
Income Related Assu
ssumptions
Variables
Assumptions
Total Annual Capacity of The total annual capacity of the workshop estimated
the Workshop
(69,000 grams) is based on the assumption that when
working at
full capacity, a craftsman can
manufacture gold jewelry worth 575 grams / month.
Level of Operations (ratio It is assumed that the workshop will begin operating at
of capacity)
level of 60% of its capacity in year 1, 65% in year 2,
70% in year 3, 75% in year 4, 80% in year 5, 85% in year
6 and year 7, and 90% in year 8, year 9 and year 10.
Sales to Stock Ratio
The sales to stock ratio increases with time as the
enterprise gets established in terms of popularity and
the stock composition is more in tune to the taste of
the market. It is assumed that in year one 40% of
stock at any time sells over a given period. This
percentage rises to 45% in year 2 and year 3, 50% in
year 4 and 60% in year 6. Because gold jewelry is
relatively slow moving item 60% sales to stock ratio
is an average sale to stock ratio of well established
gold jewelry retailers. This ratio is assumed to be
maintained till year 10.
The sale to stock ratio also determines in this model
the stock replacement. In order to maintain ones
stock level, the entrepreneur will have to replace the
stock sold. Hence if 40% of stock is sold at any
time, the entrepreneur must purchase 20% of the
gold jewelry stock so that the opening balance of the
gold jewelry stock and the closing balance remains
the same.
Stock Level of Gold
It as assumed that the initial capacity of the retail unit in
Jewelry Items to be
terms of stock level will be based upon the ratio of total
Maintained by Retail Unit
workshop output sold through the self owned retail shop
at Any Given Time
and on the stock turnover rate assumed for each
51
PREF-87/Jan, 2006/ Rev 1

Ratio of workshop output

sold by self-owned retail unit

Ratio of workshop output

manufactured for other gold
jewelry retailers
Change in gold price

Gold Price (Rs) / Gm

Ratio of other material to
value of gold used (Rs)

Direct labour cost (Rs) /

Gm excluding
polishing
cost with annual increase of
10%

Wastage Ratio to value of

Gold Content
Retailer's Margin

respective year. Thus in year 1, 60% of workshop output

is sold be self, furthermore 40% of any stock level
in
year 1 will be sold at any given time within the year.
Thus stock level for retail outlet is 5175 grams worth
items.
60% of total workshop output is sold be self owned retail
in year 1. The percentage increases in year 2 to 65%, in
year 3 to 70%, 75% in year 4, 80% in year 5 and from
year 6 to year 10, it remains constant at 85%.
The ratio of workshop output manufactured for other
jewelry retailers is inversely related to ratio of workshop
output sold by self-owned retail unit
The average annual change in gold price is estimated to
be 1.13%. This is based on the 10 year (1994 2004)
trend in gold price change as reported by World Gold
Council.
Gold price in Pakistan at the time of this report was
Rs.905 / gram for 24 k gold.
It is assumed that the value of gems, beads and other
metals used in gold jewelry item is about 60% of total
value of gold used in gold jewelry items produced over
a years period.
The direct labour in terms of Rs / grams is calculated on
the basis of the wage rate of craftsman, beader and
studder and on the proportion of jewelry (in terms of
grams) that require the labour of the latter three. The
wage rate of the craftsman is based on the type of jewelry
item and the weight of the jewelry item. The estimates
in this analysis are based on what the craftsman, beader
and studder earn on average per gram. In a medium
sized workshop, craftsmen on average would earn
Rs.90 / gram. A beader would earn Rs. 60 per average
item he works on, but it is assumed that about 60%
of total workshop items would require beading, an
average rate of Rs.36 / gram is assumed for a beader.
Similarly, given an average item wise rate of Rs.100 /
gem studding and
60% of total out requiring studding, the average wage
rate for studder will be Rs.60 / gram. These rates are
subject to 10% increase per annum.
The wastage of gold is assumed to be 6% and constitutes
remuneration of polisher as well.
The retailers margin is assumed to be 20%

Manufacturer's Margin Rs. The model assumes that on average the entrepreneur will
/ gram on goods made for charge a margin of Rs.15 per gram from other jewelry
other jewelers on order
retailers outsourcing production to the workshop. This
margin will increase at the rate of 10% annually due to
corresponding increase in wage and production cost
rates.
9.3

Expense Related Assumptions

Expense Variables
Annual rate of increase (ratio)
Utilities (Rs) / year
Utilities increase at the annual rate of 5%
Personnel Expense (net of Fixed salaries increase annually by 10%
performance related wages)
Office Expense
Annual increase in office expense is 5%
Jeweler Association Membership The annual member ship fee to jewelers
Fee @ Rs.1000 / year for Year 1
association increases by 10%
Debt to Capital Ratio

The long term debt to capital ratio during the

start up is 50:50
Annual Shop Lease
The annual shop lease increases by 5%
Annual lease for workshop
The annual shop lease increases by 5%
Rate of Raw Material Cost to In year one the ratio (Rs / gram) of raw material
Workshop Output (Rs / Gram) cost to total workshop output is Rs 6.4 / gram, and
assuming annual increase in raw it increases with 5% annual increase in cost of
material of 5%
raw material.
yearly raw material cost
The yearly raw material cost is based on total
workshop operations (output) and on rate of raw
material cost to workshop output.
Depreciation
Straight line over 10 years
Annual Interest Rate (Long Term)

12%

Rate of Tax on Operating income

15% sales tax and 0.75% income tax if years

operating income is above Rs.5,000,000 (five
million)