Cases

Case 1.1

Diamonds Forever

The gems market is global, with thousands of traders buying

and selling about $45 billion worth of gems each year. This

age-old business is very inefficient in terms of pricing: seventier supply chain intermediaries can jack up the price of a gem

1,000 percent between the mine and final retail prices.

Chanthaburi, Thailand, is one of the world’s leading centers for processing gems, and that is where Don Kogen

landed, at the age of 15, to search for his fortune. And indeed,

he found it there. After failing to become a gem cutter, Kogen

moved into gem sorting, and soon he learned to speak Thai.

After three years of observing how gem traders haggle over

stones, he decided to try the business himself. Having only a

small amount of “seed” money, Kogen started by purchasing

low-grade gems from sellers who arrived early in the morning and by selling them for a small profit to dealers from India

and Pakistan who usually arrived late in the day. Using advertising, he reached the U.S. gem market and soon had 800

potential overseas customers. Using faxes, he shortened the

order time, which resulted in decreasing the entire time from

order to delivery. These various business methods enabled

him to grow his mail-order business to $250,000 per year by

1997.

In 1998, Kogen decided to use the Internet. Within a

month, he established a Web site, thaigem.com, and sold his

first gem online. By 2001, the revenue reached $4.3 million,

growing to $9.8 million in 2002. Online sales account for 85

percent of the company’s revenue. The buyers are mostly jewelry dealers or retailers such as Wal-Mart or QVC. Kogen buys

raw or refined gems from all over the world, some online, trying to cater to the demands of his customers. Then the site

merged with NCS group, a large gem wholesaler.

Thaigem’s competitive edge is low prices and profit margin. The proximity to gem-processing factories and the low

labor cost there enable the company to offer...