Rootless and jobless, Don Kogen headed off for a backpacking adventure in Asia a decade ago — and ended up becoming, at age 26, Thailand's leading Internet impresario.
His unlikely journey began in the city of Chanthaburi. A three-hour drive from the Thai capital, Bangkok, past banana palms, dragon-topped temples and the occasional water buffalo, this southeastern city is one of the world's leading centers for processing gems.
But Kogen, then a 15-year-old high school dropout, arrived with no lapidary skills. To meet his $60-a-month rent he had to work two jobs, including a night stint in a hip-hop club, where he'd move onto the empty dance floor by himself to inspire shy young Thais to get up and boogie. "I had to meet the ladies," Kogen recalls.
In fact, that's where he met his wife, Nuntiya Sukumpeeranont, who urged him to aim higher. After weeks of cajoling, he talked a local gem trader into paying him a quarter of the dirt-cheap local wage to work hunched over a metal spinning wheel, turning rough-cut Sri Lankan sapphires into finished specimens.
Kogen moved into gem sorting — after chipping off too much from a couple of stones. During weekends he hung out at the city's market, watching traders haggling over stones and learning to speak Thai.
A Booming Business
After three years of observing, Kogen decided to try the business himself, starting small. He purchased low-grade gems from merchants arriving in town on the 8 a.m. bus from northern Thailand, and resold them for pennies more to later-arriving dealers from India and Pakistan.
That grew into a small mail-order operation, thanks to a $24-a-month ad he took out in an American trade magazine, with some 800 customers in the U.S. When fax machines began to arrive in Chanthaburi, Kogen was quick to seize on them: They allowed him to increase orders, lower delivery times and sock away $25,000.
With those funds he bought plane tickets for himself and his wife, and visited the gem districts of New York City, Chicago and San Francisco. Within four years his retained earnings grew to $250,000.
A turning point came in August 1998, when Kogen bought his first PC and, a month later, sold his first gem over the Internet. For years he had suffered the inefficiencies of the age-old business, where seven layers of middlemen can jack up the price of a gem 1,000 percent between original wholesale and final retail prices.
Now he saw a way to cut through it all. For individual buyers, stones offered by Thaigem.com, as Kogen christened his Web company, change hands only once.
Gems Shipped Anywhere
Dealer purchases represent 60 percent of the business; individuals account for the rest. Online sales accounted for 85 percent of Thaigem's $9.8 million in fiscal 2002 revenues, ended June 1, up from $4.3 million a year ago.
A recently opened showroom, on the corner of Silom and Mahesak roads in Bangkok's bustling gem district, generates the remaining 15 percent of the business. At any given time Kogen stocks about $7 million in inventory.
"We cater to everyone, from the guy who needs the $1 pearl to the one who wants the $100,000 ruby," he says. Gems are shipped within 24 hours of their purchase via Federal Express — at $15 a pop to anywhere in the world.
By industry standards, Thaigem's prices are cheap. For a top-quality 2-carat ruby, Kogen charges $1,000 to $2,400 — a stone that he insists would bring at least $7,000 in Manhattan's diamond district. (His own markup on most gems ranges from 15 percent to 150 percent; his net profits are typically 20 percent to 25 percent.)
No jewel is guaranteed, though customers can return them within 30 days, no questions asked. About 3 percent of buyers send back stones, says Kogen, but 80 percent of those order replacements. He sells some 200 items a day — stones, beads, meteorites and fossils — on eBay, versus 2,000 or so on Thaigem's Web site (while the average item sells for around $9, the average order is $300).
Gems From All Over
Kogen gets his rocks from all over the world. He buys sapphires, for example, from Tongsak Jintakanrerk, a fellow Chanthaburian, who recently hosted a Guinean salesman who showed up with 5 pounds of African sapphires in a white cotton sack.
Kogen doesn't quibble with the provenance of a gem — a seemingly risky approach in this era of "blood" diamonds and emeralds that funded murderous rebels in Liberia and Colombia, as well as the deep violet tanzanites that helped subsidize al Qaeda.
"Every single person in Hollywood wants to own a ruby from Burma or a sapphire from Kashmir," he says. "At the end of the day you have to go with what your customers want."
Thaigem isn't the only outfit to sell jewels over the Net. But Kogen has some distinct advantages over his competitors. For one, he already has a worldwide customer base of 68,000 and enjoys a solid reputation online (a 99-to-1 ratio of positive to negative comments on eBay under the seller name "thaigem.com").
For another, he's got low-cost labor that's tough to beat. In Thailand secretaries earn $125 a month; skilled gem cutters, $300; and the two dozen programmers who maintain online operations, about $750 a month plus board.
"The lesson here is you must know the territory," says Linda Lim, a professor of international business at the University of Michigan. "You'd be surprised how many highfalutin dot-commers ignore this."
Marketing? Hardly Harry Winston. Created in-house, a typical ad in a gem trade magazine or on a Thai billboard stars an elephant with the Thaigem.com logo. Cost of hiring the elephant: $7.50 — plus all the bananas it could eat.
There's plenty of room to grow, considering that online gem sales are less than 2 percent of the world's $38 billion gem trade.
But first Kogen needs to do some housecleaning. By his own admission his inventory turns too slowly — some gems went unsold for a year as he expanded his offerings last year. His goal is to turn over every six months.
That may mean tinkering with the business model. Which is why he's hoping to supply big customers like Wal-Mart, QVC and J.C. Penney. A long way, in every sense, from Chanthaburi.
For more, go to Forbes.com..