India has proven itself a formidable competitor in the
global diamond industry. In a matter of mere decades, it has managed to
multiply its trading volume, expand its manufacturing capacity, install
cutting-edge technology, develop its skill set, add hundreds of thousands to
its payroll and market itself creatively and aggressively. The result is that
in terms of volume, the Indian diamond industry now sits above the world’s
historic diamond centers, all of which have centuries of tradition, reputation
and experience behind them.
As the world’s largest diamond-consuming market and a major
trading center, the U.S. has felt India’s impact on every sector of its
domestic diamond industry. U.S. companies have scrambled for rough as India has
cornered the rough supply by bidding high. They have seen India move into
cutting and polishing the larger, more expensive stones that have always been
the U.S. specialty. Americans have been undercut on prices of polished goods by
India’s ability to capitalize on its huge, low-cost labor force. And they have
watched enviously as the Indian government has lavished support on its diamond
industry and the country’s bankers have bankrolled it with capital.
“India has assumed a highly dominant role in all areas of
the industry,” says Ronald J. Friedman, president of William Friedman Diamonds
in New York City and president of the Diamond Manufacturers & Importers
Association of America (DMIA). “They drive the business in terms of rough
purchases, manufacturing and the supply of smaller stones under 3 carats. India
basically controls
the industry. Go back 20 years and India was a force, but nothing like what it
is now.
“The Indians are very capable,” continues Friedman. “They
also have very strong support from their government in terms of export
advantages, taxes on imports, conditions for bank loans and currency
manipulation. That is not to negate their resourcefulness, their strength in
technology and their desire and willingness to work hard, but it does give them
an advantage over other diamond centers that don’t have the same level of
support.”
“India has had a profound effect on jewelry manufacturing
and jewelry distribution in the U.S. and elsewhere,” says Jeffrey Fischer,
president, Fischer Diamonds, a New York City–based loose diamond manufacturer
and wholesaler. “When their import duties were first lowered and then removed
in the early 1980s, that removed a major impediment for India to bring goods
into the U.S. at less cost and with less effort. Over time, they have made more
and more inroads.”
The impact of India’s success in recent years has been felt
in the U.S. in ways big and small. “Some very big houses supplying the market,
a whole host of wholesale companies, some very strong, well-managed
companies — including Fabrikant, a
huge outfit — have been driven out of business,” says Friedman. “Other U.S.
companies dealing in small goods were competing with Fabrikant and with each
other but they couldn’t compete with India. We still have smaller suppliers in
the U.S. who are having a really horrific time.”
GOVERNMENT SUPPORT
No assessment of India’s success is complete without
mentioning the extensive support the Indian government provides to its diamond
industry. There is financial support in the way of tax advantages and
manufacturing incentives, as well as bureaucratic support in the areas of
licenses and permits. “They have governmental support that we don’t have —
maybe that support is a little cooler right now, but it’s still a lot of
support,” says Fischer. “When you have partnerships between government and
private industry — you have similar partnerships in Belgium and Israel — it
creates a scenario and a budget for promoting the industry. That’s not the way
business is done in a free-market economy like the U.S.”
Friedman agrees. “The focus of our government is on
high-employment industries and diamonds is not one of them. The diamond
business is a relatively small industry within the U.S. Israel and Belgium
don’t have an automobile industry. They don’t have a steel industry. The
relationship between the diamond industry and the federal government is
different in the U.S.”
COMPETING FOR ROUGH
Ronnie VanderLinden, president of Diamex, wholesaler and
manufacturer in New York City, says India’s major impact recently has been on
the rough market. “With the world’s largest number of diamond cutting
facilities, obviously, they have to access an enormous amount of rough. The
manufacturing sector here has shrunk dramatically. These are difficult days for
manufacturing here — or anywhere. We can’t do pointers in the U.S. from a cost
point of view but in New York City, we still cut a number of large stones.”
VanderLinden wants to rebuild manufacturing in New York City to accommodate the
smaller stones. He admits that is a huge task but one, he says, he “is willing
to tackle.”
There is no doubt that India’s expansive manufacturing has
burdened it with an insatiable need for rough. “First they need rough to keep
their manufacturing going,” says Fischer. “Second, they are concerned that if
they don’t corner the market on raw material, someone else will. They are
afraid that if they don’t buy it, it won’t be there when they need it. The
Indian diamond industry organizations have an almost maniacal bent to corner
the rough market.”
Fischer says there is no question that Indian manufacturers
“have moved into product areas that overlap with what we cut in the U.S. or
what they are cutting in Russia or Belgium — the larger, more expensive goods
where the cost of labor is not as critical as the experience and skill of the
cutter. Labor cost is still a factor with these stones but it does not weigh as
heavily on the formula as the experience and skill of the cutter.
“In response to competition from India, U.S. jewelry
manufacturing companies have tried to move upscale to specialize in niches,
designs, sizes and stones more suited to the high end,” continues Fischer.
“Just-in-time inventory and customer services become more important. Every time
a foreign company says it will take six to eight weeks to fill your order or
repair an item and someone else says they can do it in six to eight days, if
not six to eight hours, that’s an advantage.”
Friedman notes that in specific cuts and large sizes, some
of that manufacturing is better handled in Israel, Belgium and the U.S. “But
each day is a challenge. Obviously, we try to encourage rough supply to New
York. But the truth is we can’t do all that much to change the trend.”
SELLING STRATEGIES
Indian companies have increased their activity in and
penetration of the U.S. market by establishing offices in the U.S. “They have
partnered with U.S. companies and they have bought U.S. companies,” says
VanderLinden. “From the U.S. point of view, some companies think it is better
to join forces with the competition than to try to fight them. Indian companies
are realizing the importance of an American retail presence with American
employees. It’s not just a way of selling to the U.S. market by being present
in that market, but also of learning about the market — what the preferences
are, what marketing works best, the standards of customer service that are
expected. Then they can take that knowledge back home and make it work for
them.”
PROBLEMS PROJECTING
“I can’t make
predictions in this environment,” says VanderLinden. “It’s unnerving how fast
things can change. One little hiccup and everything can come undone.”
Friedman believes that long-term, India’s dominance will
continue. “Short-term, it has changed somewhat. The rupee has weakened recently
and that has a very big impact. Consumption in India is considerably down,
which affects the local industry and affects manufacturing. Export markets are
not rosy right now.”
“We are seeing
some gyrations in the Indian economy; short-term, they are suffering some pain.
Their first concern must be to stabilize their economy,” concludes Fischer.
“The big picture is that India has a huge population that needs to live a
decent lifestyle with basic services. For the world’s largest democracy to
remain stable, the public’s demands will become increasingly important and
there will need to be more attention paid to the division between haves and
have-nots.”
Article from the Rapaport Magazine - August 2012. To subscribe click here.