Rapaport Magazine
In-Depth

Rapaport International Diamond Conference 2010

By Denise Romano and Karolyn Schuster
This year's IDC covered branding, ethics of the diamond business and how the two can be combined to boost business

Martin Rapaport

Rapaport Group

IT’S TIME TO THINK OUTSIDE THE BOX

Diamonds are not the things that are sparkly out there. I’m coming to the realization that the sparkle is inside of you,” said Martin Rapaport, chairman of the Rapaport Group. “When you look at the world around you, you have to see what you want to see. Don’t look out of the box, get out of the box.”

Rapaport observed that in a constantly changing world, especially with a new generation of diamond consumers and the aftermath of a global economic recession to deal with, “I don’t think people can afford to be comfortable anymore; we have competitors, changing markets and miserably exciting things happening.”

But the key is to embrace the change. “Get into it,” Rapaport urged.

With the average age of India’s population at 25, “Baby Boomers are going bye-bye and someone has to buy their diamonds. We have to create a business where you are not buying them, but selling them from the market. The reality changed but what saved me was this perspective.”

Retailers were warned to “not take the diamond dream for granted. It’s outrageous. Younger generations may not be into diamonds. We are not selling the diamond dream that is there, we are here to adapt to the new mindset and the new technology. The iPad is the new three-stone ring because it’s cool, new, changing, sexy and exciting.”

So how can the diamond industry survive in the midst of all this upheaval? “Think of it like surfing,” Rapaport suggested. “Everyone freaked out when the global economy crashed in 2008. Winter is cold and summer is hot; why would the economy be any different from the weather? We have to be ready for change. If you simply put

yourself in the right position, you don’t have to make waves, you just have to ride them; but you have to learn how to surf.”

Rapaport believes that “positioning is more important than anything else — you can be the greatest jeweler or diamond cutter with fantastic designs, but it’s all nonsense if you don’t have the right store, at the right place, at the right time.”

Supply, Rapaport said, doesn’t mean a thing if there is no demand. This especially applies to ethically created and yielded products.

“People choose what products they buy. If society chooses to buy ethical products and support ethical companies, it’s an incentive for these companies to do these things: ‘Let me try and do something good for these people because they are doing good stuff for us’…the virtuous cycle will continue.”

 

Aagam Sanghavi

Director, Sanghavi Exports International Pvt. Ltd.

DIAMOND DEMAND AND THE CHANGING WORLD — SURAT’S PERSPECTIVE

This is how we see the future: The sweatshops are gone, things are getting professionalized and everyone is looking forward,” said Aagam Sanghavi, director of Sanghavi Exports International. “Surat is the diamond manufacturing powerhouse of the world, with currently 700,000 diamond cutters.”

Sanghavi stated that Surat’s population is 6.3 million — the fastest-growing city in the world. It also has the highest average income in India; the city’s per capita income is twice as large as India’s average and it processes 75 percent of the world’s diamonds.

Like Martin Rapaport, Sanghavi said he is “not in the business of shaping consumer demand. We respond to it,” especially in light of the fact that sales and manufacturing fell more than 50 percent during the recession.

“The conventional market is stabilizing and developing markets are the only growth engines,” Sanghavi said, adding that the demand profile is different in new markets, where price point systems are not yet introduced, making these markets primary drivers for better-quality goods.

With all retail sales in India projected to jump from $353 billion

to $543 billion by 2014, Sanghavi believes that polished prices will go up as the industry grows, making marketing a priority. “No one can guarantee what is going to happen, but over the next ten years, we think the Indian diamond industry will flourish,” he said. “Many emerging markets are still untapped and systematic marketing can ignite their demand for diamonds.”

Sanghavi noted that “the diamond trading network has made every small business a global business,” with basic workers’ rights also key to expansion. “Facilities, working hours and wages are improving every day.” The industry, he said, is acting responsibly when it comes to sourcing rough. 

According to Sanghavi, the industry has been moving in the right direction.“Since 2002, diamonds got more beautiful. Technology makes them sparkle and enhances shine. In India, diamonds are about beauty, not love and affection like in the U.S.”

Some of the steps India already has taken to expand include opening the Gujarat Hira Bourse, which has 350 diamond and jewelry export units and is expected to do over $7 billion in annual business. The Bharat Diamond Bourse was recently inaugurated and the India Diamond Institute boasts a new campus, advanced diamond courses and has already trained 28,000 students.

With more than 1,500 companies and an initial capital of $200 million, newly formed Surat Rough Diamond Sourcing (India) Limited (SRDSIL) will “bring rough to Surat,” Sanghavi said. He explained that China is investing in a lot of African rough and hopes Surat will “contract samples from Zimbabwe and Russia, efficiently source the rough and have sophisticated tender systems.”

“We have to invest internationally, “ Sanghavi concluded.

 

Carol Brodie

President, Carol Brodie & Co.

WHAT WOMEN WANT — TODAY!

What women want is all the same — a personal connection and a great value,” said Carol Brodie, providing a peek inside the female mind. A luxury branding expert who now has her own company, Carol Brodie & Co, and hosts “Rarities Fine Jewelry,” a show on the Home Shopping Network (HSN), Brodie pointed out that she built her brand with a heavy reliance on social media. “I am on the air in 90 million households. To get to know women, I go where they live, via blog and Facebook.”

Brodie gets up at 6:30 every morning, uploads a piece of her jewelry from HSN.com, logs onto Facebook and tells her fans how she will pair the item with her outfit. “I write something like, ‘Today this ring makes me feel like a goddess,’ and by the end of the day, eight of those rings are sold.”

Brodie started her career with De Beers, where she was told that the key to selling their product was to create an “irrational desire for diamonds.” It was a strategy she carried forward. “Women want to covet diamonds with intense passion. Whether it be love life, family, job, diamonds or a Louis Vuitton handbag, a woman wants and covets passion,” Brodie explained, adding that today’s woman religiously reads reviews and blogs. “She wants jewelry that makes her feel beautiful. She values glamour and elegance. Everything does not have to be perfect. She shops online and prefers her own style. Access and service are on her terms. She wants quality, amazing value, respectful, intelligent and authentic two-way communication.”

When the economic crisis began in 2008, everything changed, Brodie pointed out. For a decade before, she said, “more was more and bling was the thing. We could not get a diamond big enough, rare enough, vivid enough or white enough in color.” Today, she said, thrifty is the new bling and status is about who got the best deal, not who spent the most. Intelligent purchasing trumps conspicuous consumption. It’s about mindful spending.

Brodie believes women today feel like they have a need to spread their knowledge. “The ability of a woman to define value, individually or as a group, is laser-accurate.”

Retailers, Brodie advised, have to keep up with the times. “Ensure that your brand is truly unique, exclusive and worthy of the customer. She has a voice and platform and will share her opinions happily. Acknowledge her values and show you understand her; consumers expect more from brands. Customer satisfaction is key — the day you read a comment you should respond right away. Women are time starved and use the internet for everything.”

To keep the diamond industry alive, Brodie cautioned, jewelers “have to go back to spending money on marketing, be active in online social media and fight the commodity process. We are making money in bridal, not showing that diamonds are fashionable. Customers want colors and gemstones.”

Brodie concluded, “Stay creative, change up the game and you will do well.”

 

Roy Williams

Founder, Wizard Academy Institute

THE CHANGING WORLD OF DIAMOND RETAIL — HOW SOCIETY HAS SHIFTED AND HOW WE MUST SHIFT WITH IT

A diamond is not a visual product or an intellectual product, it is an emotional product,” said Roy Williams, better known as the “Wizard of Ads” and founder of the Wizard Academy Institute. “When it quits being emotional, you quit selling diamonds.”

Williams offered advertising advice on the basis that “there is a 40-year cycle of transformative change.” We become different people every 40 years, he noted, from the way we look at life values to how we judge ourselves and those around us.

Starting with the 1940s and ending with present day, Williams’ presentation, filled with pop culture references, illustrated that these 40-year cycles create changes in mindset that result in either a “civic” or an “idealist” generation. “The civic generation,” he explained, “works for the common good. The idealist cycle values being yourself — being anything you want to be. It is about self-expression. Right now, Asia and what we call the East are going into idealist while we go into civic.”

“The last zenith of the civic cycle was in 1943,” Williams explained,

noting that the next civic cycle took place in the 1960s. Examples of the idealist cycle are the materialistic mindset of the 1970s and 1980s, which peaks in Madonna’s aptly named song, “Material Girl,” and the worldwide fascination with Michael Jackson’s smooth moves.

Knowing how “the masses” think is essential to successful advertising, Williams stated. “To the civic era, talk is cheap, they just do. They don’t like phoniness.”

Williams said 2003 marked the tipping point for the latest civic generation. “Phony is out and real is in.” The “Austin Powers” movie series blatantly mocks James Bond and the cool spy car becomes Matt Damon’s busted-up taxi in “The Bourne Identity.” 

According to Williams, technology has also turned the advertising world upside down. “Kids nine and ten years old today, because of the internet, know things that I didn’t know until I was 25. Naivety is gone. Show kids a sappy 1970 Coke commercial today and they will puke all over your shoes.”

“Ad-speak, like clichés and empty phrases, no longer works,” Williams advised. In order to successfully sell your product, you can’t use “tag lines anymore, just brandable chunks.” Advertising, he pointed out, boils down to two things: relevance and credibility. Relevance is the degree to which your message speaks to a need or desire of the customer. Credibility is whether or not people believe what you are saying.

Williams also warned that word travels faster today than in the past. “Whether something is good or bad, the word gets out, the only offensive thing is phoniness. Today’s hunger is for reality, truth, core competence, authenticity and transparency — show your dirty laundry.”

Williams concluded with some advice for retailers, “We have to work together to keep bad things from happening. Find something you believe in and go and do it, work it into your brand. You have to tell the truth or you will get caught.”

 

Annabel Short

Business and Human Rights Resource Centre

HUMAN RIGHTS AND DIAMONDS — A PRACTICAL OVERVIEW

There are increasing expectations for companies to respect human rights and those expectations are coming from NGOs (nongovernmental organizations), from consumers, but also from investors,” said Annabel Short, head of program for the Business and Human Rights Resource Centre, an international nonprofit organization that monitors individual companies’ human rights practices.

The center, founded in 2002, collects credible reports of human rights abuses and makes them accessible on its website, www.business-humanrights.org to companies and consumers alike. Approximately 5,100 companies are currently tracked and the center is expanding to add more non-Western, smaller and under-the-radar companies.

The center’s website is updated hourly, gets 1.5 million hits per month and employs regional researchers in India, Senegal, South Africa and the Ukraine. No corporate funding is accepted and there is a built-in process for companies to respond to posted stories on their activities and actions.

“One can make a clear business case for paying attention to human rights abuses,” said Short. “There are financial advantages, like the risks of a project being delayed because of protests. There are reputational advantages. There is the risk of lawsuits alleging abuses. Companies with positive human rights records also are more successful in attracting and retaining employees.”

Short admitted that “the diamond industry is more susceptible to human rights challenges by the nature of where diamonds are and how they are mined. There are very difficult ethical dilemmas in our industry.”

Among the human rights issues Short cited for the diamond industry: the conflict diamonds used to fund civil wars in places like Angola, Liberia and Sierra Leone; the violation of the rights of indigenous people, such as in Botswana, where mining operations interfered with the native Bushmen’s access to water; the HIV/Aids epidemic in South Africa, which has become a special focus of De Beers; the abuse of artisanal miners in Angola by security firms working for diamond companies, as well as worksite abuses in polishing factories, such as the murder of a worker in Gujarat who had protested working conditions.

On the question of curbing abuses in the industry, Short said “we are at the beginning of a shift from naming and shaming to knowing and showing, from exposure to disclosure.” Citing a United Nations (UN) special report on business and human rights by Professor John Ruggie, Short referred to Ruggie’s three pillars of a human rights framework: the state’s duty to protect human rights, the corporate responsibility to respect human rights and access to a remedy when abuses do occur.

Corporate responsibility, said Short, includes a policy statement on human rights, impact assessment, the integration of a human rights commitment throughout the organization and a system of tracking and reporting on performance.

Short noted increased interest within the industry in multistakeholder initiatives, in which various parties deal with this issue collaboratively, such as the Responsible Jewelry Council (RJC), the Diamond Development Initiative (DDI) and the Initiative for Responsible Mining Assurance (IRMA).

 

Peter Singer

Professor of Bioethics, Princeton University

APPLYING ETHICS TO THE DIAMOND TRADE

Paradoxically, when developing countries are rich in natural resources, they often end up worse off because the huge revenues that flow from the sale of those natural resources offer an incentive for political instability,” said Peter Singer, the Ira DeCamp professor of ethics at Princeton University and author of numerous books on ethics. As a result of these revenues, the leaders of these countries have access to immense wealth and they have the funds to arm a military that can support them and keep them in power. “Resources that should be benefiting an entire population end up as a ‘resource curse,’” he said.

“The ethical problem we face is our complicity. If we use or buy these resources, we become complicit. If these dictators have no legitimate claim to power, then effectively they have stolen these resources from the people of the country to whom the resources rightfully belong. If they have stolen these resources, when we buy them, we are trading in stolen goods.”

 “If you look at Zimbabwe — and if you accept the accuracy of the Partnership Africa Canada (PAC) report ‘Diamonds and Clubs’ — then I believe it is not ethical at present to trade in Marange diamonds,” Singer said. He was not basing his opinion on the killings in the area in 2008 nor on the current civil rights abuses, but rather on the statements in the PAC report that four years after the military took control of Marange, not one cent had entered the national treasury from the mining of these diamonds.

“You might ask what will be achieved if I don’t trade in Zimbabwe diamonds, because someone else with lower ethical standards will buy them. My gesture won’t achieve anything for the people of Zimbabwe. It will be a pointless gesture.” But Singer argued that “Sometimes you have an obligation to make a pointless gesture. The idea that it is pointless will not always let you off the hook. What you should be looking at is whether, by your refusal, you can push things in a more hopeful direction.”

Singer told the audience of his involvement 30 years ago in a successful campaign to get the cosmetics industry to stop its testing of products on animals. The campaign targeted industry leader Revlon and included a series of full-page advertisements with the headline: Why is Revlon blinding rabbits for beauty’s sake?

“Some time after the campaign, I interviewed the person who was vice president of public relations at Revlon at the time. He had since retired. He told me that the single most satisfying thing he had done in his 30-year career at the company” ­­­­was his role in persuading Revlon’s chief executive officer (CEO) and other top brass to “do the right thing” on animal testing.

“There’s a lesson in this as well,” concluded Singer. “Acting ethically can be not only the right thing to do, but it also can be a satisfying thing to do.”

 

Michael Conroy

Chairman, Fair Trade USA

MOVING BEYOND KIMBERLEY: THE CASE FOR ETHICAL CERTIFICATION IN THE DIAMOND INDUSTRY

There are many positive stories of solutions to ethical dilemmas,” said Michael Conroy, chairman of the board of Fair Trade USA. “My task is to try to convince you of the possibilities that exist for eliminating many of the ethically dubious or problematic products from your supply chain by illustrating what has happened in other resource-based sectors.” Conroy was referring to ethical certification systems already in place for forest products, fisheries and fair trade food categories.

On the subject of voluntary ethical certification, Conroy advised the audience, “You can do it and make it profitable and build it into the core of your business so that you’re doing the right thing and benefiting from it at the same time.” He noted that “fundamental shifts in social values, with consumers turning to more thoughtful, responsible purchase of products, and increasingly effective NGO (nongovernmental organization) activism” have contributed to the success of major ethical certification systems.” He suggested that the main reason to consider a voluntary certification system is “the increased risk of challenges to your brand on social and environmental grounds. Certification systems are another form of risk management.”

“We used to think of NGOs as attack groups but they have become partners in the delivery of ethical solutions to dilemmas,” Conroy said.

Conroy made it clear that the Kimberley Process (KP) is not the answer for the diamond industry — for a number of reasons. “The Kimberley Process has no real assurance about human rights conditions. I’m not sure the Kimberley Process is fixable — although the Diamond Development Initiative (DDI) is certainly trying. The Kimberley Process has no social or environmental requirements; it is only focused on conflict-free origins. It is a slow, inter-governmental process. Decisions are international political decisions — not ethical decisions. Much more evidence is coming out that it is easily evaded.”

Conroy warned the audience that “I think that there are reputational risks for the diamond industry out there” that are not met by the Kimberley Process and other current certification efforts. “There hasn’t been a campaign against the diamond industry — yet. As we become more and more aware of the magnitude of the human rights problems and the weaknesses of the Kimberley Process, it is more likely that one or another NGO would begin a campaign against the diamond industry and potentially undermine the value of diamonds in the way you want to sell diamonds.”

Further advising the group, Conroy added that “The best defense you’re going to have is to create a truly complete, negotiated stakeholder system to give you the ability to identify products that have ethical dilemmas embodied within them. There are significant potential benefits for the industry from that. You have to decide you want that as an industry. With a little bit of resources and people power behind it, it could be done in a year or two and you could come to a meeting like this and have the confidence that the ethical dilemmas have been significantly reduced in your supply chain.”

 

Panel Discussion

The sixth annual Rapaport International Diamond Conference (IDC) 2010 concluded with a panel discussion of the ethical issues surrounding the diamond industry, their potential threat to the industry’s future and what industry members need to know — and do — to protect their reputations and operations.  

Martin Rapaport: I don’t think there is anything as emotional and important in the diamond industry as human rights. In our industry, we have no problem certifying diamonds in cut and clarity and color, make, triple EX, triple VG — no problem. How about a grade for ethics? This diamond is super-kosher, sort-of kosher, we-don’t-even-know-because-we’re-not-looking kosher.

It’s very important to recognize our purchasing power.

Money from our products is creating sustainable, economic development among the poorest people in the world. We could rewrite the map in Africa. We can’t rely on governments and laws. Companies can come in and say “We’ll pay you a better price for your diamonds if you apply certain standards.”

Our conversation should transcend looking at what’s bad to what we can do that’s really good. I am wondering, for example, if ethics can be integrated as part of the diamond manufacturing process in Surat.



Aagam Sanghavi:
The people in the Indian industry are two steps — or probably even more — further away from the mining situations. This is a much bigger subject for the Indian industry to handle right now. They are still not as mature. To understand the whole situation from a political point of view is still very complicated for them. As we start sourcing from Zimbabwe, we don’t want to be told “what you’re doing is unethical.” 



Rapaport:
Is there a positive impact when people do the right thing?

Annabel Short: There are various benefits. Look at all the good publicity De Beers is getting for its work with HIV/Aids in South Africa. Having good examples out there makes it easier for us to go to other companies and use them as an example.

 

Rapaport: Where are the ethicists in our industry?

Peter Singer: Most ethicists are trained in universities. They are not out there marketing themselves or focusing on sound bites. It’s an occupational problem. But increasingly, ethicists are more prepared to go out and interact with the public.

 

Rapaport: When you establish standards, do you interface with ethicists?

Michael Conroy: Many of the NGOs (nongovernmental organizations) that become the public face of civil society preferences are in a sense the embodiment of ethics. NGOs couldn’t raise the money they need unless they reflected a broad civil society consensus.

 

Rapaport: The current scenario with NGOs seems to be adversarial negotiations. Can the diamond jewelry industry create a standard that transcends adversarial relationships?

Conroy: More companies are working with NGOs as delivery partners. They are saying, “let’s find someone who will work with us to solve ethical problems in our supply chain.”

Roy Williams: Most industries typically respond to crisis. Diamonds and gold are probably more susceptible to a devastating attack than any other product on earth. Because you’re only buying it as a symbol of something pure and good. That would be so easily tainted. All I have to do is calculate how many people have had hands and feet cut off because they weren’t digging fast enough — then equalize that to an engagement ring. Every one-fifth of a carat was someone’s finger. A full carat was a hand. For three carats, someone died. If, by the way, you got a solid gold mounting, someone died from cyanide poisoning. It would be real easy to sell that. All it takes is one ambush journalist wanting to make a name for himself. Does the industry really want to wait until after it has a problem?

 

Rapaport: We are at reputational risk. We know that and we are concerned about it. But ethically, what can we do? Maybe we go to Surat and say, “Don’t mix the diamonds.”

Sanghavi: It’s impossible not to mix diamonds. If a diamond is large enough, we can separate them. But if I’ve got an order for 5-point diamonds, an order of 10,000 carats, they are going to be mixed with other parcels. They will go through 10 to 15 stages, move through 15 to 20 hands before they get to the jewelry manufacturers who finish the order. If you tell me I can only use certified diamonds, I can’t finish an order — I need to go to the open market.

It would be impossible for 10,000 manufacturers and 3,000 diamond traders to keep their inventory separate. 

Conroy: While I am sympathetic, in almost every sector where an ethical certification system requiring traceability has been created, the first response was “It’s impossible; we can’t do it. We can’t trace it.” In every case, within one year, it was being done. There are Ethiopian coffee cooperatives with 100,000 small farmers that can tell you which bag of coffee came from which farm. It always looks impossible to start with, but it can be done without a great deal of cost.

 

Rapaport: What if I say I will give you $1,000 a carat instead of $200, would you find a way to do it?

Conroy: There is a price premium. Companies are getting 2 percent to 4 percent more for certified 2-by-4s in wood, 100 percent more for certified teak, 10 percent more for fair trade bananas, 15 percent more for fair trade coffee.

 

Rapaport: I expect there will be a separation of the markets. Want to supply me? Separate your goods. Don’t want to supply me? Don’t separate your goods.

Singer: If something wrong is happening, how do you put pressure on them to stop? This is something the diamond industry has to face or people may turn away from diamonds altogether because of the ethical questions. 

Conroy: We need a road map to go forward. With clear public support from the industry, you can finish standards, get them out for review, pilot test and create a verification process — and it can be done within two years.



The panel discussion concluded with some of the most compelling testimony of the day on the subject of ethical concerns and decisions — and it came from a member of the audience. Born and raised in Zimbabwe, home of the controversial Marange diamond fields, Susan Jacques, president and chief executive officer (CEO) of Borsheims, in Omaha, Nebraska, has a unique perspective on trading in the tainted diamonds and has taken an uncompromising professional stand on the subject.

“We as a company have decided not to accept Marange goods, we do not want them in our store and we have pushed that down through the entire supply chain,” Jacques explained. “I did get a lot of push back from my suppliers saying ‘You don’t know how it all works. These goods can’t be separated.’ I tell them they need to push back their suppliers.

“This situation with Marange diamonds has the potential to create a devastating situation within the jewelry and diamond industry,” Jacques warned. “We are sitting in a recession with a very limited amount of money people are willing to put into diamond jewelry anyway. If an iPad becomes more appealing because a customer says ‘I don’t want to own this jewelry,’ that could be very detrimental to our business. I have another reputational risk. Our company is owned by Berkshire Hathaway and Warren Buffet always talks about doing the right thing.

“I beg of you, in Surat, step out of the box and find a way to separate these goods. There will be a market for Marange goods, but at this time it won’t be the American market. I realize the China and India markets don’t have the same social responsibility concerns as the American market.”

Jacques added: “I had a huge sightholder call and say, ‘This is impossible, Susan. I can’t do this for you.’ I said, ‘That is going to make it really tough for me to do business with you.’ Until Zimbabwe has a regime change, I don’t want to provide access to financial means to Mugabe and his henchmen — they’ve destroyed the homeland I always hoped to return to.”

 

 

 

 

 

 

 

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