RAPAPORT… It is not the strongest of the species that survive, nor the most intelligent, but the ones most responsive to change,” said nineteenth-century British naturalist Charles Darwin. In volatile and often challenging economic and political times, Israel’s diamond industry has evolved from an industry heritage founded in manufacturing into a comprehensive provider of industry services. Israel’s drive to reposition itself as a provider of value-added diamond services is reflected in the recent launch of the Israel Diamond Institute (IDI) brand campaign, “All you can ask for in one.”
FROM SHOP FLOOR TO TOP FLOOR
Data from the Israel Diamond Exchange (IDE) highlights the industry’s transformation from manufacturing focused to service oriented. From 1999 through 2005, local manufacturing fell 6.4 percent, while polished exports grew rapidly by 50.7 percent. The overall manufacturing trend has been to offshore manufacture smaller and less complicated rough in lower-wage centers such as India and China. At the same time, Israel continues to cut and polish large and more expensive diamonds — high quality and fancy colors — leveraging on the country’s expertise.
Israel’s drive to provide all-inclusive services — such as sorting, unique designs in diamond cuts and jewelry, marketing, branding, distribution, as well as financial, governmental and technical support — is manifest in the substantial increase in polished exports. Israel has moved away from the manufacturing shop floor, where its competitive advantage is challenged, to the top floor, by engaging the customer with infrastructure that assures all client needs are met. One U.S.-based fine jewelry retailer, who recently visited the IDE and asked to remain anonymous, remarks, “Israel is an exceptionally compelling destination for sourcing, with broad services and selection in one consolidated area at competitive prices, coupled with a business-friendly attitude and general industry expertise.”
Yair Sahar, Israel Diamond Manufacturers Association (IsDMA) treasurer and committee chairman, emphasizes that a customer-oriented “can-do” attitude coupled with strong infrastructure is a winning combination for Israel. “Although Israeli banks take more measures to mitigate risk compared to their counterparts in India or Europe, this promotes general industry stability,” says Sahar. “Energetic, transparent and innovative companies will find Israeli banks to be open, supportive and solidly engaged in the diamond industry.”
Amish Mehta, director of Rosy Blue Israel, suggests that Israel’s key advantage is the “business-friendly environment,” which he attributes to the diamond exchange leadership. “This simply translates into a safer and easier environment to do business, with lowered duties and costs associated with distribution.” Sahar explains that extensive facilities within the diamond exchange enable easy access and cooperation between Israeli tax authorities and diamantaires. “Israel’s diamond leaders and government tax officials openly discuss and find resolutions for a variety of issues, including taxes and the issuing of licenses,” he says.
ADDING VALUE
Underlying Israel’s evolution is its need to constantly add value to the diamond industry. “The Israeli industry is progressive in its customer approach,” comments Ossif Tamir, vice president marketing & operation, Salant Group Ltd. “The industry provides comprehensive services and is constantly seeking ways to add more value to its customers, either by way of supporting marketing, lowered cost of sourcing or supply chain planning.”
Industry collaboration is another factor adding value and differentiation to Israel’s diamond market. “Israeli companies work in partnership with each other; this almost always guarantees us the ability to find the diamonds that we seek,” notes the anonymous visiting U.S.-based retailer. “This level of cooperation is unparalleled in any other diamond center,” he adds.
The chief advantage of Israel’s market is its versatility in terms of product and services offered, asserts Avi Paz, IDE president and vice president of the World Federation of Diamond Bourses (WFDB). “Customers can find a wide range of rough and polished goods, unmatched anywhere else in the world.” Paz sees the move to offshore manufacturing as an opportunity and views it as a natural global trend. “Today, virtually all Nike products are outsourced,” says Paz. “However, Nike is still perceived as a high-value brand, maintaining great design and a marketing network that adds brand value,” Paz adds. Israel’s diamond industry is following the same course. Offshoring provides competitive advantage in terms of lowered cost, and by following this route, Israeli diamantaires are in a solid position to focus on marketing and branding.
Highlighting Israel’s prominent role as a global sorting and distribution center for rough, Diamond Trading Company (DTC) Managing Director Varda Shine notes that the decision to locate Diamdel’s central processing operation (CPO) in Israel follows “a strategic assessment of the means by which the company could better meet the diverse needs of its global customer base.” Shine expects the CPO to be fully operational by 2007 and further points out that the Israeli diamond industry is regarded as “one of technical expertise, often at the forefront of major technical advances in the manufacturing of diamonds.” On the sidelines of Tel Aviv’s World Diamond Congress in June, Aber and ALROSA both announced intentions to open local sales offices and increase rough supply. The Aber Israel office will serve a dual purpose — rough sales from the company’s Diavik production and polishing purchasing for Aber’s retail arm, Harry Winston. “Being in the center of polished manufacturing gives Harry Winston direct access to the product it needs without necessitating the use of wholesalers,” adds Robert Gannicott, Aber chairman and chief executive officer (CEO). Israel serves as a home base for many industry players. “No matter where these participants choose to open factories or conduct business, Israel will always be a place where they return and it will always have a role in, and be central to, the diamond industry,” Gannicott adds.
BACK TO BASICS
Moshe Leviev, CEO of L.L.D. Diamonds, takes a more restrained view of the current state of Israel’s industry, pointing out: “The ability to control your destiny is the basis for long-term business health. Israel is losing that control by offering more brokerage services, with traders increasingly beholden to suppliers and buyers.” Leviev suggests moving “back to basics” with manufacturing at its core. “Manufacturing, whether in Israel or offshore, results in more long-term stability and less risk. It’s a solid model that is proven: Source rough, polish and sell to a buyer who has the capacity to buy at terms that are good for your business,” he says. Leviev attributes the success of his business to this approach and further suggests that there needs to be more restraint in terms of approaching customers. “Although we believe in strong customer service, I feel that the industry, in general, goes too far in providing services that detrimentally impact profit,” says Leviev. “We should understand that the diamond industry is delicate and we all need to conduct ourselves selectively and adopt smart business practices.”
ADAPTATION
If, according to Darwin’s famous saying,“those most responsive to change” are most likely to survive, Israel is in a solid position within the global diamond community. In a country where human capital is the main source of economic development, Israel has the means to continue to play a major role for quite some time. Israeli diamond dealers continue to carve out niches for themselves and to find original ways to stake claims within the diamond industry.
