The Diamond Industry, Again

Isaac Mostovicz writes...

It was a pleasant surprise to read a new article about the diamond industry, “Applicability of the high-performance organization framework in the diamond industry value chain” just to find out that the authors extensively used my article, “The diamond industry as a virtual organization: past success and challenging future” when describing the diamond industry. I am really fond of that article which was written by mistake. During my studies at the University of Northampton Business School one of the professors who did not grasp what I am researching insisted that I will write an article about the diamond industry. I had no choice but to do this work, which I considered unnecessary.  Upon reading the work my mentor, Professor Nada Kakabadse told me that I have a good basis for an academic article introducing me to the academic publication industry. Well, my work was only the first part of the article and I was asked to add conclusions. These conclusions became longer than the article itself, appeared in a separate article and actually served as the basis for my PhD. Life are full of surprises, don’t you think?

Eight years passed by since I first authored that article about the diamond industry. The industry suffered from severe problems of cash-flow and inability of the banks to finance it any longer. For example, Russell Shor reports in recent GIA article that

“Last year, ABN Amro, the industry’s leading lender, announced it would limit credit to 70% of rough purchases, a break from past policy when they would finance the full amount. In short, diamond manufacturers and rough dealers must put 30% of their own capital up for each purchase, a move the bank feels will limit the speculative buying that has created an extremely volatile rough market during the past four years. In addition, the manufacturers must invest their own funds into rough that is much less profitable to cut in the current environment.”

This policy is similar to that the industry’s lending bank adopted past the economic meltdown back in 2008 when they limited the credit to 60% only causing the wheels of the industry to completely stop for three months.

However, within the same article Russell Shor paints another picture:

 “After reasonably successful holiday sales of diamond jewelry in the U.S., De Beers allocated a large sight of about $750 million, with prices of medium quality goods rising 3-5%, higher in some cases. The price increases were apparently based on the assumption that demand for certain goods will increase in the spring when U.S. retailers will need to restock.

As soon as the news of the price increase reached the markets, premiums on existing rough supplies also began to rise, causing concern that a new round of speculative buying – and subsequent price increases unrelated to demand – may be in the offing.”

A large sight, a raise in rough prices and increased premium on goods? Doesn’t all this tell you that business is booming? So, what exactly happens here? Isn’t the industry living in La La Land?  Successful holiday sales? Did you see the long lines of customers standing outside the shops trying to snap diamond jewellery off the shelf? Did I miss something?

The past eight years taught me invaluable lessons. Nowadays I know much more about the diamond industry, about its strengths and weaknesses about the mistakes, the wrong assumptions and misconceptions that shaped and continue to shape the industry. After delivering a series of three lectures that only cover the history of diamond marketing in the last eighty –five years I don’t think that another academic article is the right way for expressing my thoughts and broadcasting them. Are you interested in what I have to tell? What would be the most suitable medium to use and why?

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