Is the Diamond Capital of the World Losing its Sparkle? Diamond Trading and Cutting in a Changing Global Economy
15 Pages Posted: 5 Apr 2010
The diamond industry has been subject to significant change. There is increased competition from low-wage countries such as India and China, the concern about blood diamonds, and policy issues affecting the viability of trading diamonds. In this case, we study how Antwerp's dominant position in the diamond trade is being challenged and eroded. The case offers a good opportunity to introduce and discuss comparative advantage and relate it to Heckscher-Ohlin type of trade.
Rev. July 16, 2009
Is the Diamond Capital of the World Losing its Sparkle?
Diamond Trading and Cutting in a Changing Global Economy
Antwerp, Belgium, was the diamond capital of the world—80% of the world's rough diamonds had passed through the city. Close to Antwerp's Grand Central Station on barely one square mile, there were some 1,500 mostly small diamond companies with nameplates such as Bernstein, Goldberg, Shah, and Gandhi. Additionally, there were four large, high-security diamond bourses (exchanges): Beurs voor Diamanthandel, Vrije Diamanthandel, Diamantkring, and Antwerp's first exchange, the Diamantclub, which dated back to 1893. Antwerp counted some 400 trading companies in rough diamonds, 700 in polished, and 100 in industrial. Some 300 companies cut diamonds, and 30,000 jobs were linked to diamonds. Most companies were privately owned and managed by one owner with one or two staff members. Specialized diamond banks such as ABN AMRO, State Bank of India, and the Antwerp Diamond Bank could be found in the area. There were transport companies such as Brinks and Malca-Amit as well as brokers, travel agencies, security firms, hotels, and kosher and Indian restaurants—all under the strictest camera surveillance.
Antwerp had a long tradition of diamond polishing and trading. Diamonds were small, valued everywhere, and easily portable: a truly global currency. That was why outsiders often wondered about the seeming informality of many transactions, often without paper records. Multi-million-dollar gem deals were sealed with a handshake and with the Yiddish word for luck, mazzal, as they had been for centuries. As a matter of fact, diamond merchants in Antwerp and in other trading centers had systematically avoided the interference of courts to enforce contracts and police their community. They preferred internal policing in local communities and diamond clubs. At the four diamond exchanges, traders often posted notices on a board for lost and found stones. Many of the enterprises were family-owned businesses and had been so for multiple generations.
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Keywords: comparative advantage, international trade, networks, vertical integration
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