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Posted on 14 February 2020 by Babar Dharani
Management Fundamentals

Disruption in the diamond industry

Technological innovation and dramatic changes in consumer preferences are disrupting the diamond industry, and this has serious implications for job security in Africa.


Technological innovation and dramatic changes in consumer preferences are disrupting the diamond industry, and this has serious implications for job security in Africa.

From their discovery in river beds and streams in 4 BC, the diamond has literally taken a journey from under our feet, to adorning the heads of kings and queens. And yet, despite being a symbol of rank, purity and love, the nearly $75 billion diamond jewellery industry is facing numerous disruptions, sending shivers down the spines of the larger industry players.

Once an extremely rare commodity, the discovery of diamonds in South Africa in 1867, increased rough diamond supply ten-fold almost immediately. From well under a million carats in the 1870s, the industry was producing over 100 million carats per year by the 1990s. In order to maintain a semblance of scarcity, the De Beers Group of Companies controlled the world’s supply of rough diamonds, which kept the prices high. The rise of large rival companies, such as the Anglo-Australian company Rio Tinto and the Russian company Alrosa, made it increasingly challenging to maintain their monopoly, and the Oppenheimer family subsequently sold De Beers to Anglo American in 2011. With the discontinuance of their monopoly, the power of the industry to control supply has been lost, making it difficult to support the high price-point of diamonds.

Technological disruption of diamond production

New entrants and technology disruption are further threatening the traditional diamond trade. Rough diamonds, which look similar to ordinary pebbles to the untrained eye, undergo numerous processes in their journey to becoming polished diamonds. Historically, Antwerp was the centre for diamond manufacturing for many reasons, among them its strategic location for the European market, as well as the marginalization of European Jews, who were forced into the diamond polishing and trading business through lack of access to alternative professions. But as manufacturing is labour-intensive, countries with competitively-priced, skilled labour, such as India, emerged to dominate diamond manufacturing. The new entrants developed skills for polishing smaller stones, thus increasing the supply of polished diamonds.

Currently, automation of the manufacturing process has made it possible to manufacture even smaller stones in China. Improved technology has also allowed for rough diamonds that would otherwise have been polished into poor-grade diamonds using labour intensive methods, to be polished into better clarity and excellent-cut diamonds, thereby increasing supply of high-grade polished diamonds. However, most significantly, technology that restructures atoms in carbon and ‘grows’ diamonds in laboratories, is feared as a cataclysmic disruption to the industry.

The marketing of a girl’s best friend

The Emperor Napoleon gifted a diamond necklace to his second wife, Marie-Louise, to celebrate the birth of their son in 1811. This historic fact was used to market diamonds as a symbol of love, a promise for marriage, and due to its ability to store wealth on a woman’s finger - a form of financial security for women - eventually starting a tradition of gifting diamonds for engagements. The idea of connecting diamonds to romance was captured in an immensely successful advertisement campaign by De Beers in the 1940s: "A Diamond is Forever”. Hollywood added to their allure with many James Bond movies centred around diamonds. De Beers continued their advertising campaigns, advising consumers to hold on to their diamond jewellery as family heirlooms, and it worked! It eliminated the aftermarket for diamonds as people didn’t sell their diamonds back to jewellers. This ensured there was always a demand for new diamonds. However, with the end of the De Beers monopoly, the industry is battling to assign marketing responsibility to any one or group of players in the industry. In the absence of vital marketing, the mystery, love, and rank associated with diamonds are all fading, and the industry is in dire need of a marketing shock to resuscitate the heartfelt love and admiration for diamonds experienced by previous generations.

What is stealing the trade from diamonds?

Although Beyoncé famously sang: “If you like it, then you shoulda put a ring on it”, marriage rates in countries that are the biggest diamonds consumers, are declining. As women become more financially independent, they can buy diamonds for themselves. However, it seems that they are all too often choosing to spend their money on other things. This shift is being driven by a new generation’s perception of diamonds as old-fashioned, boring, unethical and unsustainable. Having failed to distinguish themselves through branding, diamonds are identical to the ones previous generations wore. The latest Gucci or Prada handbags, and Jimmy Choo or Versace shoes are far more appealing. And in this fast-paced age of technology, a shiny piece of rock is proving to be less tempting than the latest smart phone, tablet or laptop, and is failing to excite the new, technologically-inclined generation. Instead, the latest gadgets and international travel that allows us to post our latest holiday photographs on social media, is proving much more enticing.

Last but not least, the new generation is becoming increasingly environmentally conscious. Laboratory-made gem-quality diamonds have enjoyed growing sales from Millennials, who are attracted by cheaper prices, and an assurance of being better for the environment and conflict-free. This new industry has attracted investors from Silicon Valley and Hollywood, including ‘Blood Diamond’ star Leonardo DiCaprio, which is helping to promote lab-made diamonds as an ethical and environmentally friendlier alternative.

Mapping the future of diamonds

Technological disruptions have brought many industries to their knees, and the diamond industry is no exception. Ironically, whether lab-grown diamonds will replace mined diamonds, infiltrate mined diamond supply, or create a new industry adjacent to mined diamonds, is also dependent on technology. The future is dependent on continued technological progress of machines that differentiate between lab-grown and mined diamonds - differences which are becoming increasingly difficult to spot! The ability of these machines to keep up with the progresses in lab-grown diamond technology is questionable, as the differences between the two are becoming increasingly undetectable. Additionally, there are serious concerns regarding ample supply, sluggish demand, and lack of a clear leader in the industry for marketing diamonds. With an entire industry, its value generation, and its jobs at risk on this continent in particular, it is in our interests for the industry to survive. The need for innovative intervention to the industry is urgent, if the crazy diamond is to shine on (with apologies to Pink Floyd).

Dr Babar Dharani is an associate of the Allan Gray Centre for Values-Based Leadership at the UCT Graduate School of Business.


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