The Diamond-Cutting Cluster in Antwerp, Belgium

Sofie Junger, Morgane Corbet, Claire Crausaz, Julia Simon, Holly Basile

Tuesday, March 22nd MoC – Winter 2010

International University of Monaco

Outline Introduction Overall economic performance and composition

of the economy Business environment The diamond cluster

Legacy Value Chain Current Situation Map and Diamond Model

Global Issues Policy recommendations

Introduction Belgium: federation of 3 states Hardly hit during WWI and WWII

Did not receive supposed funds from Germany after WWI

Flanders benefited from Marshall Plan => led economic growth

Founding member of European Union (1951)

Trade surplus led by diamond industry Support from federal

government

Source: Google Maps

Composition of Belgium’s EconomyAutomotive •4th largest Belgian industry Chemicals •€30 bn turnover (1/5th Belgium) Diamond Cutting •22% of world exportsFood Processing•4% of total European added Iron and Steel •€3.6 bn (2006) in value-addedLogistics •9th “Logistics Performance Index” (World Bank)

Main Exports Commodities Machinery and equipment, chemicals, diamonds, metals and metal products, foodstuffs Main Imports CommoditiesMachinery and equipment, chemicals, diamonds, pharmaceuticals, foodstuffs, transportation equipment, oil products Partners Germany, France, Netherlands, UK, US + China for imports

Sources: Févia (2010), Lagneaux and Vivet (2009), Institute for Strategy and

Competitiveness (2007), Logistics of Wallonia (2010), Global Finance (2010),

Index Mundi (2008)

Industry 23,1%

Services 76,1%

Agriculture 0,8%

Demographic Indicators

Innovation Patents •Average 371 yearly between 2000 and 2006 Technology Achievement Index (2001) •0.55 •Before USA and Japan

Federal Government Spending (million)

0,00 € 20 000,00 € 40 000,00 € 60 000,00 €

General PublicServices

Defence

Public Order andSafety

Economic Affairs

Health

Education

Social Protection

2001 2008

Source: National Bank of Belgium, 2010

Demographics and Labour

Population (2001-2009) •10.4 million •Average annual growth: 0.45% Productivity (2008) •-1.3% •+3.1% in wages •GDP/ hr higher than EU27 average

Sources: UNDP (2001), OECD (2009), The World Factbook (2010)

Economic Performance IndicatorsEconomic Performance GDP Per Capita (2008) •$36,600 (2nd in Europe) •Among the highest wolrdwide Real GDP Growth •Postive, but negative pattern •-3% over 2008-2009 Inflation (2008): +4.5% Unemployment Rates•2000: 6.9% •2009: 8.3% •Europe: 8.3%

Real GDP Growth

-4,00%

-3,00%

-2,00%

-1,00%

0,00%

1,00%

2,00%

3,00%

4,00%

5,00%

2000 2004 2005 2006 2007 2008e 2009e

Sources: The World Factbook (2010), World Economic Forum (2009), The World Bank (2009), Global Competitiveness Report (2010)

Competitiveness Analysis

1. Basic Requirements

Infrastructure Belgium = 18 ; France = 4 Health and Primary Education Belgium = 3 ; France = 11

Institutions Belgium = 24 ; France 26Macroeconomic Stability Belgium = 56 ; France = 58Health and Primary Education

Belgium: 18th France: 16th Germany: 7th

2. Efficiency Enhancers

Higher Education and Training Belgium = 8 ; France = 15 Goods Market Efficiency Belgium = 13 ; France = 25

Labor Market Efficiency Belgium = 44 ; France = 67

Financial Market Sophistication Belgium = 25 ; France = 21

Technological Readiness Belgium = 22 ; France = 24

Market Size Belgium = 25 ; France = 8

3. Innovation and Sophistication Factors

Business Sophistication Belgium = 11 ; France = 10

Innovation Belgium = 14 ; France = 18

+ -

Source: Global Competitiveness Report

(2010)

Productivity

-1

0

1

2

3

4

5

6

7

Labour input ICT capital Non-ICT capital Multi-factor productivitySource: OECD (2007)

Source: GDDC (2008)

National Diamond + Low government

intervention+ High concentration of

corporate head offices (strong local rivalry)

+ Recognized for ease of doing business

+ Low corruption (CPI) - High labor costs - High levels of taxes, although

improving

+ Highly educated / motivated / productive workforce

+ Strong innovative capabilities + Excellent infrastructure (land,

sea, air)+ Numerous educational

institutions and research facilities + High wages attracting workers - Economic slowdown due to global recession

+ Sophisticated consumer demand

+ Strong support of local industries

+ Very high purchasing power (among the highest)

+ Large pool of international consumers (EU membership)

- Small market potential locally

+ Interrelations between all clusters (logistics, ICT, chemicals, food processing)

+ Strong IFC network (overall and for each cluster)

- Heavy dependence on EU neighbors and associated clusters

ANTWERP’S LEGACY

16th century: Major role in the European trade (40% of world trade)

First proof of diamond trade Quick development of high expertise in diamonds cutting and polishing; achieving worldwide renown

1582: First diamond cutters guild

1890s: Cluster has been developed in a restricted district of Antwerp Creation of the 1st bourses – The Diamantclub van Antwerpen

1930s: Creation of the Syndicate of the Belgian diamond industry Creation of education center and financial institutions focusing on diamonds --------------------------------------------------------------------------------------------------------------------------

Antwerp’s port is the second largest in the world Small family owned businesses – Jewish community that influenced way of doing business High skilled workforce World War II high structural and social changes Historical migration flows due to wars have created a highly diversified origin population

Sources: Diamonds.net,

Henn, S., & Laureys, E. (2010). Bridging Ruptures.

The Diamond Value Chain Involves 8 steps; from exploration to retailing Two types of stones; gem stone quality & industrial

stones In 2000 diamonds mined at a cost of $2 billion and

sold at an expense of $7.8 billion. Out of these diamonds, jewelry worth $57billion was created

Value Chain Actors Worldwide

Source: Porter, Marciano, Wathurst (2009)

Exploration & MiningExploration 300 exploration firms in year 2000 When a mine is found; samples in order to test and produce a

prediction of the reserve and the mine productivity

Mining Open pit mining, hard rock mining & Coastal mining Progression time from exploration to mining: 12-15 years

Australia Botswana Russia DRC0%

5%

10%

15%

20%

25%

Mesured by Volume

Botswana Russia South Africa Angola0%

5%

10%

15%

20%

25%

30%

Measured by Value

Source: Porter, Marciano, Wathurst (2009)

Rough sortingRough sorting Stones are sorted based on several factors or characteristics:

shape, size, clarity, color and ability to cut In 2000, De Beers more than 50% of the world’s rough

diamonds Sold onto the secondary markets (Antwerp)

Distribution The Diamond Trading company is the main distributor on the

market As of 2000, 23 non-profit worldwide diamond bourses

Processing, Grading, Jewelry Processing• Involves cleaving, cutting and polishing • The processing stage takes place in 30 countries around the world

• 4 leading locations; Antwerp, Mumbai, Tel Aviv and New York • Antwerp has a work force of 2000 people and is considered as the leading cutting

location in the world, measured in both value and volume• India is catching up

Grading• Gemological Institute of America, grades finished stones before they are put

into pieces of jewelry Jewelry Manufacturing

• USA 40%, Japan 15% & India 5% Retailing

• In 2000, 200,000 diamond jewelry retail outlets worldwide

Current Situation Diamond in 2007

– 8% of Flanders' exports and 5% of Belgium’s exports value– Antwerp accounted for 80% of worldwide trade of rough

diamonds Economic recession affected the cluster

– Relocation to cheaper labour-costs markets (since 1970s lost of 25.000 jobs)

– Decrease in Exports of polished and rough diamonds:

Source: Antwerp World Diamond Centre, Federal Public Service. (2002, October 08). Minister Neyts : Keeping Antwerp at a Cutting Edge, Speech at the 2002 Antwerp Diamond Conference, 8th October 2002, Provinciehuis, Antwerp.

Situation in 2009 Fall in demand for uncut diamond of 50% Reduction of stocks by wholesalers Belgian government is very committed in

regenerating the diamond industry Flemish government might spend €200 million as a

guarantee for banks July 2009: trading volume had already recovered 50%

of its value in rough and polished diamonds

Source: Antwerp World Diamond Centre, Certified Gems. The Antwerp Diamond Market, BMO Capital Market. Retail demand for diamond jewelry and forecast growth.

Cluster Map

30.000 people are directly or indirectly employed in the Belgian

diamond sector

Antwerp’s Cluster Diamond

Factor ConditionsStrengths • Available infrastructure• Antwerp’s ports• Antwerp’s district• High-skilled workforce• 30 000 workers• Antwerp Diamond High Council• Education - Diamonds schools, training

programs and workshops• Antwerp Diamond Bank• The Antwerp World Diamond Centre• Diamond Office• The Antwerp World Diamond Center -

certificate body, most important grading laboratory

– The Scientific Research Centre for Diamonds (WTCOD)

– The Condiam – technologies supplier– The Institute of Gemology– Precious Stones Laboratory– Gem Defence Initiative

Weaknesses• One of the highest labor costs per Carat• India undercutting labor cost advantage• Regular immigration leading to social and

structural changes

Labor cost (US$) per carat

Related and Supporting Industries Security cluster Transportation cluster

– The Port of Antwerp – 2nd largest in Europe and 7th largest in the World - permitting trade – freight volume: 157,8 million tones

– Shipping: 200 forwarding companies Tourism cluster

– The Antwerp Diamond Museum– The Diamond Land – Diamond Showroom welcoming over

120 000 visitors each year – collaboration with the city of Antwerp, the Diamond High Council, the Belgian Tourist Federation, The Provincial authorities, the Chamber of Commerce

Specialized banks cluster

Demand

Strengths Strong base Sophisticated Well informed Experienced Creation of a Marketing

Department within the Diamond High Council to organize trade shows, biennial Diamond Award to push competition

Weaknesses Negative effects of the

crisis leading to decrease of exports and imports of polished and uncut diamonds

Context for Firm’s Strategy & RivalryStrengths• Correspondence office for the diamond industry (COFDI)• Collaboration between COFDI and De Beers• The Belgian government has created incentives to attract new labor force• + Fiscal detraction and financial facilities• The Diamond Office implemented a nominal levy on imports and exports• The Antwerp Diamond Conference • The Antwerp Diamond Exchange – Center of the trade in diamond

(Diamond Bourses)• World Diamond Congress – discussion about specific industries issues

Weaknesses• Increasing worldwide and national competition• Emergence of new trading centers• Family businesses and close network

Global IssuesSupply-side• Cutters & Polishers issues

– Low margins– Demand shift– Cash up front for rough gems

• Blood Diamonds– Traffic inside the European

Union • De Beers troubles

– Negative cash flows for 3 years

– Facing increasing competition

Demand-side• US credit crisis

– Most important market – Companies are applying hard

discounts => change in customer behavior now looking for the lowest price

• Indian power rising– Producing second category

diamonds – But, mines are depleted so

India is specializing in processing

• Chinese Demand Rise – Follow the GDP per capita– Follow Chinese tastes for

traditions

National Recommendations

What? Why? How? Who? Promote restrictions on blood diamond traffic at a higher level (Europe) Allocate more resources for cluster development and implement strategic communication between all actors involved in the cluster

Encourage private investment in education and research institutions to enhance innovation capabilities

-Still too many blood diamonds coming from other European members states (other members are not differentiating them)

- Closed cluster no rivalry = no development- Need for investments and innovation - Need for opening, the cluster is still too focused on Family Business Development(Jews & Jain families)

- Enhance competitiveness through greater competitive advantage (especially versus )

- Proposal to the European Commission -Diamond Council?

- Incentives-Federal and Regional Governments

- Use high expertise and legacy in innovation development and know-how

National Recommendations

What? Why? How? Who? Participate in more European cluster initiatives

Simplify the paying of taxes Improve government finances over the long run

Diminish complexity of overall business environment in in terms of time and costs

- Limit the negative impact of the shift of global competitiveness towards - Consolidate leading Belgian industries further-Enhance cluster economic performance

- Attract small and medium business willing to establish themselves in -Re-launch a phase of attractiveness of workers to the country, hence improving productivity

- Facilitate dispute resolution, both for individuals and companies - Encourage trade and therefore economic activity - Facilitate the arrival of new businesses and accelerate and simplify the functioning of financial markets

- Develop partnerships with , as currently being undertaken within the logistics cluster

- Federal and regional government coordination -Deep structural reform of the tax system: equilibrate tax levels in the country and harmonize regional budgets

- Simplify legal procedures of contract enforcement and credit acquisition - Reduce costs of trade across borders (align to neighbouring countries), through more public-private cooperation - Federal government and private institutions

Cluster Recommendations

Secure rough supply (through diversification)

Promote diamonds as investment source

Vertical Integration (partnerships with Indian Mines)

Portfolio & revenue diversification

Institutions pull and efficient cluster competitiveness strategy

- Ensure sustainability of the value chain - Shortage of rough diamonds-Cutters and polishers’ dependency on supply

-Generate cash inflows from customers to banks going directly to the Cutters and Polishers (who need cash)

- Lower the costs - Create new opportunities -Foster innovation

- Partners & clients -Banks and shareholders

- No communication between firms and IFCs - No specific strategy to pull the cluster - Not enough participation from institutions

- Increasing direct purchasingfrom mines to further reducedependency on the DTC-Federal government & firms

- Banks campaign on cluster & investment practices thanks to government incentives-Specialized Banking Sector in

-New ventures for delivery or in processing (Indians want know-how and knowledge transfers); actors: firms

-Marketing incentives (need for awareness and attractiveness)

- Create equal opportunities for all firms - Coordination of training and management Programs

What? Why? How? Who?

Thank Your for Your Attention !

Any Questions?

Sources for Antwerp’s Diamond Cluster• Antwerp Diamond Bank. (s.d.). History. February 12, 2010, on Antwerp Diamond Bank:

https://www.antwerpdiamondbank.com/index.php/ADB_en/profile/• Antwerp World Diamond Centre. (s.d.). AWDC - Home Page. February 13, 2010, on Antwerp World Diamond Centre:

http://www.awdc.be/• Antwerp World Diamond Centre. (s.d.). History. March 04, 2010, on Antwerp World Diamond Centre:

http://www.awdc.be/history-awdc• BMO Capital Market. Retail demand for diamond jewelry and forecast growth.

http://www.diamondsnorthresources.com/i/misc/2008_DiamondValues.gif • Beurs voor Diamanthandel. (s.d.). Home Page. February 18, 2010, on Beurs voor Diamanthandel:

http://www.diamondbourseantwerp.com/• Certified Gems. (s.d.). The Antwerp Diamond Market. February 20, 2010, on Certified Gems:

http://www.certified-gems.com/Antdiamondsmarket.htm• City of Antwerp. (s.d.). Diamond Museum Province of Antwerp. February 23, 2010, on City of Antwerp:

http://www.antwerpen.be/eCache/BEN/16/455.cmVjPTQzNDU.html• Diamonds.net. (s.d.). Home Page. March 01, 2010, on Diamonds.net:

http://www.diamonds.net/Default.aspx?LoginOutSet=LoginOutSet• DiamantClub. (s.d.). Home Page. March 02, 2010, on DiamantClub: http://www.diamantclub.be/• Diamantkring. (s.d.). Home Page. March 01, 2010, on Diamantkring: http://www.diamantkring.org/• Diamond-key. (s.d.). Keyguide. February 13, 2010, on Diamond-key: http://www.diamond-key.com/• DiamondLand. (s.d.). Antwerp Diamonds. February 10, 2010, on DiamondLand: http://www.diamondland.be/• Henn, S. (2010). Indian Diamond Dealers in Antwerp. • Henn, S., & Laureys, E. (2010). Bridging Ruptures. • Port of Antwerp. (s.d.). Home Page. March 02, 2010, on Port of Antwerp: http://www.portofantwerp.com/#0