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The Indian Diamond Industry
(An Introduction)
1.1 Historical Significance
From time immemorial, India is very well known in the world as the birthplace for diamonds. It has remained the home of diamonds for over two millenniums. It is difficultto trace the origin of diamonds but history says, that in the remote past, diamonds weremined only in India. Diamond production in India can be traced back to almost 8thcentury B.C. India in fact, remained undisputed leader till 18th century when Brazilianfields were discovered in 1725 followed by emergence of South Africa, Russia andAustralia. World famous diamonds such as the
 Koh-i-noor, The Orloff, The Great Mogul,The Sancy Hope, Florentine, Nassak, Regent, Pitli and the Nizam
etc. were produces of India and many of these world famous diamonds were recovered from India in 16th &17th centuries. It is also said that, India was the sole producer and supplier of diamondsto the world before the discovery of Brazilian fields till the 17th century and the later emergence of South Africa, Russia and Australia, as major producers.The success story of the Indian diamond industry is unique. From humble beginnings,India rose to become the world leader in a span of just two decades. No other exportsegment of the country has such a significant share in the world market. It is rightly said,that India has indeed 'democratised' diamonds, which in the past were the exclusive preserve of only the rich and famous.
1.2: The success story of the Indian Diamond Industry
This achievement of the Indian diamond industry was possible only due to the fortuitouscombination of the manufacturing skills of the Indian workforce and the untiring andunflagging efforts of the Indian diamantaires, supported by progressive Government policies.But how did the Indian diamantaires get the diamonds? The answer to this query lies inthe business acumen and core competency of the early Indian diamantaires who migratedfrom small towns of Gujarat (specifically
 Palanpur 
in
Surat 
and other nearby areas) to
 Antwerpen
(in
 Belgium
) which was then the diamond hub of the world, a marketdominated by the orthodox
 Jews
of 
 Israel 
who claimed expertise in the cutting and processing of large diamonds (sized more than two carats, 1 carat =0.2 grams). Thevisionary Indian diamantaires started their trade with the cutting and manufacturing of diamonds of very small sizes, which nobody was ready to process (less than two carats,especially one carat and lesser) and gradually made it their core competency, a niche fieldin which no other country had the mastery in; and coupled with the lowest manufacturingand labour costs worldwide, India assumed greater market presence in the globaldiamond industry.This venture had a cascading effect both on India and on other countries; a great demandwas generated for the manufacture of smaller sized diamonds and also for the low costand high skilled labour that only India could provide. Seeing this, more and more Indian
 
traders migrated to Antwerp to make the most of this opportunity; and gradually Indiancompanies also started importing diamonds to India and exported the cut and polisheddiamonds to countries abroad, which then form a part of diamond jewellery.
Diamantaires processing diamondsgreater than 1 carat
10%40%30%20%IndiaBelgiumUSARest of World
 
Value Holding: Diamond Cutting
India 1.2 bnChina 0.1 bnIsrael 0.4 bnRussia 0.1 bnUSA 0.1bnS. Africa 0.1 bnThailand 0.1 bnOthers 0.2bnBelgium 0.1bn
 The above graph shows the break-up of the processing expertise of the major diamantaires, clearly showing the status of the Indian diamantaires, the Indian processingexpertise since then was in diamonds lesser than 1 carat (upto 7 pts, 7-29 pts and 30+ pts)and even today the Indian diamond traders are the global market leaders, with a rapidlyincreasing rate of exports (2004-05, US$ 15 bn).
1.3 Family Owned Business Enterprises (FOBE)
The area of study of family owned businesses derives its importance from the hugeconglomerate of family run organizations which operate in the diamond industry sincemany generations (not only in India, but all the diamond traders globally are family run businesses); the analysis of which would help to internalize the attributes that havehelped them achieve the stupendous growth.Family-owned businesses play a crucial role in the economy of most countries. Much of the retail trade, the small-scale industry, and the service sector is run by family businesses. Worldwide, family-managed businesses employ half the world's workforceand generate well over half the world's GDP. In the United States, 24 million family businesses employ 62 per cent of the workforce and account for 64 per cent of the GDP.In India, it is estimated that 95 per cent of the registered firms are family businesses.Some of the basic traits of family run business enterprises:
•
Spirit of entrepreneurship: Family businesses have done an excellent jobof keeping the spirit of enterprise alive especially through the 40 years of quasi-socialism with their commitment, integrity and aggression. The spiritsurvived onerous taxation and repeated government attempts to undosupposed 'concentration' of economic power. Today, as India competes in anincreasingly globalised economy, family businesses are playing a major rolein turning the engines of growth.
 
•
Trust lowers transaction costs: It is a well-documented fact that 'trust'lowers transaction costs, corruption, and bureaucracy. Trust can be a source of significant competitive advantage to a family business, the entire diamondindustry operates majorly on the basis of trust between suppliers, contractors, buyers and competitors
•
Small, nimble, and quick to react: Family businesses, both small and large,tend to be quick to react to threats as well as opportunities. There are fewer decision-making gates and constituencies to deal with. Very often, thesurvival of the family depends on the survival of the business. This results insharp and decisive action in the face of threats that could be potentially fatalfor the business.
•
Information as a source of advantage: Many family businesses are privateenterprises. This is an advantage since a private company can see the strengthsand weaknesses of its public competitor and act accordingly while theconverse is not true. Further, private companies can have private strategies towhich analysts and the competition are not privy. And, private family businesses have the freedom to pursue truly long-term strategies that are notconstrained by 'quarterly reporting'.
•
Philanthropy: Lastly, Indian family businesses have played a significantrole in giving back to the community. To the average Indian, names of largeIndian business groups are synonymous with philanthropic efforts ineducation, environment, health, culture, heritage conservation and upliftmentof people of their community. And it is not just the large groups that have been active; numerous foundations engaged in charitable work are supported by scores of small and medium family enterprises.However, continued success for the family businesses is not guaranteed; in order to prosper further, the family owned businesses would clearly need to improve on manyfronts:
•
Higher standards of corporate governance: Family businesses need toclearly distinguish between family interest and company interest. Goodcorporate governance in family business should promote the long-term goodof the company and not necessarily of the majority or minority stakeholders. Itis essential for family businesses to acknowledge the distinction betweenownership and management and above all; the perception of fairness shouldreign. There needs to be emphasis on attributes such as ethics, values, moralsand meritocracy.
•
Long-term, performance-focussed strategies: Family businesses tend to build 'long-term strategies' that assume that today's business model and assetsthat will not be valuable tomorrow. Long-term strategy means emphasis oncore competency, investing in technical capabilities, employees, R&D, brand building, and acquisition of customer knowledge, which are surely one of themost globally competitive parameters.
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