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Multinational Corporations
Term 5
Submitted by Group 5
Parvathi Nair 2011038
Rahul B Venu 2011290
Vishal Rathod 2011498
Amal S 2011502
Thea Mauro 20X4003
29-Sept-21
1. How would you explain the structure of relatively small, family-operated trading
companies in Antwerp, and more generally, in trading and cutting centers around the
globe? (10 points)
Antwerp has been recognized for centuries as the center of the diamond industry worldwide.
Indeed, after the colonization of diamond-rich Congo, the city could count on the Congo
connection which secured procurement of raw materials by the colonizers, that could be easily
moved across different locations given the city’s proximity to ports.
The geographic dispersion of the diamond industry supply chain or “pipeline”, the vast
variation in the types of diamonds and the subjective nature of the quality of diamonds
cemented Antwerp’s position as a crucial distribution center. This can be explained by the path
dependency observed in the Antwerp diamond business in terms of the value addition for
sorting, aggregation of stones and as a source of finance, along with the unique advantages
offered by the ‘Single Port of Entry’ at Antwerp.
Antwerp, being Belgium’s biggest port and strategically located in the heart of Europe, has
earned its title as the capital of the world’s diamond business since the 15th century and has
been able to maintain such a role thanks to its peculiar industrial structure. The success of the
city can be observed in its thousands (today 1500) small and medium diamond companies
which are headquartered and gathered there, an established ecosystem entirely devoted to
diamonds from cutting to polishing and trading.
The structure of the small and family-owned trading companies, a recurring format in the
trading and cutting centers around the world was initially developed in Antwerp, which was in
accordance with the European norms of that time as firms were perceived as heritage
businesses and passed on from generations. This historical tendency is particularly suited to
the diamond industry, since this specific business demands personal attention and trust,
therefore the family setting and the traditions carefully guarded across generations are the
heritage resources required to run it profitably.
The traditionally dominant position of Antwerp as a leader in the diamond polishing industry
was taken over by India due to the availability of cheap skilled labor with almost 90% of the
global diamond cutters resided in India. But, interestingly, the main competitors from the
Indian diamond industry have also adopted a family-based structure, with closely guarded skill
& expertise and a network of family members established in the main trading centers of
Mumbai, Antwerp and Shanghai as adopted by the Palanpuri family.
Antwerp which served as an aggregator and sourcing center provides an example of how small
family-run businesses are suitable to connect the entire pipeline of the diamond industry.
Antwerp’s diamond business can be characterized by the different functions it performs –
cutting & polishing, accreditation, financing etc. with most organizations being small privately
owned with many of them being family organizations passed on through generations, managed
by one owner with a skeletal support staff. The familial nature of firms assured personal
attention and trust which are critical for these firms to flourish. In addition, these firms
preferred internal policing over formal law enforcement and relied on the diamond exchanges
for addressing various concerns, which was favored by the other stakeholders in this sector
traditionally. The autonomy and discretion assured by these small firms goes a long way in
ensuring that they remain small.
2. Going forward, what should the strategy of Antwerp’s traders and of their umbrella
organization, the HRD, be in light of the future challenges that are mentioned in the
case? (10 points)
Antwerp’s geographical advantage (port located at the heart of Europe) and colonization of
diamond rich Congo made the city the diamond capital of the world in the 1800s. However,
since then, Belgium has slowly lost its position at the top as the world’s premier diamond
cutting and polishing centre, due to the outsourcing of these labour-intensive activities to
countries like India, China, Thailand, and Sri Lanka, where cheap skilled labour was widely
available.
However, efforts have been made to retain its leadership as a distribution hub to the world.
Antwerp received a concession from the European commission – its diamond industry was
considered “zero-tax” for VAT, hence exports from EU were routed through Antwerp.
Moreover, the Diamond High Council (HRD) worked with the Belgian government to bring in
the ‘single port-of entry’ system, with all diamonds moving in or out of Belgium going through
Antwerp, which made trade hassle-free avoiding multiple random checks and controlled money
laundering with diamonds.
Despite this, new trading centres have emerged across the world, and Dubai has been
increasingly giving Antwerp competition with attractive tax breaks and heavy promotion.
To fight these challenges, Antwerp trader’s and HRD can adopt the following strategies:
1. Increasing presence in the emerging markets: As of January 2021, India’s gold and
diamond trade industry accounted for approximately 7.5% of India’s GDP and roughly
14% of its total merchandise exports. With over 50% of India’s jewellery industry falling
in the unorganized sector, there has been a significant legislative push by the Government
to boost this sector. The Government has permitted 100% FDI in the sector under the
automatic route, wherein the foreign investor or the Indian company do not require any
prior approvals from the RBI [11]. Thus, Antwerp’s traders can increase its presence in these
markets through mergers and acquisitions or entering partnerships with established
families like the Palanpuris.
2. Automation: Cutting and polishing activities are labour intensive processes, and hence
was outsourced to India due to cheap skilled labour being available there. Antwerp can
regain its dominant position by turning towards automation. Emerging technologies like
Image processing (to more accurately rate diamonds in less time), precision manufacturing,
Robotic Process Automation (rule-based algorithms to replicate simple human decision
making), online D2C platforms etc. can be explored and integrated.
3. Blockchain integration (process re-engineering): Universalising the Kimberley process
will help customers understand the quality of diamond they use, and trace its origins, thus
controlling the fake ones in the market. Blockchain technology, however, is more efficient
in keeping track of the diamond’s origins, and adoption of a digital supply chain across the
industry would facilitate smoother trading, eliminating intermediate checks and controls.
Antwerp’s traders can adopt the same to increase the legitimacy of their diamonds.
4. Emergence of synthetic diamonds: HRD can hedge the risk posed by the emergence of
synthetic diamonds by
a. Investing in technology to manufacture these diamonds in a cost-efficient manner
and licensing the technology for sale to other firms globally
b. Lobbying with the government to ensure that naturally occurring diamonds receive
a price premium as compared to synthetic diamonds and ensure apparent superiority
of naturally occurring diamonds over synthetic stones.
1
Gems and Jewellery Industry in India, IBEF, Sept. 2021, https://www.ibef.org/industry/gems-
jewellery-india.aspx,
5. Strategic Partnerships: To combat the negative impact of the association of conflict and
unethical practices with diamonds, the industry can consider strategic partnerships with
luxury fashion and entertainment industries to build on the aspirational and romantic brand
image of these stones, in addition to the tourism industry to leverage the historical and
cultural significance of the Antwerp diamond industry. Also, awareness campaigns to
highlight ethically sourced diamonds leveraging technology like Blockchain among the
new generation can help address the negative sentiments with the brand.