How does a diamond center which has no natural resources and an almost negligible manufacturing capacity manage to not only survive, but retain its position as a leading hub? The answer appears to be: find a highly specific niche and develop it. Needless to say, there is a more to it than that. It's also a question of constantly searching out new sources and finding manufacturing facilities that have both relatively low costs as well as highly skilled and reliable employees.

Many diamantaires in the Israel Diamond Exchange like to attribute it to what they describe as "Jewish brains", a sort of shorthand for the fact that Jews, after being persecuted and having to move every generation or two for 2,000 years, developed an ability to trade and to develop businesses off the cuff. "There is something in that, but as far as diamonds are concerned, it is too general," says Nissim Zuaretz, president of DN Diamonds which usually appears on the list of the Israel's top 20 polished diamond exporters.

"It's true that many Israelis, and Jewish people in general, like to say they have a sort of built-in or genetic ability to trade or to create something where others might not have seen the opportunity," says Zuaretz. "In the diamond trade, and especially now, when competition is so tough, you need to find an area where others are not working. What is the added value that you can bring? Can you develop and build a market share before others also spot the niche and try to enter it and provide competition?"

Zuaretz, whose company manufactures high-end larger diamonds from 1 to 30 carats in D-K colors and IF-SI clarity, says the firm's niche enables it to remain competitive. "We produce large diamonds, so the element of labor cost of is much smaller than for lower-end, small stones."

Giving an overview of the state of the markets, Dotan Meirov, Chief Operations Officer of MID Diamonds, one of Israel's largest exporters of polished diamonds, said: "In the market, everything is very specific in the sense that customers are looking for certain, precise items. Clients are coming to us with requests for specific items, not a broad range of goods as in the past. The problem is that profitability is declining."

The company produces all shapes and sizes from 0.10 carat to large stones of 10 carats and more.

"The US market is stable. We have not seen any special rise in activity in recent months, just a continuation of the situation of the past year or two. In China, there has been a slowdown and that affected us.

Dov Tannenbaum, a partner at Leo Schachter Diamonds, another major Israeli exporter of polished diamonds, also points to stability in the U.S. The company processes more than 500,000 carats of rough in Ramat Gan before distributing them to its factories around the world.

DN Diamonds manufactures diamonds in Israel and Belgium, while its main markets are the Far East, Europe, China and the United States. "We service a range of countries in the Far East, including Vietnam, Indonesia and Taiwan Zuaretz says. "As for the United States, I would say the American market is stable."

Zuaretz says the firm's main clients are diamond jewelry manufacturers, including some of the biggest names in the sector. He also sells to investors looking to put their money in diamonds in a bid to diversify out of financial instruments such as stocks and bonds.

It is no secret that prices of rough diamonds increased strongly in the years up to 2018 and that has led to a major slowdown in buying this year, with De Beers and Alrosa supplying fewer goods and De Beers has allowed its clients to defer purchases.

"There is still a large degree of uncertainty in the market," said Meirov. "There is uncertainty all the time; people are constantly concerned about what is around the corner."

Tannenbaum agrees, saying: "The fact that rough prices rose too far and too fast creates uncertainty because now people are worried that prices will fall back and they will be stuck with expensive stock. I hope that we as a company and that the industry as a whole learned the lessons of the past. We live in a world of change. You have to be nimble and quick to adapt to changing circumstances. We keep our inventory low and turnover fast. That is our 'hedge' against change."

Israeli diamantaires are successful because they are excellent at finding a niche and developing it," explains Dotan Meirov. "They always look at what other centers are doing and go for a different part of the market that others are not doing. For example, where the Indians are experts at small diamonds and commercial goods, Israeli firms went into high-end large diamonds. There is a lot of intelligence here.

"We do a lot of marketing via the Internet in a precise way. We exhibit at the major shows, and take part in tradeshows. We know how to market ourselves well. We understand what the jewelry retailers want. We opened offices in every continent, and that allows us to speak the local language – that also means to understand the local ways of doing business and ways of operating. Every market has its different culture and it is critical to understand that. You have to know what appeals to people in that specific market and not come with your opinions and tastes. We regard our markets as being everywhere, but particularly the United States, China, Russia and Europe."

What gives us our edge in Israel? Jewish diamantaires tend to be in big goods where the Indians are in smaller items. They did not stay in small diamonds when the Indians moved in. They looked for a different area in which they could leverage their expertise in polishing and producing a larger yield.

Meanwhile, Tannenbaum says: "It might sound like a cliché, but we believe in thinking globally and acting locally. We have factories in Israel, Thailand, India and Botswana, and we have offices in all the main centers. If it makes sense to manufacture certain goods at a particular center, then that is what we do. We are very conscious of keeping costs in check. Essentially, we leverage our company advantages.

"Our diamond branding efforts are very strong with the diamond cuts that we produce. We believe we have the best marketing team in the industry. This helps bring retailers to us. They ask us for our assistance in solving their problems and that enables us to bring effective solutions to our retail partners." The company's diamond cuts include the Leo Diamond, the Elexese, the Legacy, and the Ashoka. Its main market is the United States, with Hong Kong and China in second place, followed by Europe and the Middle East.

It has been the stated aim of many presidents of the Israel Diamond Exchange (IDE) in the last two decades or so to bring about steps that will allow the country to recreate its once powerful diamond manufacturing capacity. From the 1950s until around 20 years ago, Israel had a significant diamond polishing workforce. Veteran diamantaires estimate that around 20,000 workers were employed in cutting and polishing. Nowadays, that figure is only around 300, according to unofficial estimates.

With the increase in the size of the Indian diamond polishing center, followed by other low-cost centers in Asia, the feasibility of an Israeli polishing hub declined rapidly, as happened in Belgium. Now, however, IDE officials, led by bourse president Yoram Dvash, believe they have come up with a plan to once again create a financially viable polishing capability.

The IDE has established a modern manufacturing center. The center is based in the Israeli bourse and also includes a diamond polishing school for the training of polishers. Israeli diamantaires who manufacture diamonds at the new center use the latest technological equipment, have access to skilled gemologists, top-level professional consulting, and other benefits to be.

Essentially, manufacturers will have the opportunity to employ younger polishers at a lower price than they currently pay since the project is being funded by the IDE and the Israel Diamond Institute. The target is clear: bringing manufacturing back to Israel. A diamond center cannot be based purely on trading; it must have a manufacturing base, too, the IDE has said.

Israeli diamond companies look east and west in testing times

Given the strong historic ties between the Israeli diamond industry and the U.S. diamond and jewelry businesses, it was no secret that for several decades Israeli diamantaires mainly looked to the United States as an export destination. That declined, however, from late 2008 onwards as the U.S. financial crisis had an immediate impact on diamond jewelry sales, although exports started rising again several years later.

Although many Israeli diamond firms had already taken their first steps in what was regarded as the infinitely more difficult, but potentially more lucrative, Chinese market the almost immediate decline in demand from the United States led many others to look east to the expanding economic superpower. Although known for their willingness to take a chance in expanding into new markets, Israeli firms soon learned, however, that simply jumping into the Chinese market was not an option, and that adapting to local cultural norms was required.

"Israeli businesspeople are known for their daring," explained one diamond company head at the Ramat Gan diamond exchange. "They will jump into a new market where other nationalities will take their time to study it and evaluate its possibilities. Many of us soon discovered that unlike our other markets in the United States and Europe, this was a completely different state of affairs.

"The typical Israeli directness goes against the grain in the East. As Israelis, we look for fast results and agreements, while in China we found there was a need for a longer courtship and many discussions before decisions could be reached. We are not used to this because we took it for granted that our expertise and knowledge, and our billions of dollars of polished exports annually would get us past the issue of us being 'strangers'. We quickly learned that this was not the case. In many ways, however, this was a blessing because it forced us to learn all about Chinese business methods and consumer requirements and how to market diamonds in a totally new environment."

Another diamond company head said that even what is regarded as a standard procedure in Israel and other diamond centers – the installation of cameras in the new office in China – was regarded as a cultural slight. "'If you do not trust me, then we cannot work together', I was told in very clear terms."

One of the leading Israeli diamond companies operating in China in the fancy diamond sector is Dalumi Diamonds which manufactures jewelry using fancy white diamonds and fancy yellow stones. It has been operating in the Asian market since 1995, when the company opened an office in Hong Kong, and Dalumi says it is one of the leading Israeli and global players in the market, as well as one of the first Israeli diamond firms to register as a member of the Shanghai Diamond Exchange.

Managing Director Vered Dalumi Yitzhaki explained that the firm produces collections featuring 50 pieces costing from $3,000 to $50,000. "We receive an excellent response from Chinese consumers to the fancy shape jewelry because it has lower prices than jewelry set with round diamonds and because it allows us to create more variations.

"In Chinese department stores, the diamond jewelry on offer looks very similar. That is why we pay special attention to design. That is how we create a breakthrough to consumers, by creating our special collections. The Asian market has many self-purchasers, so one-of-a-kind jewelry is very important. Women do not want to see the same jewelry items being worn by many other women. We launch four collections every year to fit the season. This enables us to offer many new items and out retail partners are able to present fresh new jewelry designs and trays to keep consumer interest high, and that also makes it easier to sell the jewelry. Consumers are looking for new and innovative jewelry. Jewelry set with round diamonds is always fairly similar, but with fancy shapes you can do many new things. In Asia, the look and design and the sparkle are critical elements for consumers. And because we have access to fancy shape stones of many sizes and types, we are able to create lots of unique jewelry items."

She said that fancy yellow diamonds are very popular in 0.5-5.0 carat sizes. "Demand is growing every year, and 1-2 carat stones are strongest. In white fancy shapes, SI to I1 diamonds, the commercial colors, are the best-selling items."

There is no doubt that China is a difficult market for Israeli firms from several points of view, including bureaucracy and culture, but it is an important one. In the American market, they take the goods, take a flight, drive into New York and start selling. In China, they face complicated regulations and paperwork even for relatively simple tasks such as changing money. Many Israeli diamond company employees only last two or three years in China, then they want to return home."

Former IDE President Shmuel Schnitzer, CEO and Chairman of S. Schnitzer Diamonds Ltd, said that although the Chinese market still prefers round goods, about 20 percent of the diamonds that the firm supplies to China are fancy shape, particularly princess, pear, marquise and emerald shapes in D-H color and VVS-VS clarity. "We have found that the diamonds must be of very high make. You cannot sell diamonds to China that are not well made. Customers may be willing to compromise on color but not on clarity.

"China is a very conservative diamond market which changes very gradually. You do not see the fast changes that you see in the U.S. market. However, China copies the United States in many aspects, so we may see it copying the strong U.S. demand for fancies. But you need patience in explaining the advantages and attractions of fancy shapes. We work with companies in China and Hong Kong who explain to potential clients the different jewelry designs that are possible by using fancy shapes."

Meanwhile, Dalumi's Yitzhaki explains that the company, which partners with retailers in Hong Kong and Taiwan, as well as China, has a presence not just in the largest cities in China, but also in tier three and four cities where it works with a wide range of retailers. "We are continuously looking to 're-penetrate' the country with our new designs and offerings. We find that in the main cities, consumers are looking for specific designs, while in tier three and four cities, the diamond itself must speak very strongly and the design can be less sophisticated. Meanwhile, the coastal cities are very much influenced by what is happening in Hong Kong."