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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 Economy Automotive •4th largest Belgian industry Chemicals •€30 bn turnover (1/5th Belgium) Diamond Cutting •22% of world exports Food Processing •4% of total European added Iron and Steel •€3.6 bn (2006) in value-added Logistics •9th “Logistics Performance Index” (World Bank) Sources: Févia (2010), Lagneaux and Vivet (2009), Institute for Strategy and Competitiveness (2007), Logistics of Wallonia (2010), Global Finance (2010), Index Mundi (2008) Main Exports Commodities Machinery and equipment, chemicals, diamonds, metals and metal products, foodstuffs Main Imports Commodities Machinery and equipment, chemicals, diamonds, pharmaceuticals, foodstuffs, transportation equipment, oil products Partners Germany, France, Netherlands, UK, US + China for imports Agriculture 0,8% Services 76,1% Industry 23,1% Demographic Indicators 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 Federal Government Spending (million) Social Protection Education Health Economic Affairs 2001 Innovation Patents •Average 371 yearly between 2000 and 2006 Technology Achievement Index (2001) •0.55 •Before USA and Japan Sources: UNDP (2001), OECD (2009), The World Factbook (2010) 2008 Public Order and Safety Defence General Public Services 0,00 € 20 000,00 € 40 000,00 € 60 000,00 € Source: National Bank of Belgium, 2010 Economic Performance Indicators Real GDP Growth Economic 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% 5,00% 4,00% 3,00% 2,00% 1,00% 0,00% -1,00% 2000 2004 2005 2006 2007 2008e 2009e -2,00% -3,00% -4,00% Sources: The World Factbook (2010), World Economic Forum (2009), The World Bank (2009), Global Competitiveness Report (2010) Competitiveness Analysis + Institutions Belgium = 24 ; France 26 Macroeconomic Stability Belgium = 56 ; France = 58 Health and Primary Education 1. Basic Requirements Infrastructure Belgium = 18 ; France = 4 Health and Primary Education Belgium = 3 ; France = 11 2. Efficiency Enhancers Labor Market Efficiency Belgium = 44 ; France = 67 Higher Education and Financial Market Training Sophistication Belgium = 8 ; France = 15 Belgium = 25 ; France = 21 Goods Market Efficiency Technological Readiness Belgium = 13 ; France = 25 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 Belgium: 18th France: 16th Germany: 7th - Source: Global Competitiveness Report (2010) Productivity Labour input ICT capital Non-ICT capital Source: OECD (2007) Multi-factor productivity 7 6 5 4 3 2 1 0 -1 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 & Mining Exploration 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 Mesured by Volume Measured by Value 30% 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% Botswana Russia South Africa Angola Australia Botswana Russia DRC Source: Porter, Marciano, Wathurst (2009) Rough sorting Rough 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 Conditions Strengths • • • • • • • • • • • 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 Weaknesses Negative effects of the crisis leading to decrease of exports and imports of polished and uncut diamonds 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 Context for Firm’s Strategy & Rivalry Strengths • • • • • • • • 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 Issues Supply-side Demand-side • Cutters & Polishers issues • US credit crisis – 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 – 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 -Still too many blood diamonds coming from - Proposal to the European Commission on blood diamond other European members states (other -Diamond Council? traffic at a higher level members are not differentiating them) (Europe) Allocate more resources for cluster development and implement strategic communication between all actors involved in the cluster - Closed cluster no rivalry = no development - Incentives - Need for investments and innovation -Federal and Regional Governments - Need for opening, the cluster is still too focused on Family Business Development (Jews & Jain families) Encourage private - Enhance competitiveness through greater - Use high expertise and legacy in innovation investment in competitive advantage (especially versus ) development and know-how education and research institutions to enhance innovation capabilities National Recommendations What? Why? How? Who? Participate in more - Limit the negative impact of the shift of global competitiveness towards European cluster - Consolidate leading Belgian industries initiatives - Develop partnerships with , as currently being undertaken within the logistics cluster Simplify the paying - Attract small and medium business willing of taxes to establish themselves in -Re-launch a phase of attractiveness of Improve government finances workers to the country, hence improving productivity over the long run - Federal and regional government coordination -Deep structural reform of the tax system: equilibrate tax levels in the country and harmonize regional budgets Diminish complexity of overall business environment in in terms of time and costs - 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 further -Enhance cluster economic performance - 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 Cluster Recommendations What? Why? How? Who? Secure rough supply (through diversification) - Ensure sustainability of the value chain - Increasing direct purchasing - Shortage of rough diamonds from mines to further reduce -Cutters and polishers’ dependency on supply dependency on the DTC -Federal government & firms Promote diamonds as investment source -Generate cash inflows from customers to banks going directly to the Cutters and Polishers (who need cash) - Banks campaign on cluster & investment practices thanks to government incentives -Specialized Banking Sector in Vertical Integration (partnerships with Indian Mines) - Lower the costs - Create new opportunities -Foster innovation -New ventures for delivery or in processing (Indians want know-how and knowledge transfers); actors: firms Portfolio & revenue diversification - Partners & clients -Banks and shareholders -Marketing incentives (need for awareness and attractiveness) Institutions pull and efficient cluster competitiveness strategy - No communication between firms and IFCs - Create equal opportunities for all firms - No specific strategy to pull the cluster - Coordination of training and management - Not enough participation from institutions Programs 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.certifiedgems.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