Tipping Points and the Diamond Industry

Following the release of the book The Tipping Point: how little things can make a big difference by Malcolm Gladwell a number of years ago, discussions about tipping Points became all the rage. A tipping point, he wrote, was "the moment of critical mass, the threshold, the boiling point". The moment a virus reaches critical mass, and turns from a manageable infectious disease into a full-blown epidemic, for example, as we saw with the ebola outbreak in Western Africa a couple of years ago.

Tipping points, of course, happen in all areas of human activity. In politics and warfare, mighty empires, which first are attacked at the edges, eventually crumble as confidence grows among the rebels that they can defeat the Emperor. And when that critical moment is reached, their days are numbered.

Similarly, in business, companies that once were mighty see their products lose relevance as leaner newcomers produce improved versions. Sales fall and the company joins the many other former giants in their field. Who would have thought a generation ago, for example, that we would ever stop needing Eastman Kodak films for our cameras?

And in sport, the cycles of rise, decline and fall are also well known. Britain gave the world, and particularly the countries that were once part of its huge empire, four great sports: soccer, rugby, cricket and tennis. Today, it finds itself practically without any winners in those sports, and well down on the international list of rankings. And why do teams in all sports at every level that have dominated for so long start a long decline at a certain point and new teams rise and spend a generation at the top before also declining?

In the diamond business, too, companies rise and fall. And the role of national diamond industries also undergoes change. Countries that once led the way in diamond polishing, such as Israel and Belgium, are now trading centers whose manufacturing facilities have largely disappeared. In their place, over the past generation or so, manufacturing industries have grown in low-cost labor centers such as Thailand, India, China and Vietnam. But as costs rise in those countries, too, where will manufacturers move their operations? Could Cambodia, Laos and Mongolia be next?

Meanwhile, African countries, for so long regarded as simply a source of rough diamonds, have been able, over the past decade, to leverage their resource base to force foreign diamond manufacturers to establish plants in their countries in order to guarantee supplies of rough goods. Think of Botswana and Namibia, for example, in forcing mining giant De Beers to make critical concessions. Is this a tipping point? Has the polarity of the diamond business shifted from north to south?

From its own more narrow perspective, De Beers does appear to have passed a tipping point. Where the company accounted, just 20 years ago, for more than 80 percent of global rough output, that figure has fallen, according to the company, to about 35 percent. Unable to afford the large-scale investments needed to lengthen the lifespan of its smaller mines, it sold them off to junior miners. The first and most famous diamond miner has been overtaken in volume terms by Russia's Alrosa.

A diamond may be forever, but staying top of the pack is, it seems, a temporary phenomenon.