Israel created a niche in the market with precision-cut emerald. Photo courtesy Stargate Cyber Trading.

Despite Politics, Israel Drives On
By Ya'akov Almor

RAMAT GAN, ISRAEL — Try as it may, the gem industry can't keep completely free of politics.

It is a reality of which the Israel colored gemstone center is only too well aware. The local gemstone business developed in a region that has long been a victim of political turmoil and terrorist violence.

The situation has its ups and downs, with the past several months being among the less pleasant in recent memory. The conflict on the West Bank and the Gaza strip and a string of suicide bombings in Israeli cities have kept many buyers out of the country. A travel warning to the region issued by the U.S. State Department certainly did not help.

"For Israeli gemstone traders, it is an unfortunate situation to be in," said Avraham Eshed, president of the Israel Emerald Cutters Association, an organization that unites the top 15 companies that cut and trade colored gemstones in Israel. "The state of Israel would rather like to be perceived as a tranquil and placid place. Peace is certainly our most ardent hope for the future."

Eshed, who is also the owner of one of Israel's largest emerald manufacturing and trading companies, spoke to Colored Stone in his office in the Ramat Gan diamond exchange complex. Visitors to the area would be unlikely to discover any overt signs of what they are seeing on their television screens. That is part of the tragedy, Eshed states. To the television viewer, what he or she sees represents the whole reality. The fact that more than 99 percent of people are going about their regular daily routine is immaterial.

"The current hostilities in the Palestinian towns or the now-sporadic suicide bombings have done nothing to affect our industry. The fact is that we are working as we always have. It is business as usual," he stated.

For Israeli gemstone companies, the absence of buyers in their offices is nothing new. "Clients stopped coming as they once had about a decade ago. As a result, we began serving them with goods in their own offices," he said.

1991: Involuntary Quarantine
In mid-January 1991, with the outbreak of the Gulf War imminent, all foreign airlines suspended their flights to and from Israel, fearing that Israel would be attacked by Iraq. This left only Israel's national carrier, El Al, to service international travelers.

A victim of involuntary economic quarantine, Israeli diamond and gemstone dealers immediately understood that their buyers — Americans, Asians, and Europeans — would not be knocking on their doors for at least several months. As a result, they began to travel, goods in hand, visiting their clients on their home turf.

"Only a few months later, when the Gulf War was over, it was impossible to turn back the clock," noted Emmanuel Shalev, a principal of Hanoch Stark and Co., who currently serves as the International Colored Gemstone Association (ICA) Ambassador to Israel. Shalev's company provides high-quality African emerald, sapphire, and ruby to clients in Japan, Hong Kong, the United States, and Europe.

"Our clients quickly became accustomed to the luxury of working with us in their own offices, and were quite happy to work with our salespeople, who made the trip overseas," Shalev said. "This was particularly the case in the American market, but also was evident with our Asian and European clients."

According to Eshed, "Sales staff who try to sell goods in the buyers' own offices stand at a relative disadvantage. The buyer feels he can squeeze the sales representatives, because he knows the salespeople are under pressure to come back home with results. That is not a good formula for obtaining a good price."

Reacting in Cyberspace While Israel-based colored gemstone manufacturers and dealers have long since shifted their sales activities onto their clients' turf, for Israeli gemstone sellers operating on the Internet, things look rather different. Stargate's Avi Ben Yair inspects a gem for sale. Photo by Ya'akov Almor. One of the veteran online companies in Israel which offers diamonds and colored gemstones for sale to the public is Stargate Cyber Trading (www.stargate.co.il). Since its establishment in 1998, the company, which is owned and operated by a pair of Dutch-born twins, Avi and Peled Ben Yair, has built an international clientele for gemstones of all types. Have the conflicts in the Palestinian territories and the terrorist attacks within Israel's borders had a negative influence on Stargate's business results? Certainly, says Avi. "The Internet is all about perception or, to be more specific, about two-dimensional impressions. "When it comes to marketing colored stones from business to consumer, we feel we're doing a good job. But there are factors we cannot control. Unjustly and unfairly in our opinion, Israel has often been depicted in the media as a villain. This is extremely prevalent in Europe," Avi said. "On our site, whoever logs on knows he is looking at an Israeli Web site," he continued. "During the past year or so, we saw a significant drop in visitors, and consequently purchases, from Europe." But buyers from the United States, Avi noted, have behaved differently. "The past few months have been very good for us, as the client base from the United States grew exponentially compared to the dwindling European market," he said. "Possibly it was the result of having been subject to a terrorist attack that shook the foundations of its society, but the Americans' identification with Israel is much stronger." — YA

But the Israelis have never been people to give up easily. "To overcome the disadvantages that result from the security situation in which we operate, we realized that we now needed to improve the products we sell," Eshed said.

Eshed contends that the Gulf War has been responsible for a dramatic change in the Israeli emerald industry's product range. Because sales were being made long-distance, Israeli goods had to conform to a clear market perception — they almost needed to sell themselves. Consequently, Israeli manufacturers began cutting goods that invariably had a high degree of clarity, were of an even, attractive color, and were of calibrated sizes — a once unthinkable concept in the industry.

"Our cutters will lose as much as they need to create a clean, well-shaped stone of an even color — in other words, a salable stone," Eshed stated. "And, while in the beginning we were very worried about the significantly lower yield from expensive rough material, we soon began to notice the advantages, too. For example, we suddenly were able to match pairs of stones and create sets for necklaces. These combinations are now a regular feature of our inventories."

Because of these adaptations, Israeli gem cutting houses are able to weather the ups and downs of local politics with ease — but they still aren't immune to international politics.

Said Shalev, "During 2000 and 2001, we noticed a remarkable revival of the emerald market, and finally we all started to breathe more easily. Then came September 11 and the emerald market crashed through the floor. The violence in our region actually has had no effect on our industry's performance. Ironically, the only terrorist act that really impacted Israel's emerald sales and exports were the attacks on New York's World Trade Center and the Pentagon in Washington."

The good news is that the effects of any particular political event are generally temporary. Even if the political environment changes forever, the industry adapts to cope with the demands of the situation in which it finds itself.

Shalev emphasized that while the Far Eastern and American markets have been slow in general, Israeli companies like his have been successful in growing niche businesses. For instance, the Stark company has captured a significant international market share in producing small, high-quality, diamond-cut, round colored gemstones. "We're always a step ahead, and therein lies our industry's strength," Shalev said.