Ori Fluk is a third-generation Israeli diamantaire who founded Yoshfe Diamonds International (YDI) in 2009 together with his father Abraham. The company, which succeeded a previous partnership called Yahalomei Espeka International (YEI), is a manufacturer of medium-to-high quality round diamonds below 2 carats. RN recently spoke with Fluk about YDI’s operations and the state of the diamond market:

RN: How did you and your family enter the diamond industry?

OF: My family has been in the diamond industry for more than 65 years. Our connection to the industry began when my grandfather arrived in Israel as a refugee from war-torn Europe and found work in the local diamond trade. He progressed rapidly and soon enough became the owner of a polishing factory. Later on, as his business grew, he received a De Beers sight.

YDI began in 2009 after YEI was dissolved as my father and his partner went their separate ways. Our specialty has always been in small stones, including melee, while the polished diamonds we manufacture and sell are of high quality.

What distinguishes us from other companies is our very specific method of sorting diamonds and the high level of service we provide. We call our method "sortified," which is a key we developed to help our clients understand our inventory sorted by size, purity and color.

This combination of a good work ethic and precise and detailed sorting allows us to serve high-end clients, which today includes well-known companies in the Swiss watch industry, the French jewelry industry and some of the top jewelry manufacturers in the Far East.

I started out as a rough diamond buyer at YEI and eventually was responsible for all rough procurement and polished manufacturing activities in the company. After YDI was founded I became the CEO responsible for polished sales as well as rough buying and manufacturing. In effect, I am like the conductor of an orchestra who is responsible for ensuring that everything that goes on at the company works in harmony.

My father, Abraham, is the chairman. He is also involved in all aspects of the company’s operations but he tends to focus mainly on financials and strategy rather than day by day operation.

RN: What added value does YDI provide its customers?

OF: The best way to understand it is through an analogy with another high-end product like luxury cars. A car-maker such as Mercedes-Benz uses screws with very precise measurements in its manufacturing process.

Let’s say, the company pays its suppliers 10 cents per screw. A small supplier could go to Mercedes and offer it a dozen screws with slightly different diameters at 6 cents per screw, but it wouldn’t interest them. When Mercedes order screws, it orders 100,000 screws of one specific size and another 120,000 screws that are two millimeters thicker. The company needs a supplier which provides it with a steady supply of screws that meets its precise specifications in large volumes. Even if it was offered 17 screws at a cheaper price, it would not be worth its time.

This is also the case in diamonds, and perhaps even more so given the many variations and categories of diamonds that are available. If one tried to sell a mixed parcel of diamonds to a large jewelry manufacturer at a low price, with some clean diamonds and others that are not well-made, it wouldn’t interest them.

In order to specialize in supplying small-size diamonds to these companies, one must focus on polishing and sorting, and also raise enough capital to be able to produce polished in large quantities. If you want to stock 1,000 different categories of diamonds with at least 100 carats per category, that means you must hold inventory of 100,000 carats.

Traditionally, diamantaires would sort diamond parcels by clarity, separating them into three different categories or piles of eye-clean diamonds, mediums and low-quality. Then they would divide those piles into high and low colors, which would mean they now have very few diamond categories, and this is how they would sell them.

Today it doesn’t really work that way. Jewelers often request diamonds sorted by their diameter size. They might ask for diamonds between 2.80 millimeters and 2.85 millimeters in diameter, or between 2.80 millimeter and 2.90 millimeters in diameter. They are asking for sizes within the range of a tenth of a millimeter or less.

At YDI, we created a sorting system that meets our clients' desire for precise measurements tailored to their needs. We convert the usual diamond grades into numerical values using a simple system. We call our system "sortified" reminding customers that although our small goods are not certified they are "sortified."

RN: How have diamond manufacturers been faring in recent months as polished prices have declined?

OF: There is a problem in this industry which did not develop in the past couple of months or even the past couple of years.

The crux of the matter is that manufacturers are not earning sufficient profit for their work. Someone who invests time, effort and risk to produce a luxury good should receive a healthy return on their work. Moreover, a manufacturer like YDI, which provides a useful service along with their goods, should receive a premium on top of that return.

YDI has survived the downturn in polished prices because of the service we provide. However, the large diamond miners have priced their rough diamonds with the attitude that a very small profit of say 3 percent on turnover is sufficient for a company like ours which provides a product with value added services.

We have a niche which enables us to be alright. But I don’t think it should be like this. Everyone should have their heads above water even without a niche and whoever has found a niche and provides added value should do even better than the rest.

RN: Where do you manufacture your polished diamonds?

OF: Today, we do all of our manufacturing in China. We have three full-time workers in Israel who fix stones and handle special requests, but none of our manufacturing is done in Israel. For example, we’ve received orders from Switzerland asking us to remove the culet and that would have been done in Israel. But all the processing of rough takes place at our facilities in China.

We set up our first factory in China as YEI in 1994-95. During the first couple of years, we leased factory space but sometime around 1998 we built our own factory in Panyu, outside Guangzhou, and our factory remains there to this day.

RN: What are the major markets for your goods?

OF: Our sales are split three-ways equally between the U.S., Hong Kong and the rest of the world.

The diamond industry today is truly global. We do not get most of our orders by showing a parcel or a tray of diamonds to our customers. The way we operate, it doesn’t matter if the buyer is sitting across the counter or if they are in Los Angeles. We could just as easily be shipping the diamonds to our clients from Amsterdam as we do from Israel. We even supply goods to some clients who need very high-end goods in southern India.

RN: Where do you see YDI headed in the next couple of years?

OF: I hope to see YDI as a world leader in producing small diamonds and providing services to buyers of small diamonds. I can see a process whereby we sell fewer diamonds to dealers and more to the end-user, which for us means jewelry manufacturers and retailers. Most of the dealers are slowly disappearing.

However, I don’t see YDI marketing loose diamonds directly to consumers over the Internet.

RN: What advice would you give to someone entering the industry today?

OF: I would tell them to look for a niche. I don’t believe in being the cheapest. It is a surefire recipe for disaster. Someone will always find a way to be cheaper than you and in the end you will lose money. You really have to find a niche by either offering a service or product that provides added value to your customers. Any sort of niche that other people are not filling will place you in a situation where you are no longer competing with everyone.