The most critical issue facing the U.S. jewelry industry is how it responds to increasing global competition, as the jewelry firms in other countries become more powerful each year. Cheaper labor and lower costs have already pushed a large amount of U.S. jewelry manufacturing to offshore locations, such as Thailand and, increasingly, China.

One outdated idea is that advanced technology and high quality would allow U.S. jewelry firms to keep costs down and remain competitive. However, U.S. firms now compete against firms in many countries that use advanced technology and have excellent quality. Any competitive advantage the U.S. might have had is rapidly disappearing.

In the diamond world, India has become a dominant force. Indian companies are not only competing with U.S. firms but also becoming partners with, or purchasing, major U.S. diamond firms.

The successful path for U.S. manufacturers will be merger, acquisition, and consolidation to achieve a size that enables them to manufacture and sell in a world market. The traditional fragmentation of the U.S. jewelry industry, with a vast number of small players, won’t continue. Larger and stronger players will compete around the world, while many smaller players won’t survive intensified global competition. U.S. firms must view themselves as operating on a global stage, be it locating manufacturing facilities, finding customers, or seeking partners.

While increased global competition is thought of as an issue for manufacturers, globalization also has major implications for retailers. At the luxury end of the retail market, foreign companies that own diamond mines are starting to enter U.S. retailing: De Beers hopes to have six retail stores in the United States by year’s end. Aber, a Canadian mining company, bought Harry Winston. These retailers/miners are assured of controlling access to high-quality goods without paying intermediaries.

The independent U.S. jewelry retailer also faces global challenges. The supply chain of diamonds from mine to retailer is getting shorter. Gitanjali Gems, an Indian Diamond Trading Co. sightholder, has bought a majority ownership of Samuels Jewelers, a U.S. retail jewelry chain with 97 stores in 18 states. The larger U.S. chains are also trying to get more direct access to diamonds and other merchandise using fewer middlemen. It will be increasingly difficult for the independent retail jewelry store to compete on price with chains that have more direct access to product at a lower price than the independents. So, nimble independent retailers will have to offer better service, greater convenience, and unique product to keep their heads above water.