Question

1The De Beers group, which maintained a monopoly on the global diamond trade since the early 20th century, had to change its business model by the turn of the 21st century. It adopted the 'Supplier of Choice' program as a response to several allegations of unethical business practices, the issue of conflict diamonds in Africa and the antitrust suits filed against it in the US and the UK. De Beers consciously transformed itself from being a controller to stimulator of global diamond business. However, it faces stiff competition from a number of competitors, prominent among them being Lev Leviev, who pioneered the concept of vertical integration in the diamond trade and has robbed De Beers of many lucrative deals.

Pedagogical Objective:

To understand how the global diamond industry used to run through a cartel in most part of the 20th century

To describe the competitive landscape of the global diamond industry in the 21st century

To analyse the business transformation at De Beers and its impact on the company and the global diamond trade as a whole.adag

Answer 1

a) Until the late 19 century - diamonds were diamonds were extremely rare (found only in extremely rare (found only in India and India and Brazil ) In 1870 – huge diamond mines were huge diamond mines were discovered near the Orange River in South Africa. This however meant a threat to the few diamond producers who felt that due to few diamond producers who felt that due to the large supply, diamonds will become a the large supply, diamonds will become a commodity instead of a luxury item commodity instead of a luxury item. In 1888 – De Beers Consolidated Mines was incorporated in South Africa by the suppliers in order to secure high market prices of diamonds. At its beginnings, the diamond cartel successfully controlled the worldwide supply of diamonds by regulating worldwide supply of diamonds by regulating mine output and by buying exclusive mining mine output and by buying exclusive mining rights from African nations rights from African nations By the beginning of the 20th century - De Beers controlled 90 percent of the international diamond trade In 1930’s In 1930’s – however, demand for however, demand for diamonds was steadily declining and as a result, the 29 -year -old son of the founder old son of the founder of De Beers of De Beers Harry Oppenheimer and his advertising agency N W Ayer came up with an advertising strategy that would with an advertising strategy that would target young men buying engagement rings and instill in them the idea that a diamond ring was the only acceptable declaration of courtship. The Success of the Cartel By 1981 By 1981 – De Beers had proved to be De Beers had proved to be the most the most successful cartel arrangement in the sphere of in the sphere of modern commerce. For more than a half century, while other commodities, such as gold, silver, copper, rubber and grains, silver, copper, rubber and grains, fluctuated wildly in response to economic conditions, diamonds continued to advance upward in price each year Currently, De -Beers controls two -thirds of the $7 billion yearly trade in uncut diamonds and owns half the producing mines.

B) Natural diamonds are among the world’s most precious natural resources. In 2011, diamond miners such as ALROSA, BHP Billiton, De Beers, Rio Tinto and smaller companies produced 124 million carats of rough diamonds, valued at $15 billion. Once out of the ground, the rough stones moved through the so-called diamond pipeline—a value chain that runs from dealers to diamond cutters and polishers to jewelry manufacturers to retail stores and finally to consumers. The value-added along the way is impressive, as $15 billion in rough diamonds becomes $24 billion in polished diamonds, which in turn goes into diamond jewelry with a resulting retail value of $71 billion

c) On July 13th in an Ohio court De Beers, the world's largest producer of rough stones, finally pleaded guilty to charges of price-fixing of industrial diamonds and agreed to pay a $10m fine, thereby ending a 60-year-long impasse. De Beers executives are at last free to visit and work directly in the largest diamond market, America.

Diamond producer, De Beers, on Monday signed an agreement with the minerals and energy department under which the company agreed to sell a portion of its minerals to the newly established State Diamond Trader.

In order to address the challenges of the diamond sector  De Beers is focusing its efforts on training and development, supplying rough diamonds for local cutting and polishing and facilitating jewellery design and manufacture.