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Is a Diamond (cartel) Forever?
AndreaGroup 4
Andrea GonzalezAnwar Syed
Maryam RehamYao PuQin Lu
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Diamond Industry
The Diamond Industry can be separated into two distinct category:
One dealing in Gem-grade diamonds. Another for Industrial-grade diamonds.
Both market values are different
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Gem-grade Industry
Large trade in gem-grade diamonds
Substantial mark-up in the retail sale of gem diamonds.
There is a well-established market for sale and resale of polished diamonds (e.g. pawn broking, auctions, second-hand jewelry stores, diamantaires etc.)
The production and distribution of diamonds is largely consolidated in the hands of a few key players, and concentrated in traditional diamond trading centers
Antwerp is the de facto "world diamond capital". Processes 80% of all rough diamonds, 50% of all cut diamonds and more than 50% of all rough. This makes
5Interesting Facts:
According to the Rio Tinto Group, in 2011 the diamonds produced and released to the market were valued at US$12 billion as rough diamonds, US$18 billion after being cut and polished, US$ 35 billion in wholesale diamond jewelry, and US$57 billion in retail sales.
Today 80 % of the world diamonds are sold in New York city
92% of the world's diamonds were cut and polished in Surat, India.
Other important centers of diamond cutting and trading are the Antwerp Belgium, London, New York City, Tel Aviv, and Amsterdam.
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Industrial-grade Diamonds
Industrial diamonds are valued mostly for their hardness and thermal conductivity.
570,000,000 carats (110,000 kg) of synthetic diamond is produced annually for industrial use.
In addition to mined diamonds, synthetic diamonds are used for industrial applications.
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Major Diamond Mining Companies
BHP BillitonDe BeersRockwell DiamondsPetra DiamondsAnglo American Alrosa
Mine in Russia
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The Birth of THE Diamond Cartel
Cecil Rhodes, an English tycoon, founded De Beers in 1875
Historically diamonds were expensive because they were rare. But with the discovery of mines in South Africa there was a threat to diamond’s rareness
Rhodes responded by buying all the diamond mines in South Africa and creating a diamond
syndicate in which all sellers would buy only from him. Kept supply low and prices high.
A “single-channel market”
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The De Beers Business Model
Mine rough diamonds -- classify and deliver to Central Selling Organization(CSO), in London –
There only about 100 chosen sightholders could buy and further distribute diamonds. De Beers set the price and quantity there was no bargaining
De Beers controled exactly what and how many stones entered the market and at what price
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3 stages of development
Output percentage in global diamond
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Challenges at the end of the 20th century
Adapting to the changing industry structure : monopolies no longer accepted
Dealing with pressures for corporate social responsibility Overcoming formal institutional barriers preventing it from
directly operating in its largest market, the United States. (paid 295million)
De Beers no longer holds a monopoly of diamonds. They have begun to develop itself as the leader in the diamond business
They partnered with Moet Hennessey Louis Vuitton to create a diamond brand and worldwide stores.
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How did the Diamond Cartel run for more than a 100 years?
The diamond industry has an extraordinarily high concentration
De beers had control of price
Long term viability facilitated by the friendly social relationships among participants of the cartel.
Clear Strategy: Expand Demand, Limit Supply and Maximize long term Profits.
Diamonds are forever Campaign to prevent emergence of a market for second hand diamonds.
High Flexibility to Adapt to new Challenges
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Drawing on industry, resource, and institutional based views, explain why De Beers has been phenomenally successful ?
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Firm Capabilities (Resource Based View)
Threat of Substitutes • No substitutes for natural
diamonds• Social Issues/ Status• Cultural history
Bargaining Power of Suppliers(low)• Controls output• Owns distribution
Channels• Alliances• Relationships with
Foreign Governments
• Cash on Delivery
Threat of New Entry(low)• High Cost of
Entry • Cornered the
Market• Strong Brand
Image• Existing Mining
and political relationships
• Owns Output Distribution Channels
Bargaining Power of Customers (low) • Only provider• No substitutes• Customs/Traditions• War• Quality of Product
Existing Rivalry • Strong Brand Image• Trust already built with
customers and partners• Historical holdings• Expertise• Control of output• Distributions Channels
Industry based view using Porters 5 Forces
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Institution Based View
Friendly relationships with most governments of diamonds producing countries.
Joint production arrangements with host country governments in Botswana, Angola and the democratic Republic of Congo.
Problem of beneficiation in most African countries .
The Only major institutional problem was faced by the US and European government.
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However De Beers lost its monopoly and the cartel is much weaker
How does De Beers continue to be an industry leader? Lets look at their SWOT….
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• What are the opportunities for De Beers? • What are the threats?• What kinds of strengths and weakness does
De Beers have when dealing with these challenges?
De Beer’s Current SWOT
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Strengths
Previous owner of the longest running diamond cartel in the world (more than 100 years). They have expertise.
The friendly social relationship with most governments and big industry of diamond-producing countries .
Resources and capital to compete against competitors
Due to reduction of sight holder it has more freedom to make decisions from their own position
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Weakness
The strategy of “Expand demand, limit supply” is not sustainable because De Beers no longer holds sold control of the industry.
Rise of new competitors such as Broken Hill Proprietary, Rio Tinto Diamonds, Le Leviev Diamonds and Alrossa Diamonds
Threat of man made diamonds
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Opportunities
Opening of the U.S. market after paying 295 million to the U.S. government in anti trust fines.
New rising economies such as China and India
Reputation as largest diamond supplier market in the world
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Threats
The structure of whole diamond industry is changing with the rise of new suppliers and new competitors
Too much pressures for CSR (Corporate social responsibility)
The threat of the diamond losing its value if man made diamonds gain popularity.
The threat of depleting quantities of diamonds
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Lev Leviev
Who is one of De Beer’s biggest rivals?
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De Beers vs. Leviev
Lev Leviev started as a sight holder (buyer) of De Beers diamonds
In the 1990s Leviev challenged De Beer’s diamond monopoly
Leviev became the first vertically integrated diamond company
"I grew up in the Soviet Union. I knew
what it was to be afraid. I can
remember being beaten by the bullies at school, and I said to myself I would never be afraid of anybody
again."
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What is the future of the De Beer Leviev rivalry?
• First vertically integrated diamond dealer.
• Own mines in Angora, Alaska, Australia, Russia, Africa
• Stores in New York, London, Dubai, and Singaopre
• Controls 40 % of the diamond industry.
• Partnered with LV in order to create retail brand
• Startegy to become the leading diamong retailer.
• Spends $150 mill on ads/yr
• Stores in Asia, Europe, the Middle East and Russia
Leviev’s Strong Points De Beer’s strong points
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Resource : De Beers has more experience and more capital than Leveiv
Institutional : De Beers signed European and American anti-trust regulations. Leveiv on the other hand has many friends in high places
Industrial : De Beers controls 40% of the industry. Levein continues to expand his diamond mines and partnerships.
Let’s look at the rivalry through the 3 lenses
Winner : De Beer
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The Future of the Diamond Industry
There is an increase in demand due to new markets such as China, Japan, India, and the Gulf countries
Despite increase in demand, supply is not unlimited
Diamond supplying countries demand more and more control of their resources
Man made diamonds pose a major threat. Companies like Gemesis offer ecological conflict free affordable diamonds
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