de beers and the global diamond industry

AND THE GLOBAL DIAMOND INDUSTRY

DEBEERS

Contents

The Problems

Analysis

De Beers Story

Conclusion and Recommendation

DEBEERS Story Part ONE

Cecil Rhodes founded De Beers in 1880 + Controlled 95% of diamonds world in 1888 + Oppenheimer establish CSO → buyer of last resort

+

Production fell gradually. 1980’s was less than 50%

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Part ONE

DEBEERS Story

CSO has some roles:

The one and only marketing branch

Ability to grade and guarantee diamond

CSO game plan:

• Select its buyer • Non-negotiable price • Choose whom to sell & what quantity • Punishment

Stockpilling diamond

Campaign: “Diamond is forever”

Part ONE

DEBEERS Way

+ + +

+ +

DE BEER

CUTTING AND

POLISHING

Part ONE

DEBEERS Business Model

MINES

CUSTOMERS

DEBEERS Problem Part TWO

Main Problem

Disruption on DeBeers Value Chain

Economics of stockpiling changed

Declining revenue Liquidity problem

Decreasing profit Diminishing Return on Equity

Dwindling

cash reserve

Business Process Problems

DEBEERS Problem Part TWO

ABER MINING TIFFANY & Co.

DE BEER CUTTING &

POLISHING

LEVIEV

Part ONE

The Competition

CUSTOMERS

Analysis Part THREE

+ Strong Brand + Trust already built with consumers and partners + Historical holdings + Expertise + Control of output + Distribution channel

+ Controls output + Owns distribution channel + Alliances + Relationships with foreign

governments + Cash on delivery

+ Only game in town + No substitutes for diamonds + Customs/tradition + War + Quality of product - Luxury item / not necessity -/+ Economy

+ No substitutes for

diamonds + Cultural history + Social issues/status + High cost of entry

+ High cost of entry + Cornered the market + Strong Brand + Existing mining and political relationships + Access to new mines + Owns distribution channel + Control of output

BARGAINIG POWER OF SUPPLIER EXISTING CUSTOMER RIVALRY

THREAT OF NEW ENTRY

BARGAINING POWER OF CUSTOMER

THREAT OF SUBSTITUTES

PORTER’s

5 Forces

Part THREE

Before Disruption

+ Strong Brand + Trust already built with consumers and partners + Historical holdings + Expertise + Control of output + Distribution channel

+ Controls output + Owns distribution channel + Alliances + Controls output + Owns distribution channel + Alliances + Relationships with foreign

governments - Cash is dwindling - Zaire does not renew contract

(1980) - Argyle insists on right to market

25% of near-gem & industrial - Sightholders decrease from over

250 to 150

+ Only game in town + No substitutes for

diamonds + Customs/tradition + War + Quality of product - Luxury item / not necessity - Decreasing retail demand

+ No substitutes for diamonds + Cultural history + Social issues/status + High cost of entry

+ High cost of entry + Cornered the market + Strong Brand + Existing mining and political

relationships + Access to new mines + Owns distribution channel - Zaire sells on open market - Argyle markets its output

BARGAINING POWER OF SUPPLIER

EXISTING CUSTOMER RIVALRY

THREAT OF NEW ENTRY

BARGAINING POWER OF CUSTOMER

THREAT OF SUBSTITUTES

Part THREE PORTER’s

5 Forces After Disruption

“Reverse innovation is innovating in poor countries and selling those products in rich countries”

VIJAY GOVINDARAJAN

Once products are developed for these markets, they are then sold elsewhere - even in the West - at low prices which creates new markets and uses for these innovations.

Focusing on needs and requirements for low-cost products in countries like India and China.

Part THREE Reverse Innovation

Creating Local-Based Cutting and Polishing Workshop

Synthetic Diamond

• Establishing cutting and polishing workshop in which the diamonds are extracted

• The goal is to minimize cutting and polishing costs which in turn could increase profit margin for De Beers

• De Beers develops technology to create synthetic diamond.

• The selling point of De Beer’s synthetic diamond is the ability for customers to customize the diamond based on characteristics, color, and its roughness

• Synthetic diamond is best utilized for industry

Part THREE

Reverse Innovation

Our Proposal

ABER MINING TIFFANY & Co.

DE BEER CUTTING &

POLISHING

LEVIEV

Part FOUR

Business Model

CUSTOMERS

LVMH/

WALMART

Conclusion & Recommendation

Part FOUR

De Beers was runs a monopoly role + De Beers had some problems, especially with the entry of new players (Leviev)

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De Beers new strategy : stop stockpilling activity, improve customer relationship, focus on retailing and marketing

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Conclusion Part FOUR

Positive Impact of new strategy + De Beers has more similarities with OPEC in terms of price maintenance

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Conclusion Part FOUR

Controling supply chain Vertical Monopoly

Creating a chain of retail stores include joint venture with LVMH

Transformed its customer relationships

Creating cutting and polishing plan on local place (create more local jobs)

Focus on retailing and marketing to present De Beers’ diamonds as a branded luxury item

Recommendation

Through CSR (Conflict Diamonds, Hiv/Aids, Black Empowerement)

Going Private

Patent new technology for manufacturing low-cost synthetic diamonds

Recommendation