Forever: De Beers

B y :

Kanika Virmani, 13P146

Kaushik T Nihalani, 13P148

Mayank Rathore, 13P150

Rishi Chaturvedi, 13P162

Shashank Shukla, 13P166

Timeline1866, accidental discovery of diamonds in South Africa changes the diamond industry forever.

1874,Cecil Rhode was servicing all of the mines in the area.

1880,Rhodes forms the De Beers Mining Company to control his growing stake in the mine

1887,buys out all the other claim holders

1890,coalition of merchants in Kimberley formed,to whom he sells the full output of the mine. Formalized as the“Diamond Syndicate”

Timeline1902,his vision of a diamond empire was taken up by Ernest Oppenheimer

1925,Oppenheimer bought out the old syndicate and replaced it with a new one

1981,cash-starved Zairian government struck a deal with three independent Belgian diamanataires for its small,industrial grade stones

1945,1974,1994 In the United States, the company had been unsuccessfully prosecuted

1997,the Asian crisis swept through the Far East, leading to a massive decline in consumer confidence an

SWOT Analysis

Strength Weakness

Opportunity Threats

StrengthAblity and vision to bring together

the entire diamond industry

powerful brand.people

willing to pay 15% premium

Evasive strategy

Weakness

new and aggressive sharehold

ers realized "all cash no dash"

no bold acquisitio

ns

heavily invested in anglo-american

legal issues in united states

stockpiling led to

undervalued

stockprice

Threats

Threats

Intensity of competitive rivalry

Bargaining power of suppliers

Pre 1998 Post 1998

Null. As there was a situation of complete monopoly, there was no rivalry.

Rivalry existed, but was very weak, as they still controlled almost 60% of the output of the biggest market

Pre 1998 Post 1998

Very strong cartelization led to superior bargaining power of suppliers. They were also able to control the prices through market buy back and maintain a stock pile.

With a fall in luxury brand values, the strain on stockpile increased and the new share holders forced De Beers to offload the stock pile. This reduced the “pricing control” ability of supplier (De Beers)

Threats

Bargaining power of customer

Threat of substitute products or services - Because of complete monopoly there was no substitute product or service that threatened the dominant market share of De Beers diamond.

Pre 1998 Post 1998

Very low, due to level of cartelization. The supply was controlled by De Beers and this allowed them to control the price. This was the main reason that anti-trust law was being forced upon De Beers

Increased to a certain extent with the new entry of Angola, Russia and Australian diamond producers. When they off-loaded their diamonds at lower prices, the now weak De Beers could not buy to control the prices.

Threats

Pre 1998 Post 1998Very low for suppliers as the industry was very closely held and cartelized

After 1992, De Beers had to face double blow of defection from Russian and Angolan and new independent diamond developers in Australia. After the Asian crisis in Far East, the overall control of De Beers on suppliers in the Diamond market came down to 60% , even at generous estimates.

The buyers were limited to “sight-holders”, for whom “sights” took place in closed rooms of London

After the opening up of the suppliers market, fell of shares and entry of American stock holders, no more was it possible for the company to maintain a stockpile as it had over the years. Thus, the market, though highly capital intensive was open for new entrants.

Threats of New Entrants

Opportunity

Tremendous brand-name that could be leveraged

Brilliant history of marketing

Direct entry into the US market with 46% demand share

Organic growth into other luxury segments

But, was it ethical???????