Introduction:
According to Hart, M. “De Beers and its sister corporation — Anglo American Corporation
of South Africa, a gold-mining powerhouse — accounted for about half of South Africa’s
economy, measured as a share of the Johannesburg Stock Exchange’s total listed capital. The
Oppenheimers, who controlled De Beers and Anglo American, were the country’s richest
family. South Africa’s banks and insurance companies, the backbone of its financial life,
were enmeshed in the fortunes of the Oppenheimers’ gold-and-diamond empire. The
diamond sector of the business, worth billions of dollars a year, maintained profitability by
operating a cartel. It kept tight control of supply, which gave it mastery of the price. If the
price showed signs of weakening, the cartel had only to cut back the flow of diamonds to the
market for the price to recover. The power of the cartel lay in managing supply. Supply was
its strength, but its weakness too” (2001) But we need to get a bit deeper to explore the
strategic vulnerability of DeBeers organization and what happened to it.
Aims:
Aims of this study are to evaluate the strategic vulnerability, It involves researching four
external influences that affect businesses on a macro level such as political, economic, social,
and technological factors.
Methods
Methods used to collect the information are going to be provided by using PESTEL and Five
Forces analysis. The investigation will be carried out thoroughly in relation to the business
and industry and try to investigate the current and future risks, evaluate vulnerability and plan
to reduce the impact of threats.
Analysis:
Five Forces:
- Threat of Substitutes - low
Although DeBeers business could be partly replaced by synthetic diamonds, the marketing
and value of those cannot match the original ones. Combining that with the social history and
political connections plus high-cost of possible substitution for the entire DeBeers operations
it is very unlikely.
- Bargaining power of suppliers - low
DeBeers as a company has a vast interest in the whole diamonds value chain, it has its own
mining operations, production and possesses vast worldwide distribution channels, including
agreements with states, governments, and stock of merchandise to coerce suppliers under it
will. Additionally, it is merchandising the productions of different manufacturers, therefore
the products are associated directly with his brand. The bargaining power of suppliers is low. Threat of New Entrants - medium/high The entrance to the mining of diamonds and distribution is very costly, therefore the threat is
low/medium. New entrants to the diamond supply market could enter from the diamonds
final distribution i.e “In 1999, high-end jeweler Tiffany & Co. announced that it was
buying a stake in a Canadian mining concern for $104 million and would no longer
sources its diamonds through DeBeers.” In additional to that threat, new synthetic diamonds
pose a real risk and companies such as Adia Diamonds, Genesis, Apollo, Chatham, and Life
Gem are already taking a big chunk of DeBeers territory. Nonetheless, DeBeers brand name,
market position and closed contacts, including government rapports plus existing distribution
channels pushes the analysis to the low/medium, new technologies including artificial
diamonds are changing the scale by changing the rules of engagement. The political changes
around the world assisted the new entrants and set the final analysis on medium/high scale.
- Bargaining power of Buyers - medium
DeBeers as a monopoly, controlling the global supply of diamonds, could dictate the prices
and was able to ruin its buyers in an economic way if they would not comply with dictated
requirements. At the later stages the tone was loosened a bit, the company introduced
branding and moved to artificial diamond production , but it still had a lot of power. Although
the power over the market was hard to overcome, it is obvious that the industry is becoming
vertical, and other mining companies are switching to become end-to-end supplier taking
over the whole chain (and omitting DeBeers) starting from mining and ending on branding
and sales. This means that the bargaining power of buyers is heading towards the medium,
and the trend will not reverse, therefore it is medium. - Competitive rivalry - medium/high The competitive rivalry did not affect DeBeers much due to his position of power and 85 %
ownership of the market supply. However, the influence of governments(especially Russia)
and retailers and producers would like to disarm Beers grasp on the diamond supply and it
obvious that the competition is gaining the market. Therefore DeBeers should rebrand itself
and use an entirely different strategy by providing distinguishing and high-quality
merchandise to its customers rather than forcing customers to shop for products made by
DeBeers. DeBeers organization, in the end, has been forced to price its merchandise in line
with the market prices and it is harder for it to force its own evaluation. Additionally,
DeBeers should find different markets and customer segments so as to sustain itself and stay
at the top.
PESTEL:
(P)olitical factors:
DeBeers during its reign faced a variety of legislative factors as they wanted to retain their
market share. The monopoly in the diamond industry was their for decades. The company
use punishing and forcing means against different countries and organizations that stood in
their way. The perfect example of that can be the "Zaire incident" where DeBeers prevent
Zaire from selling its industrial grade diamonds to the free market by flooding the market
with similar diamonds at below market prices and pushed down the value of the Zairian
diamonds by 40% forcing Zaire to obey DeBeers market rules. DeBeers organization was
very well connected in a political way with various governments including Angola, Australia,
Botswana, Canada, the Democratic Republic of the Congo, Russia, India, and South Africa.
Those countries represented 96% percent of global diamond production. In this setup, India
was a processing plant for the diamonds with its worth of 19 bn USD. The legislative
influence over DeBeers was mostly valid in the US where he was prohibited from conducting
business because of violating the Sherman Act. Further political influences included:
Government conflicts and restrictions such as Namibian 1999 idea to win control of the trade
by implementing a replacement law allowing the government to force miners to sell a
proportion of their diamonds to native polishers/cutters instead of shipping them to India.
Israel as a second example opened its 1st cutting and sharpening mill in 2004. Governments
influenced the choices and behavior of DeBeers. However many negative changes to DeBeers
business were on its way some countries such as South Africa were protective. The African
nation passed the Diamond change Act in 2005 establishing duties on diamond producers
exported rough diamonds out of the country. When the Soviet Union folded, there was
turbulence within the industry as DeBeers contracts with various countries were no longer
valid because they no longer existed. Russia for obvious reasons did not want any
dependency and refused to trade through DeBeers. And at a point, the US penalized DeBeers
for having a monopoly on the diamond market.
(E) conomic:
The most significant factors upon the natural diamond business were the technical
development and the invention of artificial diamonds. Artificial / Synthetic diamonds were
priced lower than the natural ones. The discrepancy in price was huge as synthetic diamonds
were almost 25 times cheaper and were grown rapidly in the labs to take a chunk out of
natural diamond markets. The growth of the artificial diamond industry is high and it will
grow further as they can be used in industrial applications such as optics, storage and even
semiconductors ( replacing silicone).
(S)ocial:
The diamond industry is mostly associated with the term “Blood diamonds” and an image of
African almost slave labor working in harsh conditions to finance the African conflicts. The
name was invented by the rebels overthrowing Angola's government who later used the
funding from blood diamonds to fund conflicts in Liberia, Sierra Leone, and Congo. This
news gave bad publicity for diamonds and many people started to investigate where their
diamonds come from and If they were the cause of suffering in those African regions.
(T)echnological:
The highest technological advancement within the diamond business was the creation of
artificial diamonds. Laboratory-grown diamonds had been around since 1955 and it had been
an awfully difficult to grow them, additionally, they were not as perfect as the original. This
changed in 1996 due to a patent for chemical vapor deposition method for manufacturing
perfect diamonds. Additionally, to perfection, the process could be modified to produce
colorful diamonds which affected greatly the natural diamond market. Due to lowers costs
and quality of laboratory diamonds were able to be used for industrial functions and
industries such as semiconductors, thermal conduction, next-generation optics, and data
storage. Those technological factors impacted DeBeers financially.
(E)nvironmental:
Just like any other mining operations, the diamond industry damages the environment. The
excavation grounds need to run deeply, destroy the natural habitats. The impact can be
measured by the amount of soil that needs to be moved in order to get just one carat. It's a
couple of hundred tons, which is a lot. This size of operations affect marine life, land-based
animals and additionally due to heavy use of machinery produce greenhouse gases which
harm the environment in the long run.
(L)egal:
In 2004 DeBeers pleaded guilty to charges of control of the commercial diamond market and
accepted to pay $10 million fine. In the consecutive year, DeBeers agreed to settle a category
action suit for monopolizing the international diamond business for $250 million.
Recommendations:
DeBeers largest problem was that they were a diamond monopoly for a long time, they
thought that it will remain like that forever. They did not look in the future only stayed in the
present using their power to influence, force and command. They worked as an organization
but on a and international level, being almost like a country and I would say a dictatorship,
diamond dictatorship. The main focus of the company was to be in power, I am not sure that
money itself was a real factor in the business. As mentioned above, DeBeers did not work
within the market, the company basically own it and “was the market”. This changed, mostly
due to political shifts, emerging rivals, and technology including appearance of high-quality
synthetic stones which made buyers be more influential and “real diamonds” market cause to
watch out, because it might shrink significantly. The best recommendation for DeBeers is to
work within the market and stay competitive, educate customers about the differences
between the real and the artificial. I additional to education, DeBeers should enter the
synthetic diamonds industry as the capability to do that are within the reach and the entrance
to that market for such a large company would not be costly. However, due to legacy
marketing and PR efforts needs to be done correctly to avoid any harm to the organization.
The DeBeers CEO would have a hard job ahead as he would need to lead the company in two
markets, synthetic and natural diamonds, develop proper branding for both, educate
customers and enter markets that allow the possibility to grow such as Botswana and
Namibia, plus communicate widely that they are not sourcing blood diamonds. The last and
most important advice to the CEO would be to focus on customers and showing them the
value of the diamonds from DeBeers by being an ethical, legitimate and high tech company
and losing the past because it will not come back hence the world has changed too much.
References
About us. (n.d.). Retrieved from
https://www.feedough.com/diamond-marketing-de-beers/amp/
De Beers launched a new jewelry brand on Tuesday that features synthetic diamonds. (n.d.).
De Beers to start selling man-made diamonds. Retrieved from
https://money.cnn.com/2018/05/29/news/companies/de-beers-man-made-diamonds/ind
ex.html Ghilani, J. L. (2012, 07). DeBeers’ “Fighting Diamonds”. Journal of Communication Inquiry, 36
(3), 222-245. doi:10.1177/0196859912453320
BUS 5117 - AY2019-T5 Hart, M. (2001). Diamond
. Viking.
Institute For Strategy & Competitiveness. (n.d.). Retrieved from
https://www.isc.hbs.edu/strategy/business-strategy/Pages/the-five-forces.aspx
Threat Of New Entrants: Porter's Five Forces Model. (2016, March 11). Retrieved from
https://www.cleverism.com/threat-of-new-entrants-porters-five-forces-model/
University of the People. (n.d.). Retrieved from
https://my.uopeople.edu/pluginfile.php/515756/mod_workshop/instructauthors/U3%20
DeBeers%20Diamond%20Dilemma%20McAdams.pdf
What is a PESTEL analysis? (2019, April 29). Retrieved from
https://blog.oxfordcollegeofmarketing.com/2016/06/30/pestel-analysis/
According to Hart, M. “De Beers and its sister corporation — Anglo American Corporation
of South Africa, a gold-mining powerhouse — accounted for about half of South Africa’s
economy, measured as a share of the Johannesburg Stock Exchange’s total listed capital. The
Oppenheimers, who controlled De Beers and Anglo American, were the country’s richest
family. South Africa’s banks and insurance companies, the backbone of its financial life,
were enmeshed in the fortunes of the Oppenheimers’ gold-and-diamond empire. The
diamond sector of the business, worth billions of dollars a year, maintained profitability by
operating a cartel. It kept tight control of supply, which gave it mastery of the price. If the
price showed signs of weakening, the cartel had only to cut back the flow of diamonds to the
market for the price to recover. The power of the cartel lay in managing supply. Supply was
its strength, but its weakness too” (2001) But we need to get a bit deeper to explore the
strategic vulnerability of DeBeers organization and what happened to it.
Aims:
Aims of this study are to evaluate the strategic vulnerability, It involves researching four
external influences that affect businesses on a macro level such as political, economic, social,
and technological factors.
Methods
Methods used to collect the information are going to be provided by using PESTEL and Five
Forces analysis. The investigation will be carried out thoroughly in relation to the business
and industry and try to investigate the current and future risks, evaluate vulnerability and plan
to reduce the impact of threats.
Analysis:
Five Forces:
- Threat of Substitutes - low
Although DeBeers business could be partly replaced by synthetic diamonds, the marketing
and value of those cannot match the original ones. Combining that with the social history and
political connections plus high-cost of possible substitution for the entire DeBeers operations
it is very unlikely.
- Bargaining power of suppliers - low
DeBeers as a company has a vast interest in the whole diamonds value chain, it has its own
mining operations, production and possesses vast worldwide distribution channels, including
agreements with states, governments, and stock of merchandise to coerce suppliers under it
will. Additionally, it is merchandising the productions of different manufacturers, therefore
the products are associated directly with his brand. The bargaining power of suppliers is low. Threat of New Entrants - medium/high The entrance to the mining of diamonds and distribution is very costly, therefore the threat is
low/medium. New entrants to the diamond supply market could enter from the diamonds
final distribution i.e “In 1999, high-end jeweler Tiffany & Co. announced that it was
buying a stake in a Canadian mining concern for $104 million and would no longer
sources its diamonds through DeBeers.” In additional to that threat, new synthetic diamonds
pose a real risk and companies such as Adia Diamonds, Genesis, Apollo, Chatham, and Life
Gem are already taking a big chunk of DeBeers territory. Nonetheless, DeBeers brand name,
market position and closed contacts, including government rapports plus existing distribution
channels pushes the analysis to the low/medium, new technologies including artificial
diamonds are changing the scale by changing the rules of engagement. The political changes
around the world assisted the new entrants and set the final analysis on medium/high scale.
- Bargaining power of Buyers - medium
DeBeers as a monopoly, controlling the global supply of diamonds, could dictate the prices
and was able to ruin its buyers in an economic way if they would not comply with dictated
requirements. At the later stages the tone was loosened a bit, the company introduced
branding and moved to artificial diamond production , but it still had a lot of power. Although
the power over the market was hard to overcome, it is obvious that the industry is becoming
vertical, and other mining companies are switching to become end-to-end supplier taking
over the whole chain (and omitting DeBeers) starting from mining and ending on branding
and sales. This means that the bargaining power of buyers is heading towards the medium,
and the trend will not reverse, therefore it is medium. - Competitive rivalry - medium/high The competitive rivalry did not affect DeBeers much due to his position of power and 85 %
ownership of the market supply. However, the influence of governments(especially Russia)
and retailers and producers would like to disarm Beers grasp on the diamond supply and it
obvious that the competition is gaining the market. Therefore DeBeers should rebrand itself
and use an entirely different strategy by providing distinguishing and high-quality
merchandise to its customers rather than forcing customers to shop for products made by
DeBeers. DeBeers organization, in the end, has been forced to price its merchandise in line
with the market prices and it is harder for it to force its own evaluation. Additionally,
DeBeers should find different markets and customer segments so as to sustain itself and stay
at the top.
PESTEL:
(P)olitical factors:
DeBeers during its reign faced a variety of legislative factors as they wanted to retain their
market share. The monopoly in the diamond industry was their for decades. The company
use punishing and forcing means against different countries and organizations that stood in
their way. The perfect example of that can be the "Zaire incident" where DeBeers prevent
Zaire from selling its industrial grade diamonds to the free market by flooding the market
with similar diamonds at below market prices and pushed down the value of the Zairian
diamonds by 40% forcing Zaire to obey DeBeers market rules. DeBeers organization was
very well connected in a political way with various governments including Angola, Australia,
Botswana, Canada, the Democratic Republic of the Congo, Russia, India, and South Africa.
Those countries represented 96% percent of global diamond production. In this setup, India
was a processing plant for the diamonds with its worth of 19 bn USD. The legislative
influence over DeBeers was mostly valid in the US where he was prohibited from conducting
business because of violating the Sherman Act. Further political influences included:
Government conflicts and restrictions such as Namibian 1999 idea to win control of the trade
by implementing a replacement law allowing the government to force miners to sell a
proportion of their diamonds to native polishers/cutters instead of shipping them to India.
Israel as a second example opened its 1st cutting and sharpening mill in 2004. Governments
influenced the choices and behavior of DeBeers. However many negative changes to DeBeers
business were on its way some countries such as South Africa were protective. The African
nation passed the Diamond change Act in 2005 establishing duties on diamond producers
exported rough diamonds out of the country. When the Soviet Union folded, there was
turbulence within the industry as DeBeers contracts with various countries were no longer
valid because they no longer existed. Russia for obvious reasons did not want any
dependency and refused to trade through DeBeers. And at a point, the US penalized DeBeers
for having a monopoly on the diamond market.
(E) conomic:
The most significant factors upon the natural diamond business were the technical
development and the invention of artificial diamonds. Artificial / Synthetic diamonds were
priced lower than the natural ones. The discrepancy in price was huge as synthetic diamonds
were almost 25 times cheaper and were grown rapidly in the labs to take a chunk out of
natural diamond markets. The growth of the artificial diamond industry is high and it will
grow further as they can be used in industrial applications such as optics, storage and even
semiconductors ( replacing silicone).
(S)ocial:
The diamond industry is mostly associated with the term “Blood diamonds” and an image of
African almost slave labor working in harsh conditions to finance the African conflicts. The
name was invented by the rebels overthrowing Angola's government who later used the
funding from blood diamonds to fund conflicts in Liberia, Sierra Leone, and Congo. This
news gave bad publicity for diamonds and many people started to investigate where their
diamonds come from and If they were the cause of suffering in those African regions.
(T)echnological:
The highest technological advancement within the diamond business was the creation of
artificial diamonds. Laboratory-grown diamonds had been around since 1955 and it had been
an awfully difficult to grow them, additionally, they were not as perfect as the original. This
changed in 1996 due to a patent for chemical vapor deposition method for manufacturing
perfect diamonds. Additionally, to perfection, the process could be modified to produce
colorful diamonds which affected greatly the natural diamond market. Due to lowers costs
and quality of laboratory diamonds were able to be used for industrial functions and
industries such as semiconductors, thermal conduction, next-generation optics, and data
storage. Those technological factors impacted DeBeers financially.
(E)nvironmental:
Just like any other mining operations, the diamond industry damages the environment. The
excavation grounds need to run deeply, destroy the natural habitats. The impact can be
measured by the amount of soil that needs to be moved in order to get just one carat. It's a
couple of hundred tons, which is a lot. This size of operations affect marine life, land-based
animals and additionally due to heavy use of machinery produce greenhouse gases which
harm the environment in the long run.
(L)egal:
In 2004 DeBeers pleaded guilty to charges of control of the commercial diamond market and
accepted to pay $10 million fine. In the consecutive year, DeBeers agreed to settle a category
action suit for monopolizing the international diamond business for $250 million.
Recommendations:
DeBeers largest problem was that they were a diamond monopoly for a long time, they
thought that it will remain like that forever. They did not look in the future only stayed in the
present using their power to influence, force and command. They worked as an organization
but on a and international level, being almost like a country and I would say a dictatorship,
diamond dictatorship. The main focus of the company was to be in power, I am not sure that
money itself was a real factor in the business. As mentioned above, DeBeers did not work
within the market, the company basically own it and “was the market”. This changed, mostly
due to political shifts, emerging rivals, and technology including appearance of high-quality
synthetic stones which made buyers be more influential and “real diamonds” market cause to
watch out, because it might shrink significantly. The best recommendation for DeBeers is to
work within the market and stay competitive, educate customers about the differences
between the real and the artificial. I additional to education, DeBeers should enter the
synthetic diamonds industry as the capability to do that are within the reach and the entrance
to that market for such a large company would not be costly. However, due to legacy
marketing and PR efforts needs to be done correctly to avoid any harm to the organization.
The DeBeers CEO would have a hard job ahead as he would need to lead the company in two
markets, synthetic and natural diamonds, develop proper branding for both, educate
customers and enter markets that allow the possibility to grow such as Botswana and
Namibia, plus communicate widely that they are not sourcing blood diamonds. The last and
most important advice to the CEO would be to focus on customers and showing them the
value of the diamonds from DeBeers by being an ethical, legitimate and high tech company
and losing the past because it will not come back hence the world has changed too much.
References
About us. (n.d.). Retrieved from
https://www.feedough.com/diamond-marketing-de-beers/amp/
De Beers launched a new jewelry brand on Tuesday that features synthetic diamonds. (n.d.).
De Beers to start selling man-made diamonds. Retrieved from
https://money.cnn.com/2018/05/29/news/companies/de-beers-man-made-diamonds/ind
ex.html Ghilani, J. L. (2012, 07). DeBeers’ “Fighting Diamonds”. Journal of Communication Inquiry, 36
(3), 222-245. doi:10.1177/0196859912453320
BUS 5117 - AY2019-T5 Hart, M. (2001). Diamond
. Viking.
Institute For Strategy & Competitiveness. (n.d.). Retrieved from
https://www.isc.hbs.edu/strategy/business-strategy/Pages/the-five-forces.aspx
Threat Of New Entrants: Porter's Five Forces Model. (2016, March 11). Retrieved from
https://www.cleverism.com/threat-of-new-entrants-porters-five-forces-model/
University of the People. (n.d.). Retrieved from
https://my.uopeople.edu/pluginfile.php/515756/mod_workshop/instructauthors/U3%20
DeBeers%20Diamond%20Dilemma%20McAdams.pdf
What is a PESTEL analysis? (2019, April 29). Retrieved from
https://blog.oxfordcollegeofmarketing.com/2016/06/30/pestel-analysis/
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