De Beers and The Global Diamond Industry

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De Beers Consolidated Mines has successfully managed the global diamond industry for many decades, propping up prices at all stages of the value chain, reducing price volatility and increasing consumer demand. By the end of the 20th century, however, a series of forces threatened De Beer's role and profitability. New diamond mining firms were selling their production on the open market rather than through De Beers' Central Selling Organization. Can De Beers strategy beat their competitors and what was the competition situation? Find out, more in this presentation.

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De Beers and The Global Diamond Industry

  1. 1. AND THE GLOBALDIAMOND INDUSTRYDEBEERS
  2. 2. ContentsThe ProblemsAnalysisDe Beers StoryConclusion and Recommendation
  3. 3. DEBEERS StoryPart ONE
  4. 4. 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%+Part ONEDEBEERS Story
  5. 5. CSO has some roles:The one and only marketing branchAbility to grade and guarantee diamondCSO game plan:• Select its buyer• Non-negotiable price• Choose whom to sell & what quantity• PunishmentStockpilling diamondCampaign: “Diamond is forever”Part ONEDEBEERS Way+++++
  6. 6. DE BEERCUTTING ANDPOLISHINGPart ONEDEBEERS Business ModelMINESCUSTOMERS
  7. 7. DEBEERS ProblemPart TWO
  8. 8. Main ProblemDisruption on DeBeers Value ChainEconomics of stockpiling changedDeclining revenue Liquidity problemDecreasing profit Diminishing Return on EquityDwindlingcash reserveBusiness Process ProblemsDEBEERS ProblemPart TWO
  9. 9. ABER MINING TIFFANY & Co.DE BEER CUTTING &POLISHINGLEVIEVPart ONEThe CompetitionCUSTOMERS
  10. 10. AnalysisPart THREE
  11. 11. + Strong Brand+ Trust already built with consumersand partners+ Historical holdings+ Expertise+ Control of output+ Distribution channel+ Controls output+ Owns distribution channel+ Alliances+ Relationships with foreigngovernments+ Cash on delivery+ Only game in town+ No substitutes for diamonds+ Customs/tradition+ War+ Quality of product- Luxury item / not necessity-/+ Economy+ No substitutes fordiamonds+ Cultural history+ Social issues/status+ High cost of entry+ High cost of entry+ Cornered the market+ Strong Brand+ Existing mining and politicalrelationships+ Access to new mines+ Owns distribution channel+ Control of outputBARGAINIG POWER OF SUPPLIEREXISTING CUSTOMER RIVALRYTHREAT OF NEW ENTRYBARGAINING POWER OF CUSTOMERTHREAT OF SUBSTITUTESPORTER’s5 ForcesPart THREEBefore Disruption
  12. 12. + Strong Brand+ Trust already built with consumersand partners+ Historical holdings+ Expertise+ Control of output+ Distribution channel+ Controls output+ Owns distribution channel+ Alliances+ Controls output+ Owns distribution channel+ Alliances+ Relationships with foreigngovernments- Cash is dwindling- Zaire does not renew contract(1980)- Argyle insists on right to market25% of near-gem & industrial- Sightholders decrease from over250 to 150+ Only game in town+ No substitutes fordiamonds+ 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 politicalrelationships+ Access to new mines+ Owns distribution channel- Zaire sells on open market- Argyle markets its outputBARGAINING POWER OFSUPPLIEREXISTING CUSTOMER RIVALRYTHREAT OF NEW ENTRYBARGAINING POWER OFCUSTOMERTHREAT OF SUBSTITUTESPart THREEPORTER’s5 ForcesAfter Disruption
  13. 13. “Reverse innovation is innovating in poor countries andselling those products in rich countries”VIJAY GOVINDARAJANOnce products are developed forthese markets, they are then soldelsewhere - even in the West - atlow prices which creates newmarkets and uses for theseinnovations.Focusing on needs andrequirements for low-cost products incountries like India andChina.Part THREEReverse Innovation
  14. 14. Creating Local-Based Cuttingand Polishing WorkshopSynthetic Diamond• Establishing cutting and polishingworkshop in which the diamonds areextracted• The goal is to minimize cutting andpolishing costs which in turn couldincrease profit margin for De Beers• De Beers develops technology to createsynthetic diamond.• The selling point of De Beer’s syntheticdiamond is the ability for customers tocustomize the diamond based oncharacteristics, color, and its roughness• Synthetic diamond is best utilized forindustryPart THREEReverse InnovationOur Proposal
  15. 15. ABER MINING TIFFANY & Co.DE BEER CUTTING &POLISHINGLEVIEVPart FOURBusiness ModelCUSTOMERSLVMH/WALMART
  16. 16. Conclusion & RecommendationPart FOUR
  17. 17. De Beers was runs a monopoly role+De Beers had some problems, especiallywith the entry of new players (Leviev)+De Beers new strategy : stop stockpillingactivity, improve customer relationship,focus on retailing and marketing+ConclusionPart FOUR
  18. 18. Positive Impact of new strategy+De Beers has more similarities with OPECin terms of price maintenance+ConclusionPart FOUR
  19. 19. Controling supply chain Vertical MonopolyCreating a chain of retail storesinclude joint venture with LVMHTransformed its customer relationshipsCreating cutting and polishing plan onlocal place (create more local jobs)Focus on retailing and marketing to presentDe Beers’ diamonds as a branded luxury itemRecommendation
  20. 20. Through CSR (Conflict Diamonds,Hiv/Aids, Black Empowerement)Going PrivatePatent new technology for manufacturinglow-cost synthetic diamondsRecommendation

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