Gold and silver are precious and expensive, but not as expensive as a diamond. In 1859, the diamond was first discovered in South Africa at Cape North. Since its inception, Diamond has become very renowned for its expanded product range, as well as advanced technology that has enabled diamond cutting, shaping, polishing and finishing.
Diamonds are truly precious and can be damaged by the diamond itself and very few other stones. This case concerns De Beers and several other diamond companies that have become better known than De Beers.
These competing companies lurked the global market in their space than De Beers. They are known for their reputation for bullying and unethical business practices. De Beers partnered with ruthless regimes to supply their diamonds, but when market pressure finally took over.
De Beers faced a number of challenges to maintain its share of the diamond market. De Beers faces a number of challenges, including violations of US antitrust laws. Progress has been made in achieving parity and in providing diamond buyers with a comprehensive education in diamond manufacturing.
It is interesting to see that De Beers faces stiff competition and has to overcome market pressures due to their standard manufacturing practices. Based on the case study, a PESTEL and Five Forces analysis was carried out for DeBeers.
PESTEL analysis (structure or tool used to analyze and monitor macroenvironmental factors that can have a profound impact on the activities of an organization) DE Beers.
Over the decades, De Beers has faced a number of global political factors in an effort to maintain its market share.
De Beers held a monopoly on diamonds for decades and could use punitive measures against other countries that stood in their way. For example, after Zaire decided to stop selling diamonds of its grade to the De Beers group in 1981, De Beers flooded the market with synthetic diamonds, reducing the price of Zaire diamonds by 40%.
This supply of diamonds was influenced by political factors. Second, DeBeers was banned from doing business in the US for several years because they violated US antitrust law. India dominated the $ 19 billion diamond manufacturing industry. Government conflicts and restrictions have played an active role among diamond countries – Angola, Australia, Botswana, Canada, Democratic Republic of Congo, Russia and South Africa, which account for 88% of the cost of diamond production and 96% of global production. For example, in 1999, Namibia sought to gain control of the manufacturing industry by passing a new law allowing the government to force miners to sell some of their diamonds to local cutters instead of sending them to India.
Governments have played an active role in influencing De Beers’ decisions and behavior. With a focus on protecting De Beers, South Africa passed the Amended Diamond Act in 2005 establishing responsibilities for diamond producers who exported rough diamonds out of the country. The goal was to prevent the export of diamonds to India for polishing. When the Soviet Union collapsed, the diamond industry was in chaos as the contracts that De Beers entered into with countries no longer existed.
The creation of synthetic diamonds has sharply reduced the price of diamonds compared to the prices of natural diamonds, which De Beers specialized in selling. A one-carat natural pink diamond could be sold for over $ 100,000, while an identical synthetic diamond could be sold for about $ 4,000. Synthetic diamonds are currently used for industrial purposes (semiconductor industry, thermal conductivity, next-generation optics and digital storage), and their growth is between 10% and 15% per year.
The Blood Diamonds was a phase that began after the rebel forces toppled the government of Angola, the world’s third largest diamond producer. The rebels then flooded the market with rough diamonds worth up to $ 1.2 billion. These foundations then supported their respective armed conflicts in Sierra Leone, Liberia and Congo. As news of these armed conflicts spread and information about the abuse of workers spread, buyers wanted to know where their diamonds came from and if they had been tainted with money as a result of the armed conflicts.
The greatest technological advance in the diamond industry was the creation of synthetic diamonds in 1955 using high pressure and temperature. It usually took 4 days to grow a 2.5-carat diamond. These synthetic diamonds also come in colors that really suit the natural diamond market. All of these technological factors have indeed negatively impacted De Beers’ financial growth.
Natural diamonds have been detrimental to the environment when mined. For every carat of natural diamonds, several hundred tons of land were required. The diamond mining has caused habitat destruction for fish and land-based wildlife, and has caused caribou and grizzly bears to flee. The natural diamond mining machines used diesel fuel, which increased the production of greenhouse gases.
In 2004, De Beers pleaded guilty to conspiracy with industrial diamond prices and agreed to pay a $ 10 million fine. The following year, De Beers agreed to settle a $ 250 million class action lawsuit to monopolize the international diamond business. The company was also found guilty of violating US antitrust laws.
De Beers’ analysis using porters involves five forces:
I feel that the strategic vulnerability of De Beers will be affected by political, social and legal implications. There are many government policies that can reveal De Beers trade secrets. Social factors such as the blood diamond problem and the wrong impression it made on the market affect De Beers branding. The diamonds were tainted due to the “blood diamond” condition, which meant that the proceeds from the excavation as well as from the sale of diamonds in several African countries helped finance the war along with violations of the war law. Third, fighting US antitrust law is another case, as local and international governments may have an interest in preserving. A loophole may be created strategically for the company.
If you were the CEO of DeBeers, what two actions would you take to mitigate the vulnerability?
If I were the CEO, I would be wise to continue to educate the public about the origin of their natural diamonds and that natural diamonds are much more valuable than synthetic ones. They own this unique niche and if they decide to enter the synthetic diamond market it will damage their brand. Moreover, De Beers is encouraged to comply with US policies to weaken US antitrust laws. The CEO may request the advancement of US controversy policymakers, as well as suggest the ease of US antitrust laws and restrictions.