De Beers Case

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​Socio-cultural Sector

After the war, there was a big change in people's life conditions. There were important incomes' increase and that generate a higher demand of diamonds in jewellery stores all over the world. As a result, the mines became wealthier and productive. De Beers knew that many countries depended on diamonds exportations to generate incomes or foreign exchange.

The factors affecting the sector are: competition, capital, social problems, post-war problems, distribution and technology.

The dynamic of the sector is not stable due to everything already mentioned is very dynamic, specially the social problems, because one cannot determine how people are going to react after the war, and how their incomes will be affected.

SWOT ANALYSIS:

Strengths and Weaknesses

- ​There is coherence in the micro analysis because the central purchase organization bought diamonds from the big mines in Angela and Congo that did not belong to De Beers to avoid the saturation in the market and as a result of this, to obtain an increase in its inventory of diamonds.​

- Moreover, the achievement of De Beers on signing the agreement in 1960 to commercialize the diamonds from the new discovery of kimberlitas through the organization of central standards organizations although it was cancelled lately. Also, De Beers was considered non racist.

- Thanks to geologists of the company, large ducts of kimberlita such as the one of Orapa and Arguille were discovered.

- The diamond mines in South Africa Namibia, that De Beers owned, were considered the wealthiest and most productive in the world.

- De Beers had security measures to avoid smuggle of diamonds.​

- The CSO kept the inner group of intelligence of the market, which was responsible of understanding the flowing of diamonds in the market.

- To sell rough diamonds, the CSO had a routine of solds highly controlled, called observation.​

- It was remarked the importance of an excessive level of speculation, which has a result of overpricing, higher than the prices that the secondary markets were paying, allowing the use of the diamonds as a valuable saving.

- In spite of the doubts, De Beers is still increasing the prices of CSO, due to the pressure of the nations producing diamonds.

The main threats are:

- Anglo-American bought a huge mine in the African coast

- Consolidated Diamond Mines (CDM) of low price; ​ which made it direct competitor of De Beers, which then bought the mine.

- De Beers bought important amounts of diamonds from smuggle; to avoid taxes and to buy them at the lowest possible price.

- The competition in the industry of cut, limited the margin of profit in the polished diamonds around 20%.

​ The main opportunities are:

- De Beers discovered several mines of high quality and this helped the company to extend its production.

- To obtain a higher percentage of selling De Beers decided to have a controlled selling (observation) in which the clients sent in advance, the ​order of diamonds they wanted and in the exhibition, the clients received their orders in shoe boxes.

- Through expensive, long romantic advertisements, the company could increase the demand in and out of the United States.

From the analysis of the five forces of Michel Porter, two important elements are highlighted which are vital for the industry of this case, because the industry counts with suppliers and consumers particularly different.

​Suppliers: The countries suppliers of diamonds, depended on the exportations of diamonds to generate strong profits, the illegal suppliers sold rough diamonds, stolen or smuggled.

​Consumers: The demand that was thought to be worldwide, was based in the number of marriages per year, focused at first in the United States. Jewelry Stores are another kind of consumer because they only sold diamonds that had the four main requirements: carat, color, clarity and cut. A different kind of consumer would be the guests at exhibitions, who ordered large quantities per year.

The kind of generic strategy applied to De Beers, is the difference because the diamonds inside the market are unique, which provides a major loyalty of the clients and less sensibility in the variety of the prices.

References

Cranfield University. (1999).De Beers: Diamonds are for Asia. France: The European Case Clearing House