Slide 3

Diamonds are one of the worlds most precious natural resources. These
unique stones are almost as old as the Earth itself, and have become
culturally, socially, economically, politically and even scientifically
significant. Figures from the World Diamond Council state that each year,
around US$13 billion of rough-diamonds are mined (65% of which come
from Africa). The diamond value chain (from exploration, to mining,
processing and retail) employs over 10 million people around the world,
and jewellery sales alone (having grown three-fold in 25 years) are now in
excess of US$72 billion per annum.
Why are diamonds important?
The truth is nobody needs a diamond. You dont need a diamond to heat
your home, run your car or power your cell-phone. As a business, its
clear to us that there is only one source of value for diamonds- and that is
the consumers desire for the product. 99% of diamond demand is from
the jewellery industry, less than 1% goes to industrial uses. For that 99%,
diamonds represent a cultural phenomenon. They signify all the values
that people recognise as being attributable to the stone- love,
commitment, marriage, relationship, the birth of a child, accomplishment
and so on. More than just being a luxury item, they are pieces that
represent milestone moments- thats why theyre important.

Slide 5
De Beers, one of the world's largest rough diamond producers.

Slide 6 - 11
De Beers have an outstanding heritage of diamond expertise that
stretches back over a century, which they have applied daily to the
innovation and creative talent of jewellery design since the creation of De
Beers Diamond Jewellers in 2001. De Beers is known around the world for
creating the finest diamond engagement rings, wedding rings and other
elegant diamond jewellery you'll treasure.

Slide 12
DeBeers is a consortium established at the turn of the 20th century that
was created in order to control diamond production from South Africa.
Over the 20th century, it came to control the world diamond market and is
now synonymous with the precious stone.
DeBeers was founded in 1888 by Cecil Rhodes, the famous businessman
and Politian, who was also the founder of the state of Rhodesia. Rhodes
arrived in South Africa in 1870 and gradually gained control over a
number of important diamond mines, eventually forming DeBeers
Consolidated Mines Ltd. One such mine was the Big Hole at Kimberly,
thought to be one of the largest holes ever dug by hand.

Slide 13

For many years, diamonds were a scarce commodity found almost

exclusively in the large river deposits of Brazil and India. This all changed
when a single diamond was found in South Africa by a child on the banks
of the Vaal River. This began a diamond rush in South Africa, and before
long extremely large and easy-to-access diamond reserves were being
exploited.
Nearly all of the worlds production of diamonds came from mines owned
by Rhodes at this time, and so DeBeers was in an extremely good position
to control the production and sale of diamonds across the world. The
business model for DeBeers was incredibly simple; as it produced the
majority of the diamonds, it would only release a small number at a time
to the market to satisfy demand, thus stabilising diamond prices.

Slide 14
What is Cartel ?
A cartel is an agreement among competing firms to collude in order to
attain higher profits. Cartels usually occur in an oligopolistic industry,
where the number of sellers is small and the products being traded are
homogeneous. Cartel members may agree on such matters are price
fixing, total industry output, market share, allocation of customers,
allocation of territories, bid rigging, establishment of common sales
agencies, and the division of profits.
Foundation of De Beers Diamond Cartel
The international diamond cartel is controlled by a handful of firms which
is also referred as De Beers Cartel. Eight countries Botswana, Russia,
Canada, South Africa, Angola, Democratic Republic of Congo, Namibia and
Australiaproduce the bulk of the worlds gem diamonds, and most of the
producing entities within these countries adhere to an explicit set of rules
of diamond cartel.
In 1867, the accidental discovery of diamonds in South Africa laid the
foundation of the modern diamond industry. Within months of the first
discovery, prospectors from around the world rushed to pan the waters of
the Vaal River.
However, the bulk of the diamonds did not lie on bed of the river, but
instead inside deep volcanic pipes. This forced the miners to pool their
resources and cooperate with each other.
In 1874, an Englishman named Cecil Rhodes arrived at Kimberley Mine
and began renting very effective steam-powered pump to the miners
which was used to pump out water from the mines. He soon installed
pumps at other mines in the area and shortly thereafter began purchasing
claims in the mines themselves.
As Rhodes acquired these mines, he started facing challenges of the
diamond trade

Solution to problems was to form a well-integrated organization to

manage the flow of diamonds from South Africa. Idea behind this was to
keep supplies low and prices high. And if excess supply ever hovered on
the market, De Beers itself would acquire and stockpile these stones.
So, Rhodes signed a formal agreement with his buyers (local diamond
distributors) to form a Diamond Syndicate. Under its terms, the
distributors would buy diamonds exclusively from Rhodes and sell them in
agreed-upon numbers, at agreed-upon prices.
In 1880, Rhodes formed the De Beers Mining Company and by 1890,
Rhodes controlled all of South Africas major mines, along with the
distribution channels for their output.

Slide 15
As Monopoly
De beer was almost the sole seller of diamond.
Sells a commodity with no close substitute.
De Beers took control of all aspects of the world diamond trade in 1989.
The main principle of de beers business model was to match the supply
of diamonds with demand.
They could determine who could buy uncut stones, in what quantities and
quality and decide which cutting centers to be used.
Decline as a Monopoly
In 1991, the Soviet Union (the world's second-largest diamond producer
by value) collapsed. Involvement in a 1994 price fixing case.
In 1996, Australia's Argyle mine became the first major producer to
terminate its contract with De Beers.
Several rich diamond deposits were discovered in the Northwest
Territories of Canada.
Diamonds became tainted by the term "blood diamonds".
High-handed treatment towards buyers.
Alternative distributors came into prominence.
Weakness in the economies of consuming regions.
The results: De Beers controlled a shrinking share of output in a shrinking
market.
The resulting problems for De Beers helped to demonstrate the inherent
instability of a cartel.

Slide 16

Angola's diamonds are among the world's best when measured by value
per carat and promise a lucrative return for anyone who can market them.
Angola contributes about 7 percent to the world's rough output of
diamonds. Its stones are of a high quality and value. They are mined in
the Cunago valley, in the country's northern province Lunda Norte. The
Angolan government controls diamond mining through its company
Endiama, but issues concessions to other mining companies to run the
mining operations.
In the midst of a civil war and in need of fast cash inflows, Angola followed
in 1992 the Russia's move of a few years earlier: while maintaining its
agreement with DeBeers, Angolan producers increased the supply of
rough diamonds by selling them directly in the market. Angola was not
quite big enough to destabilize the cartel on its own, but having to sweep
$500m worth of Angolan gems on the market did not help DeBeers'
situation (especially in light of diminishing demand and increasing stocks).
However, the Angola problem was never perceived as a long-term threat
to the CSO but rather as a product of the political turmoil in country at
that time. Differently from previous cases, DeBeers did not inflict any
harsh punishment and let the Angolan diamond producers largely alone.
A temporary truce in Angolas decades-long civil war during the early
1990s created an opportunity for thousands of garimpeiros (independent
miners who often use only rudimentary tools), many of them recently
demobilized soldiers, to dig for diamonds in the countrys alluvial fields.
Suddenly hundreds of thousands of carats of diamonds, typically of better
qualities, were being sold through offices in Luanda and Antwerp. The CSO
reportedly bought some $600 million of such goods to remove them from
the market (and thus keep prices stable) in 1996 alone (Shor, 1996d). This
decision caused an abrupt increase in De Beerss diamond stocks, drawing
criticism from the financial community. Although the CSO purchased
Angolan diamonds using its own funds, without borrowing,

Slide 17
Bargaining Power of Suppliers
As seen in the case study the diamond industry is getting more vertical
which means that what was previously separate companies doing
separate parts of the industry for e.g., mining, polishing and cutting to
jewelry stores like Tiffanys is being changed by companies like Tiffanys
buying mines and mining companies like Aber diamond buying stakes in
retailers like Harry Winston. As a result mines where able to directly reach
the retailers without having to go through DeBeers and were able to
negotiate better prices. Also with other collaborations like between Alrosa,
a Russian producer with Lev Leviev, a manufacturer of polished stones
DeBeers pool of suppliers was reducing thereby increasing the negotiating
power of its remaining suppliers.
Bargaining Power of Customers

DeBeers has two types of customers that affect its business, retailer who
buy from diamonds from them and the end customer who buys diamonds
from the retailers. Due to the above mentioned verticalization of the
diamond industry the retailers have bought stakes in mines and mining
companies. As a result of cutting out the middle man in the industry which
was DeBeers, retailers like Tiffanys can get diamonds at a cheaper price.
As for end customers synthetic diamonds which are exactly like natural
diamonds provide a cheaper more eco-friendly alternative to buying
natural diamonds.
Threat of Substitute Products
Synthetic diamonds or lab manufactured diamonds have been around
since 1950s but have never had a market in the jewelry industry. Most lab
made diamonds are used for industrial purposes. However in the last 10
years the CVD process has produced diamonds which are of the same
quality as natural diamonds.
Threats on new Entrants
The threat of new entrants in the mining business is relatively less. It is
nearly impossible for someone who is not already part of the industry in
some form to start a diamond mine. Since it is an extremely cost intensive
business and requires political support in the country in which the mine is
based makes it tough for a new comer to start. The main threat for
DeBeers would come from retailers moving into the mining industry or by
retailers and producers bypassing DeBeers and trading directly with each
other.
Competitive Rivalry
Competitive rivalry has not been very much for DeBeers since it had been
able to control the diamond supply by buying 80% of all diamonds
produced. However due to pressure from governments and also due to
producers and retailers wanting to break this monopoly DeBeers face stiff
competition in the market. DeBeers has to brand itself differently and
provide diamonds of certain quality to its customers rather than
customers having to buy whatever De Beers gave them. It now has to
price the diamonds as per the market rather than controlling the supply of
diamonds as it previously did. It has had to increase marketing and
become more customer focused in order to find a niche for itself in the
market.

Slide 18
Advantages of Cartels
1. Assurance of profits: Since prices charged by cartels are more than
the cost of producing and distribution, members are assured of a
reasonable profit margin.
2. Monopoly power: Since cartels restrict competition, they are able to
enjoy monopoly power. Products can be sold at high prices to maximize

profits. Further, different prices can be charged in different markets based

on the degree of monopoly.
3. Marketing economies: Since goods are advertised on a common
platform, competitive advertising is avoided. Since there is bulk buying of
advertising space and time in media, the cost of advertising is also
relatively less.
4. Production efficiency: The cartel undertakes the-responsibility of
marketing the products. Therefore the manufacturer is free to focus on
production and work to achieve efficiency and cost reduction.
5. Ability to withstand business cycles: Since businesses are united,
they would able to-withstand the adverse effects of business cycles. They
can regulate their output and can influence prices and continue to survive.
6. Economies of scale: The cartel bears the advertisement, sales
promotion, handling, packing and transportation of a large volume of
output. Therefore it would be able to negotiate lower costs and save on its
expenses.

Slide 19
Disadvantages of Cartels
1. Lack of stability: Cartels are voluntary associations and do not have
complete control over their members. Members may exit a cartel any time
if they feel that their interests are not being served. Therefore they are
weak and lack stability.
2. Inability to stabilize demand: Cartels have proved ineffective in
preventing fluctuations in demand. They have not been able to stabilize
demand to a great extent.
3. Protection to inefficient firms: There is no incentive for efficiency. As
cost plus pricing is followed, member units are assured of profits. Firms
lack the incentive to improve efficiency and reduce costs.
4. Creation of monopoly: Cartels lead to creation of monopoly. Such
monopolies adversely affect the interest of the consumers by resorting to
restricting output, creating artificial scarcities, producing low quality
products and selling them at high cost, lack of innovation etc.
5. Creation of excess capacity: Enthused by the high profits earned by
the members of the cartel during boom periods, many businesses would
be set up and membership of the cartel would increase. But during
periods of recession and depression, the over capacity created would lead
to high unsold stock and member units would sink together.

Slide 20
Q. What should Debeers do to increase or stabilize its share ?
It should have a direct contact with the diamond mining firms, colabrate
with them by providing them with the funds. Understand the political

matters of that country and try to colabrate with the mining firms. Open
their own franchises of diamond finish gating in the country where
diamond mining are done. Try to give them a offer such as for eg. Debeers
company provide you the 70% of total cost of mining, on allow the to
contribute just 30% of the cost and give them offer that the income
generated from mining its 30% will be provide to them. To take the Govt.
relief them give 5% of mining income to the government. Through these
ways debeers with the cost cutting can generate its large no. of share in
the mining fields and he can purchase its own only. Then they can sale it
at their price.

Slide 21
Q.2 How do you manage market share in such high competition
market ?
By making changes in the policy of buying & selling of Diamonds
allowing(producer) the mining company to participate with debeers in the
market by giving them shares By opening large no. of their branches in
the different part or by providing franchises to the different part of the
country. In its shape or in its franchises shop selling diamond at the low
price of its cartel agreement, This should be important by making others
also to sell at the same price debeers sells. Heavy advertising for making
people aware that the own debeers have came up with own shops so
have your quality diamond from your own safe place.

Slide 22
Q. 3 How does debeers can form the cartel / Should keep or Leave
cartel ?
Debeers should keep the cartel through these method they can regain
their market again. By making the Govt. of mining company in its favour
by providing them funds for the development of country. Debeers should
come up with the new agreement of cartel such as Doing Joint Venture
with the mining company
100% mining
DEBEERS

Local

Miners
80%
20%

Profit Sharing
80%

20%

Routan mins
10
Through this process total generate diamond s 70% going to be with the
debeers, by giving a some good amount they can have the further more
diamond of the local miner through the clause of cartel.

Slide 23
Synthetic diamonds are diamonds made in a laboratory process which are
very similar to diamonds found in nature but are much cheaper. The major
downside is that in the laboratory as yet it is possible to make diamonds
only lesser than 2 carats. However, most diamonds sold are lesser than
this carat value so the market for synthetic diamonds can potentially be
huge.
DeBeers has tried to resist the advent of synthetic diamonds in the
jewelry industry due to obvious reasons. They have done this by trying to
ensure that buyers are aware that what they are buying was made in a
laboratory. On the other hand companies like Gemesis, makers of
diamonds have tried to bust the aura of the rarity of the diamond.
Product
The product is lab manufactured diamonds of up to 2 carats. These
diamonds are exactly the same in chemical composition as diamonds
found in nature. The benefits of synthetic diamonds are
Absolutely flawless since they are made in a lab.
No possibility of getting a blood diamond.
Eco friendly production process which does not require clearing of forests
or natural habitats.
Colored diamonds are much easier to make by adding impurities in the
process. In nature colored diamonds are very rare and sell at exorbitant
prices.
DeBeers strategy here should be use Element Six to make diamonds for
the jewelry line. Since they already have the infrastructure to sell the
diamonds they could use the same stores to sell synthetic diamonds.
Price
The biggest benefit of a synthetic diamond is that it can be manufactured
at a much lower price that natural diamonds. This is great for increasing
the market and being able to add lower income people to the possible
market. In general lab made diamonds sell for less than 1/10th the price of
a natural diamond. DeBeers strategy here should be to sell the synthetic
diamonds in the same stores they sell the natural diamonds. They could
mark down the synthetic diamonds and make the difference in the natural
diamonds. Allowing people to choose would be the best way to develop

the market rather than restricting peoples choices which DeBeers has
tried to do in the past.
Placement
Instead of putting down synthetic diamonds DeBeers needs to embrace
the market for them and try to develop it. While making sure people know
the difference between natural and synthetic they could market the
synthetic diamonds to certain groups of people
Putting ads in Nature magazines showing that these diamonds have been
made in an environment friendly way.
TV and media ads showing that lower income people too can afford
diamonds on their weddings.
Using the recession to sell cheaper synthetic diamonds.
Have a scheme where any profits from synthetic diamond sales would go
towards the betterment of poor African communities which are mining for
diamonds. This would go a long way in showing DeBeers in a better light
and improve their image.
Promotion
Promotion for synthetic diamonds should mostly be of a pull type where
media advertisements and print campaigns are used in order to generate
a demand. The target customer for these ads is young people about to get
married and lower income people. What these ads need to focus on are
Eco friendly manufacturing of synthetic diamonds: This will appeal
to a growing pool of young people worried about the environment and
effects of humans on earth. Even if they can afford natural diamonds they
may want to purchase synthetic diamonds.
Lower Income people: For a lot of people a 1 carat natural diamond
would be out of reach yet everyone wants a diamond as an engagement
ring. A synthetic diamond would be a great way to reach this market.
Ads in wedding magazines: This would be a great way to start the
promotion of wedding rings using synthetic diamonds. Highlighting the
benefits of synthetic diamonds and promising a part of profits to charity
would allow DeBeers to tap the charity instinct of people.
Branding of Synthetic diamonds: A specific brand similar to Hearts of
fire could be created which would only be synthetic diamonds. This would
allow people buying these diamonds to not feel as if they are settling.

Slide 24
Collaborators
DeBeers already has a wholly owned arm called Element Six which makes
synthetic diamonds. They could also collaborate with other synthetic
diamond manufacturers in order to buy their diamonds and sell them in
DeBeers stores. Some of the other collaborators they could have are

NGOs working on African diamond mining communities: They

could use these NGOs to do charitable work from the sale of synthetic
diamonds and make sure that this effort is properly advertised.
Collaborating with environmental groups: Collaborating with
environmental groups to show how the sale of synthetic diamonds saves
forests and natural habitats.
Collaborating with diamond cutters: DeBeers could collaborate with
diamond cutters to come up with a specific innovative cut meant for these
diamonds only. The flawlessness of synthetic diamonds could be
advertised or used in these cuts.

Slide 25
Strengths
1.De Beers employs approximately 20,000 people around the world
2.It is one of the biggest companies in the diamond industry, mining,
trading and manufacturing
3. Offers premium diamond jewelry which include necklaces, rings,
bracelets, gifts etc through 50 exclusive stores globally
4.Strong brand name and brand equity globally
5. De Beers is known for its association with international celebrities as
brand ambassadors
6. Excellent branding and marketing making it a top-of-the-mind brand
Weaknesses
1. Strong competition from other brands means limited market share
growth
2. Preference of people choosing gold over diamond, making it a premium
product for occasions
Opportunities
1.It can increase its presence in global markets
2.Acquisition of smaller businesses to increase brand position and reach
3. Tie-ups with corporate and business partners
Threats
1.Trends change quickly, hence innovations and R&D are investments
2.Economic fluctuations mean people decrease their spending
3. Govt policies, taxes etc also affect the premium jewellery segment

Slide 26
Altenatives
Establish secondary market for diamonds as investments
Liquidate smaller, lower-quality diamonds, use proceeds to purchase and
hold higher quality stones
Find new sources of capital, continue to buy surplus inventory

Decrease production
Increase demand
Recommendation: Three Components
Acquire additional financing to fund the purchase of excess inventory
through the CSO
Reduce output of De Beers-controlled mines
Employ aggressive advertising strategy aimed at increasing demand
Implementation Plan
Address the cash shortage - secure additional financing
Decide on operational strategy to ramp production down in companycontrolled mines
Evaluate or hire advertising agency to begin working on ways to pull
product through the channel more effectively.