0 | P a g e

MASTER OF BUSINESS ADMINISTRATION

MGT 6798

CASE METHODOLOGY:

An Individual Assignment

Submitted to:

Mr. Ayub bin Hj. Khalid

Submitted by:

Fakhrul Anour bin Abdullah G1136857

1 | P a g e

CONTENTS

1- ABSTRACTS Page 02

2- INTRODUCTION Page 03

3- PROBLEM STATEMENT Page 07

4- SWOT ANALYSIS Page 10

5- CONCLUSION Page 11

6- RECOMMENDATION Page 13

7- OTHER REFERENCES Page 14

2 | P a g e

ABSTRACT

Pure diamond is well known throughout the world as the symbol of luxury, beauty, strength and

love. What is more important is the natural value of diamond adorned by its quality as the most

precious gem which may possess by a woman. As DE BEERS emerged as the world leader in

diamond business for more than 100 years, surpassing many generations, the sustaining secrets

has yet to be discovered in all its strategy. But one thing for sure, instead of just being the

producer for a product that’s only meant for luxury life, the depth of its organization is highly

respected for its philanthropy awareness and faithful works upon social responsibilities in its

environmental issues. Case followed will analyze the living concept of DE BEERS that goes

timeless against all odds.

“We are conscious of our responsibilities not only to our shareholders,

to the industry as a whole and to the consuming public, but also to the

governments of the countries in which we operate.”

— Harry Oppenheimer, De Beers 1995 Annual Report

3 | P a g e

INTRODUCTION

The value chain of natural or rough diamond business is consisted of each

expensive journey that could took many years with detailed activity in

protruding the gems finest, solid and glittering ever existed in the world.

Typically it took at least 12 to 15 years to progress; from exploration until

mine production (alluvial, underground or/and open pit), with experience and

technology being the key to reduce ample time and operating costs. To be

precise, diamond industry is a luxury business that consume the manpower of

underprivileged. And without government interference for social stability and

welfare, this business might lead to corruption and immorality.

DE BEERS incepted in year 1888 is the major player in natural

diamond productions which not only play as the influenced utilizer of the

value chain but also holds the Diamond Trading Company (DTC); a sales and

distribution arm that control 75% value of the world’s rough diamonds.

As the vertically integrated diamonds producer, DE BEERS also

controls the power of supply to its ‘sightholders’ (dealers designated as DTC’s

clients) with no guaranteed specific quality offered.

As of year 2000, DE BEERS remained the world’s leading diamond

producer and distributor with extensive activities in the value chain of

exploration, mining and distribution of rough stones as well as significant

influence in processing, manufacturing and marketing.

EXPLORATION

MINING

SORTING

DISTRIBUTION

TRADING OF

ROUGH

STONES

PROCESSING

GRADING FOR

RETAIL

CONSUMPTIONS

JEWELERY

MANUFACTURING

RETAILING

THE

DIAMOND

VALUE CHAIN

►

From India to Brazil then South Africa, gem quality diamonds were usually alluvial as

lower-grade stones could not withstand the arduous trip to the surface and along

waterways deposited by water erosion of kimberlite pipes.

4 | P a g e

Though during year 2000 the diamond stocks of DE BEERS rapidly decreased since

1998, but the earnings owned increased. Thus made DE BEERS decided to spend over $70

million on new exploration with a multinational team of 200 geologists involved. The result, DE

BEERS mined more than 36 million carats in year 2000 or one-third of industry by volume and

45% by value, mainly in underground and open-pit mines.

The rich and famous of diamond business took its toll of historical journey that involved

many changes not only in its value chain process but also to the countries where it held the

mines. Since the precious stone was referred as diamond as far back as 2,500 years ago and first

trading center known existed in Venice during 774 A.D., many years later the digging for

diamonds had turned into colonization of mines field by Cape Colony and the racial issue for

labor supply (apartheid) as the discovery entered South Africa at the region of Kimberley.

When DE BEERS was formed by Cecil Rhodes (with Barney Barnato), the business

value of diamonds increased as it practiced social responsibility among its workers by

subsidizing the creation of a local school of mines, health clinics and numerous other causes. DE

BEERS which controlled almost 100% of South Africa diamond

output and 90% of world diamond output, formed British South Africa

Company to acquire mining rights throughout south-central Africa, in

effect, became the shadow government. That explained when Cecil

Rhodes became Prime Minister of Cape Colony in 1890 and enacted

laws benefitting mine owners.

◄

While alluvial diamonds qualified as the gem quality compared

to underground and open pit diamonds, but many alluvial

producers did not employ best practices, and their operations

were often more labor intensive than necessary. In addition,

bureaucracy, administrative charges, and corruption added to

industry costs.

►

As Prime Minister of Cape Colony, Cecil Rhodes (who never married and also

invested in gold) restricted voting rights to literate persons, but championed

educational reforms and turned his attention to the development of the country.

5 | P a g e

The business of DE BEERS decreased as Cecil Rhodes deceased (in 1902) when its share

fell to 40% due to large competition and new governance. With the re-establishment of

government as the Union of South Africa in 1910 (as part of the British Commonwealth), the

racial separation policies was introduced to uphold the apartheid regime that increased human

separation by skin colors by enacting the laws—The Mines and Works Act of 1911 and The

Natives Land Act of 1913.

“The purpose of the company is to make profits for its shareholders,

but to do so in a way that makes a real and lasting contribution to the

countries and communities in which it operates.”

— Earnest Oppenheimer, 1954 (Chairman of DE BEERS)

When Earnest Oppenheimer took over DE BEERS in 1929 for almost 30 years, it had to

go through a series of challenges of the Great Depression which began in 1930. It has fueled

Afrikaner nationalism and the drive for white supremacy and racial separation in South Africa.

Though Oppenheimer was against the Afrikaner nationalists, but with the National Party came

into power in 1942, the era of apartheid began. This caused DE BEERS to fight for their workers

by having different policies than the government. Though

being criticized for not fought enough against the

apartheid, Ernest used his influenced to raise £3 million

and constructed 15,000 houses over three years in Soweto

then was preoccupied with philanthropy and improving the

plight of blacks.

◄

Ernest Oppenheimer was the founder of the Anglo American

Corporation in 1917 to mine gold, which then took a major stake in DE

BEERS that made him chairman in 1929. During his era, Diamond

Distribution was consolidated into the Central Selling Organization,

later to become the Diamond Trading Company (DTC).

6 | P a g e

In 1957, the son of Ernest, Harry Oppenheimer replaced his father as the Chairman of DE

BEERS and would be CEO until 1984. He would preside over a period of vigorous expansion in

the industry and the company as well. With the new discovery of diamonds in 1967 at Bostwana,

he negotiated with the government that led to 50-50

partnership called De Beers Bostwana Mining Company

(Debswana) which would control all diamond mining in

the country. Bostwana government used the 50% share

in Debswana to build schools, infrastructure, and health

care services.

Harry also spent some time as the Member of Parliament for Kimberley (1948 to 1957)

and became the opposition spokesman on economics, finance and constitutional affairs. His

opposition to apartheid was well known as were his philanthropy and business principles.

Nicky Oppenheimer, the son of Harry succeeded him as Chairman in 1985. Exploration

was expanded and after years of trials, DE BEERS developed the Namibia fields through a joint

venture with the government called Namdeb. One-third of Namibia’s annual foreign exchange

earnings contributed by diamond revenues and it were the second-largest employer and the

country’s largest taxpayer, procuring many goods and services from Namibian suppliers. During

his period, there were external factors affecting the business performance of DE BEERS such as

the liberalization of South Africa’s international trade policies

at the end of the 1980s and the collapse of the Soviet Union in

1991. But among all the external challenges, DE BEERS still

continue its philanthropy works through the De Beers Fund.

►

Just like his father, Harry also well known for his philanthropy

where he initiated a fund which financed numerous projects that

contributed to community development on a large scale in

South Africa, particularly in the arenas of education and health.

◄

Nicky Oppenheimer era went through the end of apartheid in year 1994

when Nelson Mandela became the president of South Africa.

7 | P a g e

PROBLEM STATEMENT

The end of apartheid era in 1994 had changes the policies made in South Africa. The situation

had become different for the native people where high priority then given to them instead of the

Afrikaners. While recognizing that diamond mining had made economic contributions, a

growing proportion of policymakers in Africa believed that the diamond industry had not

generated sufficient contribution by way of value-added processing activities. Therefore the

Minerals Development Bill was drafted by the South African Department of Minds and Energy

(DME) which would become the country’s new mining law by year 2000 and give the state

exclusive custodianship of all mineral rights. Then a new policy called Black Economic

Empowerment (BEE) came into effect in 2000 with a goal of creating opportunities for

previously disadvantaged communities and individuals, including black Africans, women and

people with disabilities.

“The diamond industry is vital

to the South African and

southern African economy.

Rather than boycotts being

instituted, it is preferable that

through our own initiatives the

industry takes a progressive

stance on human rights issues.”

— Nelson Mandela, 1999

(former President of South Africa)

8 | P a g e

◄

Jonathan Oppenheimer, the son of Nicky, became Chairman of De Beers

Consolidated Mines along with Gary Ralfe (Managing Director of De Beers

Group, Gareth Penny (Managing Director of DTC) and Stephen Lussier

(Head of Marketing) to draft a new strategy for DE BEERS.

In addition to the changes in policies as one of the biggest challenges, a potential threat

came into the gem market by the advancing technologies for synthetic production. Thus DE

BEERS needed a new strategy to cope with both a rapidly changing industry environment and

new expectations of society.

In 1998, a transition of DE BEERS management began a review of its strategy.

Highlighted by the social challenges faced by DE BEERS, the review suggested that diamonds

compared unfavorably with the luxury goods sector in marketing. With transition of the diamond

industry in year 2000, although the growth rate of United States diamond sales increased some,

other markets, especially those in the Far East, saw steep declines

in growth rates. With that DE BEERS concluded that brands

could sell diamonds just as they sold other luxury goods and that

innovations were needed to drive demand.

“

Also known

as laboratory-created

diamond, laboratory-

grown diamond, cultured

diamond or cultivated

diamond.

The diamond produces in an

artificial process, as opposed

to natural diamonds, which

are created by

geological processes.

►

Synthetic diamond

9 | P a g e

After gaining the endorsement of antitrust authorities in Europe, DE BEERS introduced a

new ‘four-legged’ strategy for the new century as below:

‘FOUR-LEGGED’ STRATEGY

First-legged:

To improve efficiency

and margins from De

Bees’ own operations

Second-legged:

To stimulate demand of

diamond by at least 5% per

year

Third-legged:

To establish De Beer’s

own brand that directly

meets the end customer

Fourth-legged:

Suppliers of Choice (SOC)

– to improve efficiency and

productivity of sight holders

SOC-01:

To make the

diamond value

chain more

efficient by

selling rough

stones to a

smaller number

of vertically

integrated

sightholders that

would have to

meet demanding

criteria with

respect to

finance,

manufacturing,

distribution, and

ethics.

SOC-02:

DE BEERS

would provide

more value-added

services such as

training, a secure

extranet,

marketing,

greater generic

advertising and

cooperative

campaigns, data

support, and

market

intelligence to

sightholders.

SOC-03:

DE BEERS

would offer

sightholders the

use of

Forevermark™, a

brand that would

be positioned to

be associated

with adherence to

the highest

professional and

ethical standards.

This would

replace the DE

BEERS name on

all generic

advertising.

SOC-04:

Sightholders

were required to

comply with the

best-practice

principles (BPPs)

that ensured all

value-chain

activities were

responsible and

ethical with

respect to the

conduct of all

business

practices, also

recorded all

business

transactions.

2013 © Forevermark™ [x] Gareth Pugh

10 | P a g e

SWOT ANALYSIS

STRENGTHS

1) Strong position within

industry

2) Established relationship

with government as well

as slight holders

3) Heavy investments in

marketing and

advertisement

WEAKNESSES 1) Difficulties in acquiring

the rough diamonds

2) Heavy spending in

operations

3) Limited mines location—

offsite the civilized areas.

W-O Improvement of

technology may increase

the value chain

productivity by reduce

costs, optimizing results

and discovering new

location for diamonds

shorter period than before.

S-O

Long-run credibility and

high relation with

governments to sustain the

industry are the network

chances to improve

strategy by increasing the

value of brands. Also it is

best for the company to

enhance affordability.

OPPORTUNITES

1) Technology

advancement

2) Market expansion

3) Employment

opportunities

4) Government

policies to support

industry

THREATS

1) Competitive

threats especially

on synthetic

diamonds

2) Strict law and

regulations

3) Issues on security

and quality

W-T

With difficulties of finding

rough diamonds, DE

BEERS increased inventory

by buying stocks from

competitors. Competing

with synthetic diamonds,

DE BEERS used

technology to prove quality

differentiation.

S-T

Synthetic diamonds are the

main threat to rough

diamonds, but good

business networking of DE

BEERS socially and

politically can sustain its

value to customers. Though

competition increased with

strong position of good

relations, value sustained.

11 | P a g e

CONCLUSION

The ‘four-legged’ strategy has open up a new way of diamond business especially for DE

BEERS. Based on its strategy reviewed in 1998, the top 15 diamond jewelry brands accounted

only for 13% of sales when compared to the top perfume brands (80% of sales) and the top 16

watch brands (50% of sales). Relating to such review, the new strategy has given a new strength

to DE BEERS in increasing its marketing value to expand performance in the industry. By year

2000, most of the four strategies have been legged for further development of DE BEERS in

long-run.

• Completed the acquisition of its first mine outside the African continent, The Snap Lake project

in Canada’s Northwest Territories.

• DE BEERS built a diamond recovery plant in Kimberley

• Completed the Orapa 2000 project in Botswana which has doubled mine capacity to 12 million

carats a year

• Commissioned a high-technology ‘Aquarium’ project at Debswana’s Jwaneng mine, including

automated recovery plant and a sorting facility.

• Opened Namdeb’s new mine at Daberas on the Orange River, replacing the Auchas mine

which was near the end of its productive life.

• Geologists of DE BEERS were also actively engaged in exploration projects, particularly

throughout western and central Africa, Canada and India.

• The establishment of De Beers Group-Louis Vuitton Moet

Hennessey (De Beers LV), a partnership that combined diamond

expertise with retail expertise and brand management. The goal was

to generate direct financial returns from the DE BEERS brand and to

catalyze the development of a portfolio of competing diamond

jewelry brands throughout the world.

12 | P a g e

• Acquired a 50% interest in Hindustan Diamond Company Limited (HDC) and became an

equal-joint-venture partner with the government of India in HDC’s rough dealership activities in

the ‘diamond capital’ of Mumbai. The DTC contributed to the advertising campaign for three

brands (Nakschatra, Ashmi and Arisa).

As DE BEERS sustained its branches globally and ventured into new frontiers, the

philanthropy activities were never let to waste. As its business in India started to show

development along with other countries it has constituted, along with the implementation of

BPPs, its businesses expanding in line with humanitarian activities provided. By year 2000, DE

BEERS remained the world’s leading diamond producer and distributor; employed 22,000

people in 19 countries, exploration made by 200 geologists in 25 joint venture exploration in

over 13 countries. Sustaining purity value against synthetic diamonds, DE BEERS invested

heavily in advertising of diamond—as a gift of love.

SOURCED: http://www.debeersgroup.com/en/About-Us/Locations/

The De Beers Group of Companies employs approximately 23,000 people in operations that span the entire diamond

pipeline, from mine to finger.

13 | P a g e

RECOMMENDATION

At the end of 2000, the DTC announced that its sales of rough-gem diamonds in

the millennium year had reached a record level of US$5.7 billion. DE BEERS

was also negotiating new five-year selling contracts with the governments of

Botswana and Namibia for the entire outputs, which contributed 60% and 11%

respectively, of DE BEERS’ total revenue.

DE BEERS had been doing continous CSR (Corporate Social Responsibility) for social

and environmental requirements including employee health and safety, child labor, forced labor,

human rights and the overall impact of operations on the local community. Through BPPs also it

monitored on any criminal activities in its value chain like money laundering and financing of

terrorist activities through sales transactions, supply chain management, sourcing of goods and

everyday business relationships. It is recommended for this survellience operations being put

into certified policies within the organizations to external supported by the government of

respected countries involved. Upon ethical in the organization to increase positive value among

employees, more policies on behavior should be implemented.

When it comes to business, all DE BEERS need to improve is at the level of networking

with sightholders where the marketing integration can be develop to increase demand in the

market. Instead of focusing on sales based on price of luxury products, DE BEERS should also

increase its marketing strategy by buying out more advertising campaigns to develop awareness

in many different ways. These campaigns are not necessarily about products value but also can

be integrated into its philanthropy activities like most oil and gas companies usually do.

Last but not least to sustain its competitive advantage in the industry, DE BEERS must

sustain its core business as the producer of pure diamonds instead of venturing into synthetics

quality.

►

A design of Nakschatra jewelry from India. By the early 2000s, there were 32

Indian jewelry brands, some marketed online. International jewelry companies

were opening up manufacturing units in Mumbai, while Iceland’s Beluga

Jewelry was considering manufacturing and selling in India.

14 | P a g e

REFERENCES

http://www.debeersgroup.com/

“Having read the histories

of other countries, I saw

that expansion was

everything, and that the

world's surface being

limited, the great object of

present humanity should be

to take as much of the world

as it possibly could.”

— Cecil Rhodes