De Beers

The Rise & Fall

• De Beers was founded in 1888 by Cecil Rhodes

•

• De Beers group of companies was leading in the following manufacturing sectors:-

1. Diamond exploration

2. Diamond Mining

3. Diamond Retail

4. Diamond Trading

5. Indrustrial Diamond

• Historically had therefore owned 85% of the Diamond share Market and hence known for influencing supply and demand to control prices.

History

Controlling Demand

• Generated the myth that supply was scarce when in reality they had collected rough diamonds from majority sellers and stockpiled them to maintain high prices.

• Marketing Campaign – “A Diamond is Forever” : A Campaign used to convince people not to sell or buy used diamonds

• Regulated and manipulated their supply to maintain the demand.

• Had Government support in major African nations like Namibia, South Africa as they delivered big and stable revenues for the government.

• This monopoly helped in demand and supply control process.

Losing Control of Demand

• 1991: Dissolution of Soviet Union.

Weakened partnership

• 1996: Argyle mine pulls out of cartel.

Weakened their monopoly and broke the cartel

• 1998: Commencement of production from Canada’s Ekati mine

Further weakened their monopoly in controlling supply & prices

• 2001: Class Action suits filed.

Created legal barriers to do business in America

• 2003: Commencement of production from Canada’s Ekati mine.

• The Graph below shows how these factors affected its market share.

Graph depicting depreciation of De Beers’ Market Share

By the end of the 1990’s, De Beers’ market share had fallen from as high as 90% in the 1980’s to less than 60%.

Other Reasons

• Other Big Miners developed their own supply of Diamonds

• Extra-ordinary Public relations pressure after the news De Beers sells conflict Diamonds.(purchase of these diamonds from Africa was resulting funding of the rebel armies there.)

• Demands for synthetic diamonds increased

• Israeli diamond retailer “Lev Leviev” supplied stones directly at a lower price to his own polishers.