Case De Beers
Martijn Hartog 308693
Question 1: What functions does the CSO perform as a global intermediary? How do these functions help expend the economic pie in the diamond industry? The CSO operates as preferred (primary) buyer of rough diamonds all over the world. These rights are contracted with countries and mines for a period of five years. This in order to dominate to dominate and regulate the world rough diamond industry. This by adjusting the amount of supply flowing to the market. In order to maximize return on its purchases she is aimed to keep the price relatively high. This by a buy now, sell later strategy on colossal scale. This helps extend the potential revenues to be gained in the industry for the Beers. We assume that the amount of gems are limited in the world. As was said in the case only few mines are worthwhile to exploit and only very few veins are found. Due to the character of the product gems are primarily used in jewellery. So the amount of marriages and disposable income of the population is the sales driver for De Beers. So not only the demand/supply is of influence on the price, also greatly the state of the economy. If De Beers would decide to dump all her product on the market, prices would drop severely. It is likely that another wealthy player would step in and buy the undervalued items in order to sell them in a later stage, which is a speculative position. This strategy is used daily in the market place, e.g. oil reserves, however is not that similar as it is mostly done in a smaller scale. De Beers 90% of the market, which nowadays seems impossible to achieve. Question 2: How does that expanded economic pie end up getting divided among the various players in the diamond industry? Why? The chain of the diamond starts at the mine where it is dug out of the ground, than sold to the CSO who sells it to cutters at a mark-up of about 30-40%. Afterwards it is sold to dealers with a 20% mark-up, who sell it...
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