De Beers Consolidated Mine Ltd.

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1.What functions does the CSO perform as a global intermediary? How does these functions help expand the economic pie in the diamond industry? Around 1930s De Beers bought up their bankrupted “single” consumer, London syndicate, and named it De Beers central selling organization (CSO), which was helping out De Beers as its: •Wholly-owned distributor. CSO controlling around 80% of the world’s diamond supply. This strategy controlled De Beers’ vast supply and enabled to maintain its prices high. Such as, if a competitor offered diamonds on the market outside CSO, De Beers would be flooded the market with its diamond inventory. As De Beers’ main distribution arm, CSO continued to influence market’s supply and demand, and to purchase other producing nations (excluding South Africa, Zaire, Namibia, Uni Soviet and Botswana) in order to control the market’s price. •Rough diamonds’ sales. CSO will held selling routinely, named ”sight”, to sell its diamonds 10 times a year, thus CSO has a sole power to determine the quantity and the price for its diamonds. CSO has requirement to its sightholders to submit any information about their businesses (inventory and market) and the right to come for on-site audit. This function would help De Beers to maintain pricing stability further downstream. •Internal market intelligence group. Moreover, CSO maintained this function to understand the flow of diamonds through the pipeline and to monitor diamond inventories at each stage of distribution. They conducted an extensive consumer survey at least once every three years in each country that accounted 1% of the world’s demand for diamond jewelry, and every year in major markets such as USA. In the end, De Beers could simply adjust their quantity and mix the diamonds that it released.

By these major functions of CSO, De Beers made outside competition nearly impossible, due to the fact that diamonds producers had to sign in exclusivity agreements with the CSO and majority of...
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