DE BEERS PRESENTATION

Topics: De Beers, Diamond, Diamond Trading Company Pages: 12 (561 words) Published: April 18, 2015
“A Diamond is forever..
but power may be not”
D E B EE R S C A S E S T UD Y

A Cash Cow Industry
An estimated US$13 billion worth of rough

diamonds are extracted every year
 Extracted diamonds can be used for

industrial purposes or in the luxury sector
(gemstones)
Diamond jewellery is worth more than US$72

billion per year (very high profitability)

The biggest slice of the cake

A giant’s first steps
 Founded in 1888 in South Africa by Cecil

Rhodes, De Beers quickly obtained a dominant
position in the world diamond market.
 In just a few years, DeBeers became the leading
company of an international cartel, mostly
thanks to Ernest Oppenheimer and its heirs.
“Common sense tells us that the only way
to increase the value of diamonds is to
make them scarce, that is to reduce
production”
E. Oppenheimer

The Diamond “Trilogy” for success
There are 3 main pillars for the maintenance of
DeBeer
dominant position over time:
Control of supply through diamond
stockpiles

DeBeers sales and distribution arm:
CSO/DTC
 Marketing and advertisement


The Lion and the Gazelle
 In the 80s Zaire (DROC) counted for 3% of

world production of industrial diamonds and
was member of the De Beers' cartel
 The country asked for a lower a handling fee,
requests were refused and in 1981 Zaire left
the CSO
 Two months later the market was flooded by
diamonds and the price fell dramatically.
 Hit by the shortage of foreign currency Zaire
asked to be admitted again in the cartel.
 Of course De Beers imposed worse conditions
 There is no formal proof that it was De Beers,
but only De Beers had the power to act in this
way.

Financial Hurricane from Israel
In 1970s, Hyperinflation in Israel and Merchants wanted to hoard up

diamonds for selling them later.

PDVic < PDViD

To stop dealers from breaking away from its cartel, DeBeers:

- Created temporary surcharge.
- Cut Israeli dealers’ quota by 20%.
- Dismissed them from the CSO
As a result, Israeli dealers again conceded to DeBeers contract and paid a

defection fine.
Thus the DeBeers cartel was strengthened.

From Russia with love (…and return)
Why is Russia so important?
 Large quantities of diamonds discovered in Russia in
1957: it became the most powerful single producer
outside the cartel (20-30% of world’s production)
 Therefore DeBeers was seriously under threat
 Quickly negotiated an agreement

(Mirny Diamond Mine, discovered in the
late 50s)

Act I: The Secret Agreement
The estimated terms of the contract were:
 DeBeers committed to purchase 95% of

Russian output and trade it with CSO .
 Soviet Diamond Industry was allowed to cut,

polish and sell the remaining 5% autonomously.
 Russian diamonds were paid a price 10%

higher than general cartel price.

Act II : The Final Agreement
 In the 1980s Russia deviated from the agreement
 It was not punished! On the contrary, a compromise was

reached:
- Soviet Union officially joined the cartel
- De Beers guaranteed steady inflow of foreign currency by buying all its output

Concluding remarks
While it’s been possible to force small players

(Zaire) back to the cartel, it wasn’t so simple
for bigger producers (Russia).
 DeBeers’ market share fell from 90% in the

1980s to less than 40% in 2012
 “If everyone sticks to the cartel, then

everyone wins. But if anyone is stupid enough
to break the agreement, then EVERYONE
LOSES!”

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