DEBEERS DIAMOND DILEMMA
1. VISION STATEMENT
To be the world’s leading provider of traditional and quality diamonds. Justification:
World: This gives the idea that Debeers is targeting the entire world market “consumption of diamonds” Provider: Debeers is looking at provision of this product at all phases of the value chain Traditional: To still focus on the production and sale of natural diamonds to service that existing portion of the market. Quality: This means that Debeers will continue its age long tradition of supplying and marketing world class diamond varieties. Also, the company seeks to enter into the synthetic diamond industry; however, its products from there will still be of quality.
2. KEY STRATEGIC CHALLENGE
The Key strategic challenge of DeBeers Company is the threat posed by the synthetic diamond production industry.
3. STRATEGIC ANALYSIS
This is classified under macro-environmental analysis and internal analysis. The macro-environmental analysis includes employing the seven components of the macro-environment (PESTEL) and using Porter’s five forces model of competition. The internal analysis will basically cover the SWOT analysis model.
SEVEN COMPONENTS OF THE MACRO-ENVIRONMENT:
A. Political, legal and Regulatory factors:
Passing in 2002 of the Kimberly process certification scheme: This was to help curb trade in blood diamonds from war-tone countries in Africa and also avoid widespread consumer boycott. Southern African Countries such as Namibia and South Africa passed laws (Diamonds amendment act of South Africa, 2005) that forced miners to sell percentages of their production to local cutting and polishing firms. This was an attempt to allow local participation in the downstream sector of the diamond trade which was much more profitable. Anti-trust laws in the United States (Sherman Anti-trust act) forbid certain price control prices in the diamond industry. The European Union also enabled competition in the industry by barring debeers from buying from Russian-owned firm; Alrosa. The United States federal trade commission brought about a clear market distinction between “synthetic” and “natural” diamonds. B. Global forces:
There have been consistent increases in production volume, supply and pricing. Between 2000 and 2005, world production of diamond rough grew 31% by volume and 70% by value, highlighting the upward trend of diamond prices (Figures 1 and 2).
The players in the value chain of the diamond trading industry have witnessed key changes over the last decade. The typical value chain spanned from production, cutting and polishing, retailing. This value chain has no longer become specific to any company; however, most diamond trading companies have vertically integrated to cover all sectors. This was seen in Tiffany & Co. (A jeweler) buying a stake in a Canadian mine for $104 million. Aber Diamond (A Canadian mine) also purchased a luxury jewelry retailer Harry Winston. Russia’s mining giant Alrosa also opened up a diamond retail store. This change in the value chain broke debeers’s monopoly in the diamond trading industry. The global market has now become demand-driven and brand-focused, whiles diamond is slowly becoming a commodity. C. Social forces:
The main societal attitude towards diamond purchasing is the perception that buying a “real” diamond is the best way of communicating affection. Others also perceive that whether “natural” or “synthetic”, a diamond is a diamond. Some also believe that buying synthetic diamonds is much more ecologically friendly. The other social force is that purchasing “natural” diamonds is a step in helping mining communities especially in Africa rather than a few people in the United States. D. Technological forces:
Modern methods of producing low cost, low carat and flawless diamonds by the Chemical vapour deposition method have come to play. However, the High pressure, high temperature (HPHT) method is still available. Modern...
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