Debeers

In: Business and Management

Submitted By Fruchtzwerg
Words 858
Pages 4
Business Model of De Beers:

Rhodes and Oppenheimer followed both a strategy of supply control. Due to the fact that supply overtook demand, the prices for diamonds were supposed to be lower. In this case the company would not have been that profitable. Therefore Rhodes established the “London Diamond Syndicate” and Oppenheimer transformed it into the “CSO - Central Selling Organization”. Both companies were founded to prevent an oversupply.
By buying the diamond supplies of other producers, the CSO controlled 90% of the world trade. In order to conceal the monopoly position externally, these subsidiaries were never named after the parent company De Beers. They were supposed to appear as independent companies of the diamond trade.
The core business of the CSO was to intermediate between the purchase of the diamonds from mines and the distribution of gems to different customers, such as diamond polishers or cutters. These customers were tied to the company with exclusive contracts, which made it possible to deal with diamonds outside of De Beers. The contracts included many special conditions. For example, it was not allowed to sell diamonds to retailers who could reduce prices in the market.
The contracts turned the customers to slightholders, the only people who were able to buy diamonds from De Beers. For their position as slightholders they had to pay a basic fee twice a year. Once they could no longer pay the fee, they lost their position and were expelled.
Each year the company decided which amount of their material should be sold and which amount should be kept in inventory. By doing so they created an artificially shortage.
The material was sold every five weeks in London to their slightholders in private meetings. The procedure of these meetings is still the same nowadays:
Every slightholder will be individually brought into a room with boxes…...

Similar Documents

Member

...DeBeers Alternative Solutions 1. Stay in current industry and go into synthetic diamonds for industrial purposes. * This will not damage the brand name that they have created for themselves in the natural diamond industry as opposed to if they decided to do both synthetic and natural diamond industry. * Less risk if they decide not to enter a new industry that is growing, however not positive if maybe just a fad. * If they stay in current they have to do product development which means to stay in the same market but develop new products. * This way they can differentiate themselves from other natural diamond companies and capture more market share because there is more competition now. * Have to come up with new occasions to use the diamonds for other than just weddings because industry is currently in the mature stage so profits may be increasing at a decreasing rate. * Make synthetic diamonds only for industrial purposes and not more jewellery, that way they don’t lose any brand loyalty from existing customers. 2. Stay in current industry; however go into synthetic diamond industry with a new brand name. * that way the DeBeers reputation and name is not destroyed if they use same name brand * huge risk going into different market which is a substitute for current industry * synthetic diamond industry is in early growth stage because it is growing by 10-15% every year. * Synthetic diamonds are much more eco-friendly to......

Words: 458 - Pages: 2

Unethical Practices

...that De Beers were accused of were unethical because being the world’s largest diamond producer they were able to control the market and keep the prices high by making the world believe that diamonds were scarce. The purpose of DeBeers was the exploitation of diamond mines in South Africa. Along with deceiving the market on price fixing and forcing competitors to buy their products De Beers committed other 3 unethical acts towards their employees and as well as diamond consumers. The DeBeers diamonds are extracted from the South African mines and marketed in London, at the address of the Diamond Trading Company, a DeBeers subsidiary. There buyers, including retail and wholesale buyers from the New York city diamond district, come to look what DeBeers has to offer them to keep them in business. The DeBeers employees take the diamond distributor in a small room and present him with a bag of diamonds. The retailer cannot buy diamonds one by one. He has to take the whole bag or leave it. Further the retailer makes an offer for the bag and the negotiation proceeds on this base. Retailers are very afraid of crossing the DeBeers operation because if they refuse the bag, or make too little an offer or behave like poor citizens in the diamond trade DeBeers will either not offer them any new bags of diamonds to purchase or will offer them bags with only poor grade diamonds which are difficult to distribute ("South Africa's De Beers", 2012). Affects and Resolutions The unethical...

Words: 894 - Pages: 4

Debeers Case Study

...DeBeers | | 1. What functions does the CSO perform as a global intermediary? How do these functions help expand the economic pie in the diamond industry? The CSO performed the following functions before the diamond market bubble collapse in 1980: * Buffering the rough diamond supply by continuing to purchase rough diamonds of even the mines which De Beers didn’t own under contract to control the supply to the downstream market and stabilize the price. * (De Beers) Interdicting unofficial routes of rough diamonds by buying smuggled rough diamonds on the open market along with other security measures. * Sorting rough diamonds into more than 3,000 grades to frame the accurately classified price structure and add value to gem-quality diamonds. * Controlling selling routine called a “sight” to make “sightholders” obey stringent rules to maintain pricing stability further downstream. * Conducting an extensive consumer survey and monitoring the inventory in the market to adjust the quantity of diamonds to be released. With these functions, the CSO (and De Beers) controlled the price and quantity of diamonds on both the supply-side and demand-side to expand the economic pie in the diamond industry. 2. How does that expanded economic pie end up getting divided among the various players in the diamond industry? Why? The expansion of economic pie in the diamond industry under the quasi-monopoly of De Beers ended up in the following situation: ...

Words: 965 - Pages: 4

Debeers

...De Beers, diamonds and Angola : developing an understanding of the role of sustainable development and corporate citizenship in De Beers’ exploration strategy SUNScholar Repository SUNScholar Home Faculty of Economic and Management Sciences School of Public Leadership Masters Degrees (School of Public Leadership) View ItemDe Beers, diamonds and Angola : developing an understanding of the role of sustainable development and corporate citizenship in De Beers’ exploration strategy Show full item record Title: De Beers, diamonds and Angola : developing an understanding of the role of sustainable development and corporate citizenship in De Beers’ exploration strategy Abstract: The tensions in the definition and practical implementation of sustainable development are clear. A number of international codes outline the principles that are considered as good corporate citizenship, but are often based on the priorities of the developed ‘North’. Africa calls for a more development-orientated approach to sustainable development. The subject of this study, Angola, is emerging from a history of slavery, colonialism and civil war. Although richly endowed with natural resources and exemplifying one of the world’s fastest growing economies, Angola scores near the bottom of the Human Development and Corruption Perceptions Indices, thereby typifying the Natural Resource Curse. Understanding sustainable development in this context, multinational corporations involved in exploiting......

Words: 272 - Pages: 2

Assih=Gnment 2

...experience with the ability to adapt to changing environments, but despite this strength, its market share is decreasing due to more players in the market and non-government organizations intervening with demands for more expenditure for CSR initiatives (Burne, 1996). DeBeers has had price leadership for numerous decades, although, the loss of its monopolistic position in the market has seen it become less of a threat to other organizations (Burne, 1996). DeBeers has opened luxury diamond stores in New York as a strategy to adapt to a diverse market, enabling it to build a new brand; this has become strength for DeBeers in recent years as the stores sell direct to the public (Burne, 1996). Assume the role as the leader of the most influential stakeholder group, indicate three (3) potential challenges that you may face in encouraging stakeholders to form a coalition to help you achieve your goals. Suggest the significant steps that you would take in order to overcome these challenges that you have identified. Justify the response. The DeBeers cartel is singularly responsible for the price being so high as a result of restricting supply and aiming to increase demand. Describing the evolution of the DeBeers involvement in the evolution of the diamond industry, diamonds were extremely scarce, found only in the river beds of India and the jungles of Brazil, and as such were highly prized by nobility around the world (Cockburn, 2002). In 1870, large reserves were found......

Words: 2249 - Pages: 9

Debeers

...FREE 30-day trial You have 30 risk-free days to decide whether you are satisfied with your order. If you are not, return the work to us in good condition and your invoice will be cancelled and any payment made refunded. Students SAVE 10%! PLACE YOUR ORDER LexisNexis, PO Box 792, Durban, 4000 0860 765 432 086 682 2830 customercare@lexisnexis.co.za www.lexisnexis.co.za PLEASE QUOTE YOUR NAME AND THE FOLLOWING REFERENCE NUMBER WHEN PLACING YOUR ORDER: RS236/13 TO ORDER FOLLOW THESE 3 EASY STEPS: 1. PLEASE CHANGE/UPDATE ANY OF THE INFORMATION BELOW THAT IS INCORRECT/MISSING Name of Firm VAT Reg. No. Job Title First Name Postal Address Code Telephone Fax Signature Cell Email Date ID No./Co. Reg. No. Title Surname I understand that the personal information given herein is to be used by LexisNexis for the purpose of assessing my credit-worthiness, and I consent to this assessment. 2. CHOOSE YOUR PRODUCT/S, AND TICK IF YOU WOULD LIKE TO SUBSCRIBE TO THE SERVICE Qty Title Qty Title ___ South African Financial Planning Handbook 2014 ISBN: 9780409078138 Format: Print, soft cover Price: R1 050 – 10% + R62 delivery + VAT = R1 147.98 ISBN: 9780409118810 Format: eBook Price: R1 050 – 10% + VAT = R1 077.30 ___ Financial Calculations and Worksheets ISBN: 9780409077797 Format: Print, soft cover Price: R270 – 10% + R48 delivery + VAT = R331.74 ___ Prices valid as at 22 October 2013. All prices include VAT and handling. Prices for multiple subscriptions available on request. Postage......

Words: 436 - Pages: 2

Debeers

...emerging economies; India and China. * Through their partnership with LVMH they’ve been able to increase their brand recognition and represent themselves al over the world. * The acquisition of new mines in Canada brought is another opportunity for the company. Finaly we the threats for DeBeers company: * The diamond market is well known for its fierce competition: not only from competitors but as well as not being able to buy certain mines in countries as Canada and Australia. * Negative publicity as the association with blood diamonds have had a bad reflection on the company as well. * Recent laws and contracts are putting a big constraint to the operating part of the company. And last but not least there is the market of the synthetic diamonds which have been taking away customers. Porter’s 5 forces The first force is the bargaining power of suppliers: * this is increasing because the diamond industry is becoming more vertical and a lot of other companies are giving the diamond industry a shot, which causes that there is a larger amount of competitors. * Finally the anti-cartel laws is putting constraints on the buying power of DeBeers. Second there is the power of customers: * this is more or less not existing in this industry because there are no substitutes for diamonds Third there is the threat of new entrants: * It is very costly for the companies to enter this industry, nevertheless the competition is......

Words: 541 - Pages: 3

Ethics: Debeer

...Unethical Values Within De Beers Consolidated Mines Limited De Beers Consolidated Mines Limited is a South African-based mining and trading company, which controls the flow of diamonds in the United States marketplace (Aurora, 2008). De Beers distributes diamonds, ships them, and distributes them to significant intermediaries, wholesalers and retailers (Atkinson, 2000). 1. Unethical behaviour: Unfair trading and competition The first unethical conduct identified within the De Beers example is unfair trading and competition, particularly in the formation of cartels. Unfair competition is unethical in terms of the Teleological Framework, as it focuses on the negative result of the conduct of an individual or company as a juristic person, which forms the basis of self-interest (ethical egoism), thereby going against the rights of others (Stanwick & Stanwick, 2009). This section will briefly explain the De Beers example of this form of unethical conduct, and look at ways in which De Beers could redeem their reputation. We will begin with the definition of a cartel. A cartel is a group of people, organisations, or companies that cooperate together to control production, marketing, and pricing of a product (Smith, 2003). Cartels are an example of unethical conduct and are thus explicitly illegal under antitrust laws in many countries of the world, as they eliminate fair market competition. A cartel’s biggest effect is driving the price of a commodity up and well beyond what is...

Words: 3858 - Pages: 16

The Rise and Fall of de Beer’s Diamond Cartel and Apartheid

...countries, and the decline of the diamond cartel. The Rise of DeBeers Prior to the 19th century, most of the diamonds were found in Brazil and India until an abundant discovery was made in South Africa around 1867. The diamonds were so plentiful that miner’s fond them lying on the ground like stones and were easily collected. When the surface supply was consumed, miners began to dig to meet demands. As word spread of the new diamond discovery miners started to lay claim to the different areas. Miners soon found the expenses of extracting the diamonds excessive and some miners merged to form small companies to offset their costs. “De Beers Mining Company was founded by Cecil Rhodes in 1880” (Unknown, p. 1). Rhodes use to rent mining equipment to miners and used the money to purchase smaller mining operations until De Beers owned all of the South African diamond mines by 1887. “The ‘Diamond Syndicate’ was an alliance of merchants in Kimberly who abided to Rhodes terms of business” (Unknown, p. 1). Through the ‘Diamond Syndicate’ Rhodes was able to control the distribution channels which help bolster and maintain the rare and scarce image of diamonds, which would keep prices inflated. The Rise of Oppenheimer Ernest Oppenheimer was a German immigrant who found wealth through the diamond and gold mining industries in South Africa. Oppenheimer dominated the gold industry and wanted to expand into the diamond cartel. DeBeers board members viewed Oppenheimer as an......

Words: 1335 - Pages: 6

Debeers Diamond Dilemma

...beginning of the DeBeers Consolidated Mines Limited in 1888 (Kretschmer). DeBeers then began to exploit the diamond mines in South Africa. While diamonds were a rare resource only a couple of centuries ago, the prices began to fall due to the discovery of the extremely rich mines in South Africa and other countries of Africa. DeBeers worked with other producers in a parallel effort, successfully set up a cartel to control international prices of diamonds (St. Antoninus Institute). DeBeers had control of 95% of the world's diamond production by 1890. Ernest Oppenheimer and J.P. Morgan founded mining giant Anglo American PLC. They were DeBeers’s main competitor. Oppenheimer eventually gained control of the DeBeers Empire in 1927. He built and consolidated the DeBeers’s global monopoly in the diamond industry. Oppenheimer was linked to many controversies which included price fixing, antitrust behavior while stockpiling diamonds produced by other manufacturers to control prices by controlling the supply. He was also accused of not releasing industrial diamonds to the United States during World War II (Kretschmer). DeBeers’s monopolistic reign of the diamond industry lasted until the early 1990s. It was the emergence of three diamond producers that DeBeers could no longer control, made the strategy of manipulating the supply costly in both the financial and legal aspects of business. The producers in Russia, Australia and Canada successfully severed ties with DeBeers.......

Words: 2239 - Pages: 9

Master in Management

...Antitrust September 17, 2009 Tonight’s Agenda      Role Call Review of Last Week, Current Events Antitrust Case Study: DeBeers Wrap Up Review of Last Week “People of the same trade seldom meet together, even for merriment and division, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” -- Adam Smith “Perfectly Competitive Market”      Consumers well-served. Receive goods at lowest price possible. Society able to choose among competing good with maximum efficiency. Firms that do not produce what consumers want at a fair price are quickly eliminated. Highly restrictive model applying stringent standards. Antitrust    Perfect competition model is essentially static. Real world markets are extremely dynamic. Perfect competition model is unsuitable as a benchmark. Antitrust Laws    Promote a competitive economy by prohibiting actions that restrain, or are likely to restrain, competition and by restricting the forms of market structure that are allowable. Limit the activities of firms that have legally obtained monopoly power. Intended to provide a general statutory framework to give the Justice Department, the FTC, and the courts wide discretion in interpreting and applying them. The Development of Antitrust Laws   Trust was a device for pyramiding control over several operating companies. The Sherman Antitrust Act......

Words: 1801 - Pages: 8

G-202

...is DeBeers anti-competitive? From 1945 to 1994, government tried several times to prosecute DeBeers for violating antitrust laws, as you can see from the slides. So from the point of government, DeBeers really is anti-competitive. Despite the fact that DeBeers retained no U.S. presence and was competitively run by South African nationals, it was still subject to the reach of U.S. law. Because in 1995 document, the justice department made its interpretation clear: “The reach of antitrust laws is not limited, however, to conduct and transactions that occur within the boundaries of the United States. Anti-competitive conduct that affects U.S. domestic or foreign commerce may violate the U.S. antitrust laws regardless of where such conduct occurs or the nationality of the parties involved.” Although DeBeers had no legal presence in the U.S. market, no U.S. directors, and even no direct sale in the United States, it sold all of diamonds in London, and let its middlemen exported them into U.S. market, which still had huge influence on U.S market on diamonds. What’s more, the most important point to prove DeBeers is anti-competitive is that DeBeers set prices for mined and rough diamonds, which means diamonds can’t have a legal and competitive market. In 1945, President Roosevelt’s administration requested the justice department to investigate DeBeers’ existing contracts with United States. In 1976, the department of justice filed a civil and criminal suit against DeBeers,......

Words: 292 - Pages: 2

De Beers Case

...rough diamond are then cut by the poor Indian workers, among which most are child labor. The pay for cutting each diamond is just four cents. 美国因为戴比尔斯公司不道德地剥削劳工,而禁止这家公司在美国设立商店贩卖钻石。可讽刺的是,通过其他中间商的销售,美国仍然是戴比尔斯公司最大的钻石市场。 De Beers has been prohibited by the U.S. government to set up stores for selling diamonds due to its immoral exploiting and preying on labors. Sarcastically, with the help of middlemen, U.S is still the biggest market for De Beers. DeBeers可以自由地在美国市场做广告和出售钻石也是因为一些其他的原因。包括英国政府的强力支持,并且十分不满美国的司法系统像对待坏人一样抵制DeBeers。另外DEBEERS还通过在美国才设立助学基金获得很多学士的支持,但事实是他们为了选择那些优秀的学生成为他们的接班人,帮助他们取得成功。 Of course there are also other reasons for this including the strong support from UK government as they are not agree with the US legal system on treating De Beers as an outlaw. Besides, De Beers also gains the support from U.S. bachelor by setting up education fund. However, they raise fund in order to select elite successor instead of helping students. DeBeers公司的成立旨在开采南非的钻石矿坑。其中的挑战是,根据Epstein,钻石在几世纪前就非常稀有,在南非发现了资源极为丰富的矿山后其他的非洲国家受此威胁后迫使下调价格。因此,DeBeers公司成立之后很快与其他钻石公司共同建立了cartel,目的是为了能够自由控制钻石的国际市场价格。 De Beers was first established for diamond mining in Africa. As stated in Epstein, diamond is very rare resources since several centuries ago. However, the discovery of abundant diamond minerals in Africa forced African countries to reduce its price. Therefore, shortly after its establishment, De Beers set up the Cartel with other diamond companies, aiming at freely control and manipulate......

Words: 1909 - Pages: 8

Debeers

...以前的情况和遇到的问题: In early 1990s, DeBeers ruled the diamond industry (while at one time, it produced 45% of the world’s rough diamond and sold 80% of total supply). Its market dominance enabled its Central Selling Orgainzation to choose whom to sell to, how much to sell, and at what price.(掌控钻石产业,掌握供应链,决定买家,销售量已经价格。) First hit: Collapse of the Soviet Union(苏联解体,重要合同终止). Second hit: Australian mine terminated contract with DeBeers(合同终止). Finally: Emergence of Canada as a producer(加拿大大量的矿区都不受DEBEERS控制). Additionally: Antitrust Act prohibited DeBeers’ sales in United States(因为触犯反托拉斯法被禁止在美国进行商业活动). Publically: A public relations nightmare(公关危机,DEBEERS为了掌控供应链,曾经支持反政府武装) Strategy focus: Supply-side. Controlling large portion of the diamond supply chain.(以往的战略更注重供应端) PEST ANALYSIS Political: () Before the Kimberley treaty, DeBeers was used by some factions to have an indirect control of some countries in conflict area. With time past, DeBeers bit by bit lose his absolutely control position. More and more diamond mining were founded in the world. The output of rough diamonds got a significant decline from 90% to 10%. On one hand, de beers don’t have enough money to buy all of the mining, on the other hand, most of other country’s government prevents de beers to buy their diamond mining, in order to protect local economic. Economic: DeBeers makes alliance with Russia, exploring diamonds with Tanzania, Namibia and so on. De beers put their manufacture factory in some country......

Words: 2508 - Pages: 11

Business Research

...the DeBeers corporation headed by Cecil Rhodes (also of the Rhodes Scholarship title) and explains how DeBeers has chosen to practice unethical research behavior. Also, as a result of DeBeers unethical research behavior they have been convicted along with the General Electric Company by the US justice department for conspiracy to raise prices in the $500 millions-a-year industrial diamond industry. "The indictment charges GE and DeBeers, which account for 80 percent of the industrial diamond market, with conspiring to fix and raise prices worldwide."(San Antonious, 2012) The DeBeers corporation was first guilty and second showed a direct correlation of purposely breaking the no-tolerance segment of the US law called the Sherman Act. Cartels: The Sherman Act’s first offence for even operation are unafraid thru intimidation and threats to acquire or control whatever item they go for to all suppliers/workers, businesses, the public or middle-man altogether. Next, DeBeers illegal cartels withheld large sums of the discovered diamonds they had acquired so they can hike up diamond prices. So, DeBeers could make it seem publicly that there was a perception that there was a shortage in supply of available diamonds to buy, therefore causing the public market to scurry to buy them at absorbent prices because they had to. Later as the demand of the market became more financially beneficial to them as a corporation, they made the diamonds more available, therefore allowing DeBeers to......

Words: 354 - Pages: 2