Debeers
Debeers
De Beers
A young English boy’s failing health triggered his family to send him to South Africa in hopes that the hot climate would turn his ailing health around. During the late nineteenth century, Cecil John Rhodes, joined his brother in the fields to pick cotton. Rhodes soon moved on to the more lucrative field to pick diamonds. This excursion led Rhodes, whom the infamous “Rhodes Scholar” was named after, to a path that defined and dominated the diamond industry worldwide. He created, through a series of diamond mine purchases, what is known today as De Beers S.A. Established in 1888, De Beers, through Rhodes, rose to a height of controlling 90% of the world’s diamond market. This illustrious giant was shrewd, intelligent, and he clearly understood price elasticity and the power of supply and demand. Moreover, he used the economic forces to his advantage and ultimately created a diamond Cartel. His ingenious move occurred in convincing the sellers (diggers) and buyers that their mutual interests were to keep prices high and steady. As a result, he formed a “Diamond Syndicate” that set prices and a monopoly was formed. De Beers created the perpetual illusion that diamonds were a scarce commodity, which enabled retail prices to remain high.
The century old diamond empire, reached a height of over $4 billion in sales 1998. Eventually, De Beers changed hands to a German, Ernest Oppenheimer, at the turn of the 20th century. De Beers’ most formidable opponent was not another diamond company, but rather the U.S. Justice Department. Constantly faced with Anti-trust regulations, De Beers managed to elude all charges over the course of thirty years, by selling only indirectly to the U.S. All their business went through London first. As De Beers’ supply chain indicates (Exhibit 1), their relationship with U.S. diamond dealers and the U.S. government is unique among international companies as they remain at arms length from the U.S. with the intent to keep the government at bay. That relationship came to a halt when the U.S. Justice finally prevailed and De Beers pleaded guilty to price-fixing. The cartel was fined $10 million1. This, even now, has paved a new opening to “re-enter” the U.S. diamond market. With Nicky Oppenheimer and Gary Ralfe as the new De Beers leaders, this was an opportune time for De Beers to reinvent themselves on the U.S. front through a branding campaign.
Still, De Beers faced three substantial challenges. These include the social costs of manufacturing diamonds, increased production outside their own company, and finally, continued pressure both politically and from regulators. De Beers undertook a series of initiatives to address the challenges. At this critical junction, De Beers could chose to remain set in their ways by holding on to old company policies and continue with the monopoly as long as possible. De Beers also could begin to partner with the international community and regulators, and ultimately, redefine their image.
De Beers successfully forged partnerships with the regulators of the diamond industry including