de beers and the global diamond industry
Post on 21-Oct-2014
5.447 views
DESCRIPTION
De Beers Consolidated Mines has successfully managed the global diamond industry for many decades, propping up prices at all stages of the value chain, reducing price volatility and increasing consumer demand. By the end of the 20th century, however, a series of forces threatened De Beer's role and profitability. New diamond mining firms were selling their production on the open market rather than through De Beers' Central Selling Organization. Can De Beers strategy beat their competitors and what was the competition situation? Find out, more in this presentation.TRANSCRIPT
AND THE GLOBAL DIAMOND INDUSTRY
DEBEERS
Contents
The Problems
Analysis
De Beers Story
Conclusion and Recommendation
DEBEERS Story Part ONE
Cecil Rhodes founded De Beers in 1880 + Controlled 95% of diamonds world in 1888 + Oppenheimer establish CSO → buyer of last resort
+
Production fell gradually. 1980’s was less than 50%
+
Part ONE
DEBEERS Story
CSO has some roles:
The one and only marketing branch
Ability to grade and guarantee diamond
CSO game plan:
• Select its buyer • Non-negotiable price • Choose whom to sell & what quantity • Punishment
Stockpilling diamond
Campaign: “Diamond is forever”
Part ONE
DEBEERS Way
+ + +
+ +
DE BEER
CUTTING AND
POLISHING
Part ONE
DEBEERS Business Model
MINES
CUSTOMERS
DEBEERS Problem Part TWO
Main Problem
Disruption on DeBeers Value Chain
Economics of stockpiling changed
Declining revenue Liquidity problem
Decreasing profit Diminishing Return on Equity
Dwindling
cash reserve
Business Process Problems
DEBEERS Problem Part TWO
ABER MINING TIFFANY & Co.
DE BEER CUTTING &
POLISHING
LEVIEV
Part ONE
The Competition
CUSTOMERS
Analysis Part THREE
+ Strong Brand + Trust already built with consumers and partners + Historical holdings + Expertise + Control of output + Distribution channel
+ Controls output + Owns distribution channel + Alliances + Relationships with foreign
governments + Cash on delivery
+ Only game in town + No substitutes for diamonds + Customs/tradition + War + Quality of product - Luxury item / not necessity -/+ Economy
+ No substitutes for
diamonds + Cultural history + Social issues/status + High cost of entry
+ High cost of entry + Cornered the market + Strong Brand + Existing mining and political relationships + Access to new mines + Owns distribution channel + Control of output
BARGAINIG POWER OF SUPPLIER EXISTING CUSTOMER RIVALRY
THREAT OF NEW ENTRY
BARGAINING POWER OF CUSTOMER
THREAT OF SUBSTITUTES
PORTER’s
5 Forces
Part THREE
Before Disruption
+ Strong Brand + Trust already built with consumers and partners + Historical holdings + Expertise + Control of output + Distribution channel
+ Controls output + Owns distribution channel + Alliances + Controls output + Owns distribution channel + Alliances + Relationships with foreign
governments - Cash is dwindling - Zaire does not renew contract
(1980) - Argyle insists on right to market
25% of near-gem & industrial - Sightholders decrease from over
250 to 150
+ Only game in town + No substitutes for
diamonds + Customs/tradition + War + Quality of product - Luxury item / not necessity - Decreasing retail demand
+ No substitutes for diamonds + Cultural history + Social issues/status + High cost of entry
+ High cost of entry + Cornered the market + Strong Brand + Existing mining and political
relationships + Access to new mines + Owns distribution channel - Zaire sells on open market - Argyle markets its output
BARGAINING POWER OF SUPPLIER
EXISTING CUSTOMER RIVALRY
THREAT OF NEW ENTRY
BARGAINING POWER OF CUSTOMER
THREAT OF SUBSTITUTES
Part THREE PORTER’s
5 Forces After Disruption
“Reverse innovation is innovating in poor countries and selling those products in rich countries”
VIJAY GOVINDARAJAN
Once products are developed for these markets, they are then sold elsewhere - even in the West - at low prices which creates new markets and uses for these innovations.
Focusing on needs and requirements for low-cost products in countries like India and China.
Part THREE Reverse Innovation
Creating Local-Based Cutting and Polishing Workshop
Synthetic Diamond
• Establishing cutting and polishing workshop in which the diamonds are extracted
• The goal is to minimize cutting and polishing costs which in turn could increase profit margin for De Beers
• De Beers develops technology to create synthetic diamond.
• The selling point of De Beer’s synthetic diamond is the ability for customers to customize the diamond based on characteristics, color, and its roughness
• Synthetic diamond is best utilized for industry
Part THREE
Reverse Innovation
Our Proposal
ABER MINING TIFFANY & Co.
DE BEER CUTTING &
POLISHING
LEVIEV
Part FOUR
Business Model
CUSTOMERS
LVMH/
WALMART
Conclusion & Recommendation
Part FOUR
De Beers was runs a monopoly role + De Beers had some problems, especially with the entry of new players (Leviev)
+
De Beers new strategy : stop stockpilling activity, improve customer relationship, focus on retailing and marketing
+
Conclusion Part FOUR
Positive Impact of new strategy + De Beers has more similarities with OPEC in terms of price maintenance
+
Conclusion Part FOUR
Controling supply chain Vertical Monopoly
Creating a chain of retail stores include joint venture with LVMH
Transformed its customer relationships
Creating cutting and polishing plan on local place (create more local jobs)
Focus on retailing and marketing to present De Beers’ diamonds as a branded luxury item
Recommendation
Through CSR (Conflict Diamonds, Hiv/Aids, Black Empowerement)
Going Private
Patent new technology for manufacturing low-cost synthetic diamonds
Recommendation