? Diamonds are one of the worlds, major natural resources. The diamond industry is worth about $72billion. (“The Diamond Industry”) Africa is one of the leading sources for this beautiful natural resource, approximately 65% of the world’s diamonds come from countries that lie in the continent of Africa. (“Fact # 15”). The diamond industry is made up two types of diamonds, gem diamonds and industrial diamonds. Gem diamonds, which make up 30% of the industry (The Diamond Industry), are stones with color, clarity and beauty and made perfect for jewelry or investing.
Industrial diamonds, which take up the remaining 70% of the industry (The Diamond Industry), do not have specifications like gems. Industrial diamonds are mostly used in cutting, grinding, drilling and polishing processes. With these stones hardness and heat conductivity are the qualities researched. Many gem diamonds that are too small to cut are sold into the industrial diamond trade. The industry operates mostly in the regions of Botswana, Russia, Canada, South Africa and Angola. These countries make up 83% of the diamond industry by value, and 65% by weight of annual diamond production.
The four major players in this industry consist of: DeBeers DeBeers S. A. , a Kimberley, South Africa based holding company, is historically and currently the main driver of the diamond industry. With its hand in many aspects of the global value chain, DeBeers has proven itself in the market, In the 1980s, DeBeers had 80% of the market share, in 2000 it had 65%, and in presently holds 50%. Much of this loss can be attributed to production surges in locales where De Beers does not have a stronghold, including Australia, Canada, and Russia.
DeBeers has the largest share of exploration expenditure of all companies; The company has over 20 mines distributed among South Africa, Namibia, Botswana, and Tanzania, and engages in production joint ventures with local governments and other companies, such as Louis Vuitton. DeBeers also oversees both DeBeers Consolidated Mines, Ltd. (mining in South Africa) and The Diamond Trading Company, which markets rough diamonds for DeBeers and other companies. The DTC sorts, values and sells approximately 75% of the world’s rough diamonds by value.
There is a lot of fear about DeBeers monopolizing the diamond industry. There has been very little action taken against them the fear among competitors is that if DeBeers is removed or made less in the diamond Industry, prices and the value of the industry would decrease. Alrosa Another competitor is Alrosa, which is a Russian state-owned diamond company. Alrosa partakes in exploration, mining, manufacture, and sale of diamonds. This Company produces 100% of Russia’s rough diamonds and about 20% of the world’s rough diamonds, making it the second largest producer to DeBeers.
Alrosa mines mostly in Russia, but also mines in Angola at the Catoca Kimberlite, the 4th largest mine in the world and the biggest producer of diamonds in Angola. Alrosa supplies DeBeer’s Diamond Trading Co. with rough diamonds, the company is working on marketing its own diamonds, in attempts to support a Russian diamond-cutting industry. Rio Tinto The next competitor is Rio Tinto, who is a major Australian player in diamond mining. Rio Tinto is not restricted to diamonds, coal accounts for about 20% of their sales revenue.
This Company also mines iron, copper, uranium, aluminum and gold. The company is responsible for 9% of world production of diamonds. Rio Tinto mines in Australia, which produces the highest mass of diamonds, but not the highest value. Its two major mines in Australia, Argyle Mine and Merline Mine. Rio Tinto also has an operation in Murawa, Zimbabwe. Rio Tinto sells its rough diamonds in Antwerp and also sells polished pink diamonds from Argyle Mine to wholesalers, manufacturers, and retailers. BHP Bitilliton BHP Billiton is an Australian diamond mining firm as well.
BHP Billiton the largest world resources company. This company is also involved in mining other products such as iron ore, coal, petroleum products, aluminum, base metals, manganese and stainless steel. BHP Billiton plays a fairly large role in the industry, producing 6% of the world diamond production. BHP Billiton sells both rough and polished diamonds to various manufacturers; selling about 10% of rough diamonds to Canadian manufacturers and sells polished diamonds, made via contract polishing arrangements through its CanadaMark™ and AURIAS ™ brands.
Another competitor is known as Aber. This company is a successful Canadian firm in the diamond global value chain. De Beers, South Africa based holding company, is historically and currently the main driver of the diamond industry (known as the monopolizer, or possessing most control over the industry); Alrosa, which is Russian state-owned diamond company; Rio Tinto, Australian based, and BHP Billiton, which is another Australian diamond mining firm, and is the largest world resources company.
The value chain of the diamond industry includes exploration, mining, sorting, cutting and polishing, jewelry manufacturing, and last but not least retail. The entire process, length of time, changes depending on the size of the stone. Usually the process occurs within 18 to 30 months; larger stones usually move faster through the value chain. DeBeers being the number one competitor is the company that is compared throughout this analysis. DeBeers continues to succeed off of their company purpose which is “to be driven to turn diamond dreams into a lasting reality”().
DeBeers Believes that the world of diamonds is about making “dreams” come true. They have a vision of “unlocking the full economic value of our leadership position across the diamond pipeline” DeBeers plans on fulfilling this vision through “maximizing the potential of our global partnerships, the skills and commitment of our people and the magic and emotional value of our product”().
Within DeBeers, they are held responsible for five main values: be passionate about their product and their company, pull together and unite their strengths, build trust within all their corporate relationships, s how they care through service contributions to communities and shape the future through their ability and willingness to take risks.
De Beers also has three principles to help their purpose and vision manifest. The first principle is to keep sustainable development through partnership, meaning that, longer term economic social and environmental effects of the decisions they make for DeBeers and the societies in which they operate, they hold themselves completely responsible for.
The second principle is diamonds dreams and development, this principle is DeBeers working to concentrate on the poverty and socio-economic deprivation or dispossession that affects many of the communities where the company operates. These issues especially in Africa may include education, and the HIV/AIDS epidemic. The last principle says that DeBeers lives up to “Accountability and Living up to diamonds”.
This principle helps DeBeers live there vision across all the family companies through “The Principles Assurance Program” which transforms these Principles into practice and presents an outline for measuring continuous improvement in performance over time. In keeping with the DeBeers standards as their 2010 operation highlights featured the success their generic strategy for business growth. It is stated that from 2009 to 2010 there was a strong recovery in the diamond market with a 27% price increase for rough diamonds.
(“Operation and Financial Review 2010”) DeBeers was leading in this industry recovery. In 2009 they made moves to reinvent the company without jeopardizing the values of DeBeers in all there family operations/ companies. Their focus in 2010 is to capitalize efficiently on this growth in the industry. In the report DeBeers has outlined five strategic levers “designed to drive growth and maximize the value and life of diamonds across the Family of Companies”. (Operation and Financial Review 2010. ) First the company plans to sustainably maximize the price received for our rough diamonds.
Since the price has increased 27% in 2010 the Diamond Trading Company (DTC) $5. 08 billion for the full year 2010 versus the $3. 24 billion for 2009. Their next lever is to “find, optimize and invest in mines that generate superior returns. ” This represents the aim to safeguard future supply by finding new mines, and maximizing the value and life of the mines already obtained. DeBeers is also looking to free up capital for investing by selling late-life mines to operators who specialize in extending the life of mines DeBeers is not optimized to manage.
The third lever states that the company wants to “invest in value-creating downstream opportunities. ” This translates into expand its proprietary diamond brand, Forevermark, throughout Asia, as well as continue to consider US market opportunities for the brand during 2011(Operation and Financial Review 2010). The next step taken would be to “Embed cost and capital efficiencies” which is just a better focus on managing the company’s cash and costs. The last lever is “Protect diamond equity”.
This lever is just about supporting initiatives like the Kimberly Process which was created by The United Nations and other groups are working to block the entry of conflict diamonds into the worldwide diamond trade requiring each nation to certify that all rough diamond exports are produced through legitimate mining and sales activity known as the Kimberly Process (“Operation and Financial Review 2010”). This growth strategy will definitely lead to the capitalization DeBeers is looking for while holding on to their values.
Porters Five Forces
The competitive environment factors of this industry shows that the industry itself is strong and DeBeers holding the majority of the industry is exceptionally strong. The potential entry of new competitors is not likely. Even though raw diamonds are plentiful, it is hard for a new competitor to enter into the industry. The industry is very tight and is ultimately known as a secure industry as far as competition is concerned. Diamond miners, dealers, and wholesalers work in a very close-knit, vertically integrated chain, which are companies in the same industry acting as a unified system.
This set up makes it hard for an outsider to penetrate the industry. Rivalry among competing firm is almost nonexistent DeBeers in fact has a contract with Alrosa. The companies competing in the diamond industry are extremely strong and are said to be monopolistic. This results in very little rivalry among competing firms. Because of the vertically integrated chain there is more collaboration than there is rivalry. The threat of substitutes depends on the price and performance of the competing product. Also the threat depends on customers’ willingness to consider these substitutes.
According to the diamond marketers there are no substitutes for diamonds. Diamonds are a symbol of love and status, and anything else that can be made and top the quality of a diamond will succeed but highly unlikely that something would come about with great demand. There is a threat for Synthetic diamonds but researchers say this threat is entirely manageable. Bargaining Power of Suppliers is great. DeBeers, have almost total bargaining power. They are able to control the supply and flow of diamonds and therefore manipulate their prices.
DeBeers monopolizing 75% of the industry and being the main supplier leaves no room for additional bargaining power. Bargaining Power of Consumers is little to none. There is a strong association linked to the product, diamonds, for uses such as engagement rings, seventy-fifth wedding anniversaries, and gifts of status. The only way consumer bargaining power would increase is if the customers as a whole educated themselves before making buying decisions concerning the company’s ethics and social responsibilities.
SWOT Analysis Strengths DeBeers has owns over 40% of the rough diamond industry as well as over 50% of the US diamond market share. With this DeBeers is able to influence prices when selling to manufacturers. DeBeers also produces a quality product that competes with the rest of the market. Weaknesses DeBeers has a reputation for association with conflict/blood diamonds. The conflict diamond is a diamond that has been sold under the conditions of a civil war, or warlords of a country.
Genocide and many deaths are attached to these conflict diamonds. There have been laws put in place to prevent this happening such as, “the Kimberly Process”. DeBeers is working hard to overcome these accusations, through their lever to “protect diamond equity”. Also in DeBeers Operating Highlights in 2010 they talked about the high production cost and efforts to reduce them. Opportunities DeBeers has many opportunities for growth. One big opportunity that isn’t shared in the 2010 report is brand awareness.
If DeBeers made their making the brand more appealing to consumers they could increase profits. In doing this they should not necessarily lower their standards as a brand but expand into a new markets or demographic. Threats With DeBeers, there are little threats the first would be the association with conflict diamonds. If the association becomes any more superior it could lead to loss in contracts, employees as well as customers. The next threat is the threat of the synthetic diamond.
There is little threat in this but if the synthetic diamond market increases it could pose a serious harm to DeBeers unless they were to choose to include themselves in the market. Overall the diamond Industry seems to be tightly connected. The only thing holding the industry is the ethics and battle behind the conflict diamond. This issue has harmed the industry but they have overcome those obstacles. The industry and DeBeers have proven themselves strong. DeBeers controlling most of this industry has managed a tight rein since the beginning with no near failure in sight.