De Beers Consolidated Mine Ltd.
As De Beers’ main distribution arm, CSO continued to influence market’s supply and demand, and to purchase other producing nations (excluding South Africa, Zaire, Namibia, Uni Soviet and Botswana) in order to control the market’s price. •Rough diamonds’ sales.
CSO will held selling routinely, named ”sight”, to sell its diamonds 10 times a year, thus CSO has a sole power to determine the quantity and the price for its diamonds. CSO has requirement to its sightholders to submit any information about their businesses (inventory and market) and the right to come for on-site audit.This function would help De Beers to maintain pricing stability further downstream. •Internal market intelligence group. Moreover, CSO maintained this function to understand the flow of diamonds through the pipeline and to monitor diamond inventories at each stage of distribution. They conducted an extensive consumer survey at least once every three years in each country that accounted 1% of the world’s demand for diamond jewelry, and every year in major markets such as USA. In the end, De Beers could simply adjust their quantity and mix the diamonds that it released.
De Beers Consolidated Mine Ltd. Essay Example
By these major functions of CSO, De Beers made outside competition nearly impossible, due to the fact that diamonds producers had to sign in exclusivity agreements with the CSO and majority of diamonds from mines would be sold to De Beers. De Beers, through CSO, was held monopoly power in the diamond industry. 2. How does that expanded economic pie end up getting divided among the various players in the diamond industry? Why? Through 1970s until 1980, there were several incidents which were threaten CSO and almost made DeBeers lose its “monopoly” power (prices and supply) in diamonds industry, as followed: •In the 1970s, the economic disruptions and high inflation had resulted to the speculative demand of diamonds. During this period, Israeli merchant hoarded diamonds in their inventory as investments, thus created a shortage and drove the prices up. De Beers no longer had control of the supply in the diamonds market, because once those hoards were disposed into market, the quantity could increased and prices fall rapidly. On the supply side, Zaire felt that the terms they were given by the CSO fell below their expectations and had not renewed the contract with CSO in 1981 in the hope to recover their own sales on the free market.
But because of its low-grade diamonds, Zaire was in no position to push the price upwards. Hence, unfortunately they were opted to return as De Beer’s supplier. •Another threat was coming from Australia’s mining, Argyle mine, which also confronted CSO in niche markets such as near-gem and industrial diamonds.They were insisted to operate in this market by generated its minerals’ production capacity more than 30 million by 1986 that the De Beers had never expected before. •External market conditions that made De Beers in the under pressure situation, such as an early 1980s recession, rising world interest rates, falling retail demand for diamond, speculation demand caused diamond prices plummeting, many members in the “sight” went bankrupted and liquidated their diamonds’ stock. 3. Should De Beers pull the plug on the CSO’s stockpiling strategy? Depending on your answer what specific actions would you recommend? .
Stay the course, why? 2. Cut offtake, why? 3. Cut price, why? Our group suggested the CSO should pull away their stockpiling strategy, mainly because of the volatility of the diamonds industry and slumpy retail demand condition. Also, sooner or later this centralization strategy could be harmed and weaken De Beers when other threats unexpectedly happened, such as when new mining cartel was discovered thus changed the demand-supply system again, or when there was a nation’s internal problem (such as war, government law) that could weaken the partnership between both parties, and so on.Market demand constantly unpredictable, due to the dynamically changed of consumer’s need and environmental changes; demand for diamonds would be dropping at a time when demand for other luxury goods was increasing and shifting, such as gold, jade gems or cars. These events and situations would be abruptly changed the market share of De Beers and its control in diamond’s demand and supply.De Beers had to keep innovate their strategy to continuously respond the external environment, such as vertical integration on their business line.
As we knew that CSO was only selling the rough diamonds to their sightholders and just controlling the flow of and its downstream channels, we suggested De Beers to make their own system from exploration, mining, production (cutting and polishing), distribution, and its jewelry retailer.This integrating system would effectively maintain its margin, decrease the transaction cost, and maximize the profit by leveraging their powerful retail brand directly to the consumer. Hence, De Beers should be opted and rearranged other strategies to focus on its brand, such as using highly effective advertising, as in the article written that De Beers had a relationship with two agencies in order to boost their selling network in the USA, N.W. Ayer, and outside the United States, J. Walter Thompson. This long-run campaign must be implementing continuously by De Beers to maintain their brand power in the market.
Furthermore, emerging markets as the emerging demands must be reconsidered and included as an additional objective in De Beers’s strategy, since nowadays these markets economic have been growth rapidly and played the major role in the world economy.