De Beers Analysis

dodging INDUSTRY AND COMPETITION Problem Set 3 1. Th boulderyout the 1990s, some(prenominal) developments contributed to the loss of market-sh atomic number 18 of the Central Selling Organization, which inevitably led to diminishing remuneration for De Beers. In 1991, the Soviet Union collapsed and this disintegration brought down the exclusivity that the CSO had enjoyed for so long. Indeed, the yielding of communism made it difficult for the cartel to protect its trading agreements.As such, provided limited shares of the Russian production reached the CSO, the rest being supplied to the arguing by Alrosa (which became the worldwide dominant non-African producer) and other Russian enterp acclivitys. In 1996, as a consequence of the CSOs reluctance to satisfy demand for very humble stones, the Argyle mine in Australia (with a very distinctive rough production that De Beers had only a limited capacity to match), controlled by Rio Tinto a multinational mining follow and one of their main upstream competitors became the outgrowth major producer to departure from its contract with De Beers.This disruption seriously compromised De Beers penalization capabilities through stockpiling. Additionally, in Canada, another major competitor arose (BHP). De Beers had a puzzle in these two markets. Unlike African countries, these are nations characterized by unfaltering institutions, with a degree of bureaucratization and stability as well as pagan advancement that do not favor for the kind of easy bribes that had allowed the company to control the quantities sell worldwide.However, even in Africa other obstacles appeared. While Angolan and West African output were being diverted to other channels, the concerns almost conflict diamonds reaching their peak with outbursts in Angola through the 90s to a fault alter De Beers image and only made it more than difficult for those diamonds to be sold through the CSO. Finally, pressure from some African governments ( Botswana and Namibia, for example) inadvertently or by design created internal competitors.Thus, De Beers saw its monopolistic position seriously threatened and since it could no longer control the diamond flow to the market, it was forced to practice a price closer to that of a competitive market, which meant move profit. 2. Be locatings the change magnitude disputation that was subject to in the last decennary of the 20th degree Celsius, De Beers also had to concern itself with the possibility of immature entrants in the very market where it had prospered.Due to the ossification with the Global Witness proposal against conflict diamonds, De Beers saw the noose alter around its operations and as a consequence the threat of new entrants surged, with several groups expanding aggressively on the continent. Perhaps the biggest of those threats was the business group controlled by Leviev, the worlds largest diamond cutter and polisher. One of his ideas was to integrate rearwa rd into merchandise rough diamonds. Also, the pressures in Angola were putting in danger the marketing agreement the country had with the company.That agreement would eventually be terminated already in this century, being replaced with a single-channel marketing entity in which Leviev held a one-quarter interest. Obviously, these potential threats had a negative effect in De Beers profits, despite its substantive Brand Image. 3. Traditionally, De Beers would buy the supply from other producers to control the market output. With the rise of competitors this became increasingly difficult. As alternatives to the cartel emerged, the bargaining power of suppliers grew. Argyles eventual withdrawal and Angolas termination of the exclusivity with De Beers are clear proofread of this growing power.Governments began to pressure the company as well. South Africa aimed to have more gems cut locally and other nations such as Botswana and Namibia sought to append the value captured with the activities performed within their borders. Of course, for the company to grant this it would have to see its fate of value retention lowered. In a climate of an undeniable backdrop, this was merely another factor that contributed to decreasing diamond earnings. 4. Although an increase in competition means that buyers will have alternatives (higher bargaining power), this was mum an area (of the fivesome forces) where the market remained attractive.Competitors did not have the level of expertise or the effected supply chain that characterized a company with more than a century of market knowledge. The most relevant fact to mention on the buyers side is the Japanese recession of 1998. De Beers suffered severely from this downturn, after obtaining almost a decade of expansion in various Asian markets. Still, buyers in this industry are not just final consumers, but intermediaries as well. With the rising competition and consequent declining credibility, De Beers could not control sightholders, for instance, with the same discipline and efficiency as before.Leviev (a sightholder himself) is the perfect example of this reality. Of course the less control the company exerts, the lower its returns are. 5. Regarding substitutes, the closest product would be synthetic diamonds. Yet, these diamonds remained exclusive to industrial applications (to invent for the scarcity of the others for these functions) and so natural diamonds were still a unique luxury. In spite of the social issues brought up by conflict diamonds, the product was still protected from substitution throughout the 1990s.The marketing efforts of the previous efforts (mainly represented by the campaign Diamonds are forever) continued to provoke the desired effect. By establishing them as a symbol of lasting love, power and wealth, De Beers had assured that postcode could be compared to a diamond, which translated in a he amount of profits throughout that century. On this area, the main challenge f or the company presented itself in the proterozoic 1990s in the Chinese market. Not only were these consumers traditionally cerebrate on gold and jade, while unfamiliar with diamonds, but also etiolated color were thought to bring misfortune.This might seem trivial for a western consumer, but Chinese people were and are still directly some of the most superstition nations on earth. The gold and jade products had surely a negative effect on De Beers profits. Nevertheless, the company managed to overcome this simulacrum by using Chinese beliefs to its advantage (the red thread ad is a perfect showcase for this idea). This advertisement strategy was very productive and by 2000, retail sales had reached $731 million. Duarte Costa, 1284