De Beers: A Cartel facing Challenges?*

            


Details

Case Code : CLBS033
Publication date : 2004
Subject : Business Strategy
Industry : Gems and Jewelry
Length : 03 Pages
Price : Rs. 50

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Key words:

De Beers, diamond, Argyle Diamonds, mining, Asian financial crisis, Namibian government


* This caselet is intended for use only in class discussions.
** More comprehensive case studies are priced at Rs.200 to Rs.700 (US $5 to US $16) per copy.

 


Abstract: ICMR India ICMR India ICMR India ICMR India RSS Feed

The caselet explains the problems faced by De Beers, an organization that engaged in diamond trade. The caselet looks into the impact of the Asian Financial Crisis and the financial turmoil in Russia on the activities of De Beers. The case also delves into how De Beers tried to avert the crisis.

Issues:

 » How changes in environment affects an industry.
 » How cost leadership attributes of a competitor company affects the marker leader in the industry.
 » The need to anticipate changes in the business environment.

Introduction

For decades, the majority of the world’s diamond trade was controlled by De Beers. It used its market power to keep the prices high. The biggest winner was De Beers; the firm thrived on artificially inflated prices, murky dealings in war zones, and strictly oral contracts.


De Beers’ problems started in the early 1990s. The Russians, in desperate need of currency, began dumping low-quality near-gem diamonds. This violated Russia’s contract with the CSO (Central selling organization).

The CSO retaliated by slashing the price for this type of rough stone by as much as 11%. This resulted in losses for the Australian diamond producer, Argyle Diamonds, too. During 1992-96, Argyle Diamonds was compelled to hold back nearly 15% of its production to lower the CSO’s carrying costs......

Questions for Discussion:

1. Business environment plays a critical role in the strategic decisions taken by firms in any industry. How did the changing business environment influence the diamond industry?

2. It appears that De Beers’ hold over the prices of diamonds has come to an end. Do you think this development would benefit consumers?