De Beers Analysis
Problem Set 3
1. Throughout the 1990s, several developments contributed to the loss of market-share of the Central Selling Organization, which inevitably led to diminishing profits 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 fall of communism made it difficult for the cartel to protect its trading agreements. As such, only limited shares of the Russian production reached the CSO, the rest being supplied to the competition by Alrosa (which became the worldwide dominant non-African producer) and other Russian enterprises. In 1996, as a consequence of the CSO’s reluctance to satisfy demand for very …show more content…
South Africa aimed to have more gems cut locally and other nations such as Botswana and Namibia sought to increase the value captured with the activities performed within their borders. Of course, for the company to grant this it would have to see its percentage of value retention lowered. In a climate of an undeniable backdrop, this was yet 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 still an area (of the five forces) where the market remained attractive. Competitors did not have the level of expertise or the established 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