The Invisible Hand, De Beers and Emerging Markets

What marketing and business strategy was followed by De Beers over the course of their history to be unique from competitors? 

De Beers is one of the companies that exemplify evolution. This company has constantly responded to the changes taking place in its operating environment. In the discussion that follows, the strategies that De Beers has adopted in a bid to gain an edge over its competitors are explored.

De Beers strategy followed at the end of 1800s, beginning of the 1900s and mid 1900s. Assessment and evaluation of each strategy 

In the late 1800s, De Beers relied on connections that it had created with influential individuals and governments to establish itself as a key player in the mining industry. This company enjoyed the support of the Rothschild family and the government of South Africa which at the time, was under the leadership of Cecil Rhodes who implemented reforms that benefited De Beers (Gupta, 2011). Sir Ernest Oppenheimer is yet another individual that De Beers turned to for support. Through its alliances, De Beers was able to gain monopolistic power. It controlled much of the mining trade and this allowed it to dictate such matters as price (Gupta, 2011). The company also enjoyed huge demand for its products. The strategic alliances that De Beers entered into were clearly effective. Through these alliances, this company was able to gain a foothold in a new market and monopolize the mining industry.

In the beginning of the 1900s, the mining industry underwent a number of changes that compelled De Beers to revise its strategy. During this period, small mining organizations were emerging. These organizations posed a threat to the monopoly that De Beers had enjoyed for years (Gupta, 2011). Thanks to the vision and deep insight that Sir Oppenheimer who served as the chairman of the company possessed, De Beers embarked on a new strategy aimed at lowering the threat that the small firms posed. The company pushed for the establishment of the Central Selling Organization (CSO) (Gupta, 2011). The primary mandate of this body was to control the distribution of minerals with the aim of ensuring that prices remained stable. The main advantage that the CSO presented to De Beers is that it allowed it to control the prices of diamonds. Moreover, through the CSO, De Beers was able to limit the influence of other small mining firms (Gupta, 2011). The new strategy that De Beers implemented was evidently wise and effective. This is because this strategy allowed De Beers to remain competitive at a time when other firms were emerging. Without this strategy, De Beers would undoubtedly have lots a huge portion of its market share and influence to the emerging firms.

The 1900s presented more challenges that forced De Beers to change its strategy again. It is during this time that the Great Depression occurred. This crisis significantly lowered the demand for diamonds in the US market (Gupta, 2011). In response to this crisis, De Beers began exploring new markets and developing new marketing techniques. For example, the company created the slogan “diamond is forever” in a bid to convince consumers to buy diamonds. This change in marketing strategy led to a drastic increase in diamond sales. For instance, in the American market, the diamond sales registered a 55% increase (Gupta, 2011). Such other markets as Japan also witnessed an increase in diamond sales. The key element of the strategy that De Beers developed involved redefining the value chain. That this strategy was effective is not in question. Thanks to this strategy, De Beers was able to survive economic turmoil and declining demand for diamonds. The strategy also enabled the company to engage directly with its consumers. Overall, the strategies that De Beers has adopted through its history indicate that this company is responsive to the changes that take place in its operating environment. The firm recognizes that if it is to survive, it must align its operations in a fashion that is consistent with the realities in the market.

De Beers value chain analysis 

Value chain analysis is a vital process that allows firms to examine their internal environment with the goal of identifying the factors that offer a competitive advantage. In the early years, De Beers exercised monopolistic power. This was a vital source of value. Thanks to its monopoly, the company was able to dictate the amount of diamonds that were distributed and the prices of the diamonds (Gupta, 2011). In the years that followed, De Beers faced pressure from such groups as the United Nations and human rights organizations to abandon its monopolistic practices and to shield vulnerable communities in its markets against human rights violations. This pressure compelled De Beers to rethink its value chain. The firm began to place greater focus and investment in its financial muscle and ingenious marketing techniques (Gupta, 2011). Using its financial resources, the company emerged as a strong advocate for human rights. It even redefined its purpose to include its new commitment to the social welfare of communities. The firm’s vast resources also enabled it to regain the confidence of its customers. As a result of a renewed effort to win back the hearts of its customers, De Beers was able to secure customer loyalty. For example, the firm’s customers are prepared to pay 15% more than what other products cost for the jewelry that De Beers sells (Gupta, 2011). Overall, the monopolistic power, the vast financial resources and the marketing initiatives are the main elements of De Beers’ value chain.

Influencers (non pure players on the value chain) on the value chain and relationship with De Beers. 

De Beers does not operate in a vacuum. There are other players who influence the company’s operations and define its value chain. Governments are among these players. Generally, governments pose a threat to the company’s value chain and appear to be in an antagonistic relationship with the company. For example, the American government has been opposed to the firm’s monopolistic tendencies (Gupta, 2011). It has enacted laws which forbid firms against engaging in anti-competitive behaviors. The American government is not alone as the European Union has also made it clear that it will not permit any firm to undercut its competitors and threaten the wellbeing of consumers. Human rights groups are other players that shape the value chain of De Beers. These groups have challenged De Beers to abandon its pure profit motive and respond to the human rights issues in the country in which it operates (Gupta, 2011). For example, there have been calls for De Beers to stop purchasing diamonds from rebel groups in countries such as the Democratic Republic of Congo.

Governments and human rights groups are not the only stakeholders that influence De Beer’s value chain. In addition to these groups, the company has also established a relationship with the UN. Initially, this relationship was characterized by tensions as the UN accused De Beers of trading in conflict diamonds (Gupta, 2011). In an effort to gain back the trust of its customers, De Beers opted to join forces with the UN in creating a certification process. Through this process, the diamonds that De Beers sells are evaluated and branded as “conflict-free”. This collaboration with the UN has enabled the firm to shed its association with supporting rebel groups (Gupta, 2011). Sightholders are another party that De Beers works with to create value. Essentially, these are firms that are involved in the production or sale of the firm’s products. For the most part, the relationship between De Beers and its sightholders has been healthy and cooperative. However, there have been instances when the company has been forced to sever ties with some of its sightholders over poor performance.

What were the changes in De Beers’ strategy at the end of the 20 th century (late 1900s) and the drivers of that change? Assess and evaluate this strategy compared to those followed in the past. 

The late 20 th century ushered further changes that De Beers had to respond to. For example, the firm was forced to move away from its monopolistic tendencies. Furthermore, the company had to rethink its decision to become involved with rebel groups following pressure from such groups as the United Nations. In the discussion that follows, various tools are used to analyze De Beers’ operations and the strategies that it has adopted.

PEST-EL analysis 

The PEST-EL analysis is an important tool for evaluating the impact that external factors have on the operations of a company. This tool includes political, economic, social, technological, environmental and legal factors. All these factors played some role in pushing De Beers into adopting new strategies. Increased government regulation is the main political force that shaped De Beers’ strategy in the late 20 th century. In previous years, De Beers had exercised monopolistic power through which it was able to dictate the price of diamonds. This changed in the late 20 th century as different countries moved to curb monopolies. For example, the US government enforced anti-trust laws strictly (Gupta, 2011). De Beers faced a number of lawsuits for its anti-competitive practices. The European Union joined the American government in tackling anti-competitive behaviors. The actions of these governments eventually forced De Beers to move away from its monopolistic past and embrace practices that encourage healthy competition.

Economic and social factors also defined De Beers’ strategy as it entered the 20 th century. Consumers becoming more aware and responsive to the need for social justice is the main social factor that shaped De Beers’ strategy. As noted earlier, De Beers’ faced accusations that it was purchasing diamonds from rebel groups which were responsible for atrocities. Consumers responded to these accusations by shying away from the diamonds that De Beers sold (Gupta, 2011). The chief economic force that compelled De Beers to revise its strategy was the emergence of new players into the diamond industry. In previous years, the company faced little competition and this allowed it to wield immense influence. The late 20 th century introduced new players who commanded a significant portion of the market. Rio Tinto Diamond, BHP Billiton and Alrosa are among the firms that pose a significant threat to De Beers’ dominance (Gupta, 2011).

In addition to the factors mentioned above, technological, legal and environmental factors also forced De Beers to embrace new strategies. For much of the 19 th century, De Beers enjoyed unrivalled dominance. This changed in the late 20 th century as new technologies were developed. Thanks to these technologies, mining companies were able to extract minerals in a cost-effective fashion (Gupta, 2011). Furthermore, these technologies allowed the companies to venture into areas that were previously inaccessible. As a result, the companies were able to enhance their competitiveness and pose a real threat to De Beers. Instead of continuing to rely on its monopoly, De Beers was forced to invest in marketing initiatives. Concerns regarding the damage that De Beers was causing to the environment are another development that forced the company to reinvent itself as it entered the late 20 th century (Gupta, 2011). Legal challenges surrounding De Beers’ monopolistic practices and indirect support to rebel groups also contributed to the changes in the firm’s strategy. Overall, the late 20 th century saw De Beers become more responsive to such issues as social justice and fair play. The company recognized that the pursuit of profit should never occur at the cost of human rights and environmental conservation.

Porter’s five forces model 

The Porter’s five forces model is yet another tool for examining the operating environment of a firm. This model concerns such factors as competitive rivalry, supplier power, buyer power, threat of substitutes and the threat of new entrants. These forces combined to force De Beers to join other firms in the mining industry to promote fair competitive practices. The rivalry in the industry is intense. While De Beers enjoyed dominance in previous years, the late 20 th century saw it come under pressure from strong competitors such as Alrosa and BHP Billiton (Gupta, 2011). Other smaller firms also posed a threat to De Beers. Low supplier power is one of the factors that allowed De Beers to withstand the pressures that it faced. Thanks to its monopolistic power, De Beers was able to control virtually the entire value chain. It either directly controlled or had close connections with suppliers and distributors. Buyer power was rather high especially when buyers became conscious of the importance of social justice (Gupta, 2011). The strong buyer power forced De Beers to cut ties with rebel groups and sell “conflict-free” diamonds. The power that the buyers wielded was strong enough to significantly affect the demand for diamonds. The threat of substitutes was high. This is because diamond lacks intrinsic value and there are other jewelry products. The threat of substitutes inspired De Beers to aggressively market its products while giving focus to the emotional value that they hold (Gupta, 2011). The threat of new entrants also appears to be high. While small firms struggled, they posed a significant threat to De Beers and other established mining companies. Overall, the Porter’s five forces model reveals that there are various strong forces that pushed De Beers to change tact as it entered the 21st century.

SWOT analysis 

The SWOT analysis examines internal and external factors and the impact that they have on the operations and strategies of companies. The key strengths that De Beers possesses include financial muscle, a strong heritage and deep connections with markets. The firm’s financial muscle allowed it to weather economic storms while its heritage offered it the experience that it needed to respond to changes taking place in the market (Gupta, 2011). Through its connections with sources of raw materials and markets for the finished products, De Beers was able to enter the 21st century as a force to contend with in the mining industry. The key weaknesses that hampered the firm’s growth include monopolistic and anti-competitive practices, and association with violators of human rights. The firm’s failure to secure the environment is another weakness (Gupta, 2011). The external environment contained threats and opportunities that defined the firm’s entry into the 21 st century. Cut-throat competition and pressure from governments and campaign groups are among the threats that De Beers faced. These threats forced the company to become responsive to human rights abuses, anti-competitive practices and environmental damage (Gupta, 2011). The main opportunity that the firm exploited was collaboration with such parties as the UN to promote human rights. Through this collaboration, the company was able to improve its image.

Changes in their values and vision 

The late 20 th century saw De Beers change its vision, values and the focus of its operations. In its new vision, the firm placed focus on sustainability and safety (Gupta, 2011). The company also committed to empowering communities and building lasting partnerships. Sustainable growth is yet another issue that the company identified as part of its new vision. De Beers also pushed for the development of standards in the mining industry. The purpose of these standards was to challenge mining companies to embrace safety and sustainability (Gupta, 2011).

Core competencies 

As it entered the 21st century, De Beers had developed a number of competencies that enabled it to adapt to the realities in this new era. Effective marketing is one of these competencies. The firm directed the attention of its customers to the emotional value that its diamonds offered (Gupta, 2011). This was an effort to revive interest and demand. Commitment to social issues such as human rights and the environment is yet another competency that the company rode on into the 20 th century. The production of high quality diamonds is another competency that was key to De Beers’ survival and successful entry into the 21 st century (Gupta, 2011).

New business strategy developed 

The 21 st century was starkly different from the previous periods. De Beers recognized this as evidenced by the new business strategy that it developed. Previously, the company’s business strategy placed immense focus on profits. The firm did all it took to maximize profits. This included ignoring human rights violations and causing devastation to the environment. In the late 20 th century, the firm adopted a new business strategy whose central focus was social justice (Gupta, 2011). Even as it pursued profits, De Beers recognized the need to promote human rights and environmental conservation.

Challenges 

De Beers faced numerous challenges in the late 19 th century. The main challenge involved declining demand as a result of intense competition and negative publicity (Gupta, 2011). These challenges threatened the company’s very existence and profitability. Another challenge that the firm encountered was strong opposition and pressure from governments and campaign groups that reiterated their calls for De Beers to cut ties with human rights violators and to do more to safeguard the environment (Gupta, 2011). The nationalization of the mining industry in a number of African countries is another challenge that De Beers faced. This challenge limited the company’s access to vital sources of diamonds.

Evaluate De Beers’ Joint Venture with LVMH 

Joint venture synergies between De Beers and LVMH 

De Beers: What they have to offer to LVMH and gain from LVMH 

In its quest to enter the retail industry, De Beers decided to join forces with the Louis Vuitton Moet-Hennessey (LVMH) group. Through this partnership, De Beers brought a number of competencies to the table as it enjoyed numerous gains that LVMH presented. Strong brand recognition is the main gain that De Beers offered LVMH (Gupta, 2011). De Beers’ history of adopting socially-responsive practices is another competency that it brought to the table. In exchange for these competencies, De Beers hoped to enjoy some gains from LVMH. These gains included an entry into the European market. The EU had enacted laws that made it impossible for De Beers to enter the European market directly (Gupta, 2011). The long history and experience is another competency that De Beers hoped to exploit through its joint-venture with LVMH.

LVMH: What they have to offer to De Beers and what they gain from De Beers. 

The joint venture between LVMH and De Beers was not one-sided since LVMH also made contributions. The main resource that LVMH offered De Beers was its proven track record in the retail industry (Gupta, 2011). This company had operated in this industry for years and was therefore properly placed to guide De Beers in its exploration of the industry. Innovative product design and brand development are other competencies that LVMH brought to the table. LVMH hoped that through the joint venture with De Beers it would increase its market share and ride on the strong brand recognition that De Beers had built (Gupta, 2011). Moreover, LVMH made financial contribution that was sued to set up retail stores in such markets as Britain and the United States.

What are your recommendations for De Beers? 

Short term (1-2 years) and long term (3-5 years). 

De Beers remains one of the strongest players in the mining and jewelry industry. However, the firm faces a number of challenges that it must address if it is to survive the intense competition that it faces today. One of the challenges that threaten De Beers is the dwindling diamond reserves (Gupta, 2011). It has been noted with concern that as is the case with petroleum, the diamond reserves are declining in size. To ensure that it remains relevant even when diamond supplies are depleted, De Beers needs to diversify. The firm should invest in other jewelries. Through its partnership with LVMH, De Beers should be able to implement this recommendation in the short-term. The joint venture with LVMH should enable it to leverage LVMH’s experience to enter into new ventures. Another recommendation that the firm can implement in the short-term is entering new markets. Europe and the US have been the main markets of the firm for many years (Gupta, 2011). The firm has made attempts to enter such emerging markets as China and India. While these attempts are commendable, they are not sufficient to secure the company’s future. De Beers needs to invest in such other developing markets as Africa which holds immense potential.

The short-term strategies recommended above will only address the immediate and urgent challenges that De Beers faces. For the company to sustain its growth, it needs to adopt long-term strategies. Doing more to resolve the damage that African countries have suffered as a result of violent conflict is among these strategies. It is true that De Beers has taken measures to ensure that it diamonds are not obtained from conflict areas. However, this measure has not helped African countries heal the wounds of war. Since it is indirectly responsible for the conflict that some African countries have suffered, De Beers needs to implement such measures as compensating victims and promoting peace. This strategy can only be implemented in the long-term because peace building initiatives take time to yield results and the conflicts in Africa are complex. Another long-term recommendation that De Beers should implement involves entering into partnerships with other players in the mining and retail industry. Concerns have been raised regarding whether the partnership between De Beers and LVMH will be enough to cement De Beers’ position in the retail industry. To allay these concerns, the firm needs to approach other retailers for partnerships. These partnerships will enhance De Beers’ attempts to gain a foothold in the retail industry.

Reference

Gupta, M. (2011). The “Invisible Hand”, De Beers, and Emerging Markets.