Saturday, July 25, 2015

Synthetic Disruptions of De Beers

"A diamond is forever". The iconic slogan of the 20th Century from De Beers may be seeing a downhill trajectory in the 21st century, thanks to a small part to new technologies (synthetic diamonds) and some competitors expanding into its territory. We discuss here the monopolization strategy of De Beers and how the same came back to haunt it.

Founded in 1930 by Sir Ernest Oppenheimer, it was the first diamond cartel and one of the world’s most successful cartels. Its strategy was created and implemented with one and only one motive, absolute monopoly of the market. De Beers convinced producers to join its single channel monopoly. The independent producers who wished to not join De Beers were more likely on the receiving end of losses, considering that De Beers maintained considerable stocks of diamonds of all types, it choose to flood the market with the same type of diamond, thus marking the producer incompetent. Secondly, it purchased and stockpiled diamonds from competitors and other manufacturers and thus could control the price, an effective way of price and market fixing. Another way of market control was that the cartel was involved in both diamond mining and distribution at a wholesale level. Therefore, De Beers had the control over making a diamond scarce in the market in wake of weak sales. However, controlling the supply was one thing, but creating a market was another masterpiece from De Beers. The slogan was made up to appeal as a symbol of indestructible love and mark it as an item of luxury. Tying up with Hollywood, gifting movie stars diamonds, advertising connections between diamond and romance, celebrating women and women empowerment were some of the most successful marketing and advertising campaigns taken up by De Beers to enhance its revenue over decades.

However, things are changing post 1990s when the mined diamonds were seeing as “blood diamonds”. This was a disruption which De Beers was not prepared for. The general public began to see the De Beers diamonds as tainted by blood and retrieved from rogue governments. This was the time that mines and producers in Canada and Australia terminated their contract with De Beers, thus ending De Beers reign as the single supplier of choice. The interesting fact about the mine owners in Canada and Australia was that they were experienced in other industries like iron ore, aluminum, oil, gas, LPG and other natural resources. This allowed these organizations to march into the diamond business easily with their prevailing expertise. They were trying to sustain their growth and profits. India and Antwerp were identified emerging market and sales office which De Beers had failed to associate with. 

The last of the competition is from a disruptive technology that has been existing since 1950s, but gaining into the market very recently. The name, Synthetic diamonds or HPHT diamonds. These can be created by subjecting carbon to similar types of conditions which led to the formation of natural diamonds. Although HPHT diamonds are used for industrial use as of now, they are the most dominant threat to the market of natural diamonds. These can be created in matter of days (usually 4 days for a 2.5 carat diamond) rather than wait millions/billions of years for them to form. They were cheaper than their natural counterparts. Producing them in a large scale will not be as problematic as it is for natural diamonds. Even the production process was less labor, capital intensive and less impacting on our fragile environment. Coloring of synthetic diamonds has its own appeal as naturally colored diamonds are very rare and hence very expensive for most of the customers. Lastly, synthetic diamonds will have more use than just a piece of luxurious fancy jewelry.

The future is still unclear, but there is a very possibility that synthetic diamond may challenge the monopoly of De Beers and other diamond cartels. It may be some years or decade out, but there is every possibility that this piece of disruptive technology will cause some organizations to fail. 

Source :

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.