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A Project Report On Case Study Of
“DE BEERS” In partial fulfillment for requirement of Economics for Managers course in two years full time Masters of Business Administration
―A single conversation with a wise man across the table is more than the deep study of number of years.‖
In this project, we have studied the Case of De Beers diamond monopoly. Gaining theoretical knowledge from reading book is not enough in today’s modern world. It’s also as necessary to have a practical knowledge and experience. Such thing play a crucial role in making a assignment based on a book, as part of M.B.A. programmed of Gujarat Technological University.
ACKNOWLEDGEMENT ACKNOWLEDG EMENT We owe our greatest thanks to the guide of the project Prof Pandya. for guiding and correcting various mistakes with attention and care. She has gone through all the information collecting and guiding that in which way and how should we proceed further with the project as and when needed. We would also like to thank to all the faculties of our college, who have given us not only academic knowledge but have also provided understanding of practical aspects of various concepts.
At last we would like to thank all those who have in some way or other extended their support to help us complete this project better than we could.
TABLE OF CONTENT
1 2 3 4 5 6 7 8 9
TITLE PAGE PREFACE ACKNOWLEDGEMENT CASE STUDY DE BEERS HISTORY THE DE BEERS STORY CONCLUSIONS BIBLIOGRAPHY
1 2 3 4 6 7 9 10 11
Chapter 1 CASE STUDY
A classic example of a monopoly that arises from the ownership of key resource in de beers, the southafrican diamond company. company. The company was founded in 1888 by cecil rhodes, an english business man,when he merged two of the biggest mines in the countary.rhodes than proceeded to use his profits to countinue buying mines,consolidating mines,consolidating his market power.today,de beers controls about 80% of world's production of diamonds.although the firm's share of the market is not 100%,it is large enough to exert substantial influence over the market price of diamonds. How much market power does de beers have?the answer depends in part on whether there are close substitutes for its product.if people view emeralds,rubbies and sapphires as good substitutes for diamonds,then de beers has relatively little market power.in this case,any attempt by de beers to raise the price of diamonds would cause people to switch to other gemstones.but if people view this other stones as very different from diamonds,then de beers can exert substantial influence over the price of its product. De beers pays for large amounts of advertising.at first,this decision might seem surprising. if a monopoly is the sole seller of its product,why does it need to advertise?one goal of de beers ads is to differentiate diamonds from other gems in the minds of consumers.when their slogan tells you that "A DIAMOND IS FOREVER" you are meant to think that the same is not true of emeralds,ribbies emeralds,ribbies and sapphires.and sapphires.and notice notice that the slogan is applied to all diamonds,not just de beers diamonds -a sign of de beers monopoly position.if the ads are successful,consumer will view diamonds as unique,rather than one among many gemsstones,and this perception will give de beers greater market power.
CHAPTER 2 “DE
De Beers is a family of companies that dominate the diamond, diamond mining, diamond trading and industrial diamond manufacturing sectors. De Beers is active in every category of industrial diamond mining: open-pit, underground, large-scale alluvial, coastal and deep sea. Mining takes place in Botswana, Namibia, South Africa and Canada. The company was founded by Cecil Rhodes, who was financed by Alfred Beit and N M Rothschild & Sons. In 1927, Ernest Oppenheimer, a German Jewish immigrant who had earlier founded mining giant Anglo American PLC with American financier J.P. Morgan,managed Morgan,managed to wrest control of the empire, building and consolidating the company's global monopoly over the world's diamond industry until his retirement. During this time, he was involved in a number of controversies, including price fixing, antitrust behaviour and an allegation of not releasing industrial diamonds for the US war effort during World War II.
Cecil Rhodes, the founder of De Beers, got his start by renting water pumps to miners during the diamond rush that started in 1871, when an 83.5 carat diamond was found on Colesburg Kopje (present day Kimberley), Kimberley), South Africa. He invested the profits of this operation into buying up claims of small mining operators, with his operations soon expanding into a separate mining company. He soon secured funding from the Rothschild family, who would finance his business expansion. De Beers Consolidated Mines was formed in 1888 by the merger of the companies of Barney of Barney Barnato and Cecil Rhodes, by which time the company was the sole owner of all diamond mining operations in the country. In 1889, Rhodes negotiated a strategic agreement with the London-based Diamond Syndicate, which agreed to purchase a fixed quantity of diamonds at an agreed price, thereby regulating output and maintaining prices. The agreement soon proved to be — for very successful — for example during the trade slump of 1891 – 1892, 1892, supply was simply curtailed to maintain the price. Rhodes was concerned about the breakup of the new monopoly, stating to shareholders in 1896 that:
Our only risk is the sudden discovery of new mines, which human nature will work recklessly to the detriment of us all.
The Second Boer War proved to be a challenging time for the company. Kimberley was besieged as soon as war broke out, thereby threatening the company's valuable mines. Rhodes personally moved into the city at the onset of the siege in order to put political pressure on the British government to divert military resources towards relieving the siege rather than more strategic war objectives. Despite being at odds with the military, Rhodes placed the full resources of the company at the disposal of the defenders, manufacturing shells, defences, an armoured train and a gun named Long Cecil in the company workshops. In 1902, a competitive mine named the Cullinan Mine was discovered; however its owner refused to join the De Beers cartel. Instead, the mine started selling to a pair of independent dealers named Bernard and Ernest Oppenheimer, thereby weakening the De Beers cartel. cartel. Production soon equalled all of the De Beers mines combined, as well as yielding the largest rough diamond ever discovered, the Cullinan Diamond. Ernest Oppenheimer was appointed the local agent for the powerful London Syndicate, rising to the position of mayor of Kimberley within 10 years. He understood the core principle that underpinned De Beers success, stating in 1910 that: “
Common sense tells us that the only way to increase the value of diamonds is to make them scarce, that is to reduce production.
During World War I, the Cullinan Mine was finally absorbed into De Beers. When Rhodes died in 1902, De Beers controlled 90% of the world's diamond production. Ernest Oppenheimer took over the chairmanship of the company in 1927, after buying a seat on the board a year earlier. Oppenheimer was very concerned about the discovery of diamonds in 1908 in German South West Africa, fearing that the increased supply would swamp the market and force prices down. 7
Former CIA chief, Admiral Stansfield Turner, claimed that De Beers restricted US access to industrial diamonds needed for the country's war effort during World War II. Diamond monopoly
Russian president Vladimir Putin meeting with De Beers chairman Nicky Oppenheimer in South Africa in 2006 De Beers is well known for its monopolistic practices throughout the 20th century, whereby it used its dominant position to manipulate the international diamond market. The company used several methods to exercise this control over the market: Firstly, it convinced independent producers to join its single channel monopoly, it flooded the market with diamonds similar to those of producers who refused to join the cartel, and lastly, it purchased and stockpiled diamonds produced by other manufacturers in order to control prices through supply. In 2000, the De Beers model changed, due to factors such as the decision by producers in Russia, Canada and Australia, to distribute diamonds outside of the De Beers channel, thus effectively ending the monopoly. Current major players in the diamond industry are the African producers Debswana and Namdeb, De Beers, Rio Tinto, BHP Billiton, Lev Leviev, Harry Winston, and Alrosa. In November 2011 the Oppenheimer family sold the entirety of their 40% stake in De Beers to Anglo American thereby increasing Anglo American's ownership of the company to 85%.The transaction was $5.1 billion in cash and ending the Oppenheimers' De Beers Dynasty's 80-year ownership in the world's largest diamond miner.
CHAPTER 3 THE DE BEERS STORY A New Cut On An Old Monopoly THE COMPANY THAT HAS RULED DIAMONDS FOR A CENTURY WANTS TO POLISH ITS IMAGE...AND DOMINATE AS NEVER BEFORE. De Beers launched a multi-million dollar "A Diamond is For Ever" advertising campaign to rekindle the demand. With N.W. Iyer, its U.S. advertising agency, it had developed aggressive campaign to promote sales of diamond anniversary rings and jewelry for men. The campaign focuses on women as objects of devotion and features full page color advertisements and television spots. It targets women and focuses on showing women how to give men diamonds. The campaign gradually reverted to targeting men and the advertisements took on a more macho look. N.W. Iyer has consistently marketed the diamond engagement ring as a future oriented purpose and has developed a price guideline for those shopping engagement rings . The ultimate luxury good in the status stakes. They also grind out the tools and precisions parts on which our advanced civilization depends. Diamonds can add glamour to the most beautiful woman; they also finance the cruellest of civil wars. Ever since Cecil Rhodes imperial adventures in the late 19th century, a single company has stealthily extended its influence on the global market for diamonds until it achieved almost total control. The manner in which diamonds were formed and the values they symbolize are summed up concisely in what Advertising Age magazine called the greatest advertising slogan of the 20th century. Late one night in 1947 Frances Gerety, a young copywriter at the N. W. Ayer advertising agency, was working on a presentation for De Beers but, feeling tired and completely stumped she prayed, "please God, send me a line." Then, she suddenly scribbled the famous words: A diamond is forever!
CHAPTER 4 CONCLUSION
De Beers one of the most successful monopolies in history. Used numerous tactics to successfully control supply and demand. Monopoly fell apart when it could no longer stop other entrants.