09/19/2012

Tomeka Harbin

MGT 305-01

The Issue: De Beers' Multifaceted Strategy Shift

De Beers' manager, Gareth Penny, faced a multitude of challenges in the 1990s, due to rising geopolitical and geoeconomic factors from all sides of the industry. De Beers was founded in 1888 in Luxembourg, and since has been the “poster boy” for monopolistic strategy. The company controlled as much as 90% of the world's diamond market, with mining operations in companies such as Botswana, Namibia, Canada, and South Africa.("De beers ," 2012)

De Beers' strategy through its 124 year history has been strict control of the supply of diamonds available around the world. If a smaller company tries to enter the market with diamonds at a certain rate, it simply floods the market with similar diamonds and causes the price to fall temporarily to defeat its new entrant. This strategy worked well for over 100 years. However, Gareth Penny, the companies' director during the 1990s, decided to change its business model from supply side control to sparking demand, mainly due to new discoveries of diamond supplies outside of the company's control. Additionally, the fall of the Soviet Union flooded the market with soviet diamonds. The had agreements with the Soviet Union to sell its diamonds through De Beers, so when it fell so did the agreements.. It had goals of increasing global diamond demand by 5% a year, by offering its own brand direct to consumers and and marketing its suppliers, as the preferred distributors of De Beers diamonds.

A contributing factor to this shift from supply management to demand sparking, was the widespread media bombardment on “conflict diamonds” or “blood diamonds”. The United Nations defines conflict diamonds as “...diamonds that originate from areas controlled by forces or factions opposed to legitimate and internationally recognized governments, and are used to fund military action in opposition to those governments...”("Conflict diamonds," 2001). Penny's response for De Beers was to align itself with the governments of these countries, to certify that the diamonds it receives and distributes are free from blood diamonds. He also