De Beers Diamond Company
June 18, 2021
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This research paper is based on the world’s greatest diamond company – the De Beers. It seeks to offer an insight into the dealings of the company and how it has managed to remain relevant in its over 120 years of operation. The discussion begins with a brief history of the company. It then goes to look into the factors that have prompted its success over that period. Furthermore, it will give a brief account of the shareholders of the company. It will then look at the social responsibility issue and how the De Beers have managed to deal with it. In the conclusion, the paper summarizes on the challenges and criticisms that have forced the company over the years. It also offers a counter to such criticisms laid on the company by giving a reason for its success and relevance over the years of its existence. It then lets you know about the position of the company today.
After reading this paper, you will be able to have a thorough understanding of the De Beers Company. You will also develop a criticism, either positive or negative, about the company. Lastly, the paper offers the reader with material that can be used to conduct further research relating to De Beers.
The De Beers Diamond Company was started in Kimberley, South Africa, some 120 years ago (De Beers Group, 2012). Diamonds were first discovered in South Africa in 1866 and the De Beer’s mine and the Kimberley mine opened in May and July of 1871, respectively. The De Beers Consolidated Mines Limited was established on March 12, 1888. In 1890, ten merchants formed the London Diamond Syndicate and bought the De Beers’ whole production. In 1926, Sir Ernest Oppenheimer was elected to the De Beers’ Board. It came after Anglo American PLC. The company he founded in 1917 became one of the largest De Beers shareholders. In 1929, Sir Ernest was elevated to become chairman.
In 1928, the first diamond cutting factory in Africa was put in place at Kimberley by the De Beers. In 1939, Harry Oppenheimer, the son of Sir Ernest, went to New York to start advertising of De Beers Diamond. However, all the De Beers’ mines were closed during the entire period of World War II that had spread across the whole Europe. It is during this time that Dr. John Williamson, a Canadian, discovered pink diamonds in Tanzania and established the Williamson Diamond Mine. It is in 1947, when Frances Gerety, a young worker for an advertising agency, came up with ‘A diamond is forever’, the greatest advertising slogan of the 20th century, which is still De Beers’ slogan today (De Beers, 2012).
In 2001, De Beers partnered with the group LVMH Mo?t Hennessy Louis Vuitton to form a new company called De Beers Diamond Jewelers. In 2006, De Beers partnered with the Government of Botswana to establish DTC Botswana. The company’s mandate was to sort and value all Debswana production (a joint venture with the Government of Botswana for mining Botswana diamonds upon their discovery in 1967) and support local diamond manufacturing (De Beers Group, 2012). Furthermore, DTC had been tasked with ensuring that all De Beers’ diamond sales would be based in Botswana by 2013. In 2011, Anglo-Americans acquired shares of the Oppenheimer family and in 2012 De Beers became a member of the Anglo American PLC Group.
De Beers is a company that still involves itself in the diamond trade. Yu (2005) says that the global diamond market is worth $30 billion annually. He further notes that over 85% of that market is owned by one company – De Beers. Such a scenario is often referred to as horizontal monopoly, as suggested by Stern (2010). It owns both the mines and the distribution system, also called the Central Selling Organization (CSO). However, the mines and the trading companies are owned by its subsidiaries with generic names.
Factors That Influence Success of De Beers
De Beers has been successful in the diamond industry, mainly because of two factors. Firstly, it ‘monopolized’ the diamond market (Yu, 2005). De Beers has been known to influence the demand and supply of diamonds in order to influence the prices of diamonds in the world. The company does it by ensuring that most of the diamonds mined are directly sold to it. It has external buying offices with purchasers buying from outside. De Beers has the sole power of determining the quantity of diamonds that other companies can sell and the selling price thereafter. These companies are also supposed to sell diamonds 10 times per year at the sight of diamond. They also invite the buyers at the CSO.
Secondly, according to Yu (2005), De Beers has consolidated a lot of ‘iron hand’ power. The company is so powerful to the extent that soldiers are completely powerless at the sight of diamonds. They are not supposed to negotiate or sell to retailers. Furthermore, they must provide information to De Beers on matters of inventory and market for diamonds. De Beers has also the right to come and validate such information provided.
Shareholders at De Beers
De Beers was founded by Cecil Rhodes in 1870 (De Beers Group, 2012). However, it was Sir Ernest, who has taken control of the diamond business for the next three decades. He did it by ensuring that he kept on buying De Beers’ shares whenever they were sold. It made him to be one of two the biggest shareholders and hence prompted his elevation to become the board chairman. However, in the present time, the De Beers Group of Companies entirely owns subsidiaries, partnerships and investments. De Beers has two main shareholders, Anglo American PLC, which owns 85% of stake in the company, and the Government of the Republic of Botswana (GRB), which owns the rest.
The Anglo American PLC’s main shareholders in terms of percentage of shares owned are the following: Public Investment Corporation (5.84%), BlackRock (4.60%), and Legal & General (4.03%). BlackRock Inc. is a multinational investment management company with headquarters in New York. It was started in 1988 as a risk management and asset management company and is currently the world’s biggest asset management company at the Anglo American PLC (Stern, 2010). It provides investment funds as well as offering advice and risk management. By 30th of September 2013, BlackRock had over $4 trillion in assets under management.
The Public Investment Corporation (PIC), established in 1911, on the other hand, is owned by South African government. Its investment portfolio is over R1 trillion ($100 billion) of assets under management (Stern, 2010). It is the largest investment manager in Africa today in relation to the Anglo American PLC. The South African Minister of Finance is the shareholder’s representative for the PIC on behalf of the government. The PIC invests public funds based on the investment mandates and must be permitted by the Financial Services Board (FSB).
Legal & General Group Plc. is a multinational financial services corporation with headquarters in London. It provides life insurance and general insurance services as well as pensions and investment funds (Stern, 2010). It had total funds under management of ?371 billion as of the end of 2011.
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Influencing Financial Performance
In order to improve the financial position of Anglo American PLC and De Beers at large, the PIC should:
a) Introduce a policy of employing intellectual capital. De Beers should be run by human capital rich in knowledge and skills, which is committed to success of the company (Evans, 2007).
b) Make use of liquidity ratios. These ratios would help to determine, where De Beers would meet its short term goals where highest liquidity ratios would indicate that it can easily reach its goals, and vice-versa.
c) To calculate its return on assets. It would let the shareholders know how the capital they invested in De Beers has been used. It gives a percentage returned for each monetary unit invested.
d) Compare financial reports for different years. Furthermore, they should compare their financial reports with those of other firms in the diamond business. It will help in knowing whether the company is making progress or not.
e) Use market value ratios. Under it the economic position of the organization is measured within the marketplace. These ratios would help the shareholders to evaluate and monitor the development of their funds.
One of the main socially responsible issues that De Beers has had to overcome is the conflict diamonds (De Beers, 2012). According to the United Nations, conflict diamonds are defined as those that come from areas that are controlled by factions or forces that are opposed to genuine and internationally recognized governments and are mainly used to fund rebels. For example, in May 2000, all the diamond producing countries met in Kimberley to discuss the ways for curbing trade in conflict diamonds. The agenda included how to ensure that diamond purchases were not used to fund violent acts. This meeting formed what is known as the Kimberley Process and De Beers has been a key participant ever since. De Beers, for instance, has been working closely with other stakeholders in the diamond industry in ensuring that the Kimberley Process remains strong and successful. Presently, the Kimberley Process ensures that over 99% of the global production of raw diamonds is certified to be from conflict-free sources.
The Kimberley Process led to the creation of a certification scheme that is an international initiative by governments and diamond stakeholders, which look into contribution of the diamond industry into the society (De Beers, 2012). All countries that are party to the process are required to meet some minimum requirements and must ensure that the relevant institutions meet the set standards and procedures. Such institutions include import and export institutions. Member countries must also oblige to complete and clear exchange of statistical data. The scheme also requires that all rough diamonds are to be transported in sealed containers that cannot be tampered with and are to be accompanied by forgery-proof certificates of origin. These certificates are issued by the exporting country’s government and must have a unique serial number.
As the team leader at Anglo American PLC, I would form strong partnership with the main transporter of De Beers’ diamonds. In doing it, we will have a stronger team that would help in ensuring that there is no diamond that comes from the rebelled states. In order to achieve it, I will start by tendering of transportation services for diamonds in all countries that we operate in. Then I will employ a team of experts to thoroughly study and scrutinize all the applicants and then award the tenders to the best suitable candidates. Working with trustworthy transporters will help in ensuring that the diamonds supplied are cross-checked thoroughly to ascertain their origin.
After teaming with transporters, the other stakeholders to be included in the master plan would be government agencies in all our countries of operation (Stern, 2010). For instance, security departments of such countries would ensure safety of the diamonds transported. Transport authorities would ensure that there is a good transport network to provide timely delivery of the cut out diamonds. In order to ensure cooperation with these states, we will oblige to follow all the rules and regulations as well as local and state laws governing the business. We would pay all the relevant taxes and also fund community projects like building of hospitals in the local community.
In order to attain the above, some of the potential challenges that we may face are the following: failing to get a trustworthy transportation partner, lack of cooperation from government agencies in these countries and lack of interest from potential transport companies. In case of failing to get a trustworthy partner from within these countries, I would opt to outsource such services from other countries’ reputable companies. In the instance where the government agencies are unresponsive, I would deal with the top leadership of those agencies or even heads of governments. Furthermore, I would go to the extent of letting the governments to have a stake of shares in the company. When there are potential trustworthy companies, which are less interested in a joint venture, I would choose to negotiate better terms and benefits with them. It would include the offer of a stake of shares of Anglo American PLC.
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De Beers is arguably the largest diamond mining and selling company in the world. Despite its major successes in many years of its operation, it has had a great number of critics which accuse it of having an ‘iron hand’ in its operations. It has led to revolts in some parts of the world. For instance, in the 1970’s, Israeli merchants hoarded diamonds at a time when there was high inflation. It led to a shortage that has driven prices upwards.
They have also been accused of anti-competitive tactics, such as hoarding their stock when prices of diamond were falling (Yu, 2005). They do it by selling less diamonds at such times. Furthermore, whenever new suppliers enter the market, they flood the market with diamonds that are similar to those of a new supplier and sell them at relatively lower prices. A case in point was Zaire’s quitting of CSO.
However, De Beers still remains one of the most successful monopolies of all times in the world. In order to achieve it, the company used vigorous advertising campaigns through movies, magazines, television, involving celebrities and even the British Royal Family (Yu, 2005). On top of that, the advert ‘a diamond is forever’ that discouraged buying of used diamonds led to the fact that over 70% of American women own at least one diamond.
Presently its share of the market has fallen to about 65% and it has opted to use marketing instead of the previous unscrupulous methods of controlling prices, demand and supply. It is now relying on its brand name as a means of getting a competitive edge over its competitors.