De Beers Diamond Trade Control | Jordan Bass Jewelry
How Did De Beers Do it?
De Beers was phenomenally successfully in crushing its competitors with the strengths it built over 100 years through financial and relationship powers and the business acumen that came from dealing with different peoples, different governments and different situations in this long period of time. De Beers was seasoned with the experiences it went through over 5 generations in the same business around the globe. Here are some of the barriers De Beers put of against its competitors:
Access to Physical Resources
De Beers currently owns 80% of world's present resources of diamonds. It owns mines in friendly as well as hostile countries and it has maintained its position by using every trick in the trade. It is hard to own a mine in a country where De Beers already owns one.
High Capital Investments
No many businesses can think of making a huge capital outlay in a business where market is artificially created and controlled by one company and is subject to volatility. De Beers made a payment of over 1.5 million GBP in 1885.
Channels of Distribution
From Africa to London and from South America to Russia, De Beers currently controls the channels of distribution. Any new threats will have to fight De Beers' hold on them.
High Value Product in the Economy
Any country that discovers a new mine has to carefully monitor the practice of new mine holder since diamond business in every country has stakes in its inventories. It's high value can drive jewelry businesses into bankruptcies and that related businesses as well.
As of 2000, De Beers had cash reserves over $2 Billion for buying diamonds. It could force manufacturers to buy diamonds and it could cut off supply from any cutting factory that failed to subscribe to its policy. With its hold over the diamond distribution, it forced governments worldwide to an extent by threatening to play havoc on its economies (as it did in the case of Portugal in 1976. De Beers has consistently used the British government and its embassies to threaten and force other governments and curb its competitors and at times made irresistible offers to its competitors to stop their activities.
In South Africa and the Belgium Congo, De Beers pressed the governments into passing laws that forced independent prospectors and diggers to sell their diamonds only to government-licensed diamond buyers, who in turn contracted to sell their diamonds to De Beers subsidiary - the Diamond Trading Company (DTC).
Throughout its history, the company has been committed to keeping diamond prices as stratospheric levels. More than anything, it feared that if prices began to fall, diamond owners around the world would start unloading tons of gems and the market would not be able t bear the price fall and would collapse. So De Beers made sure that gems remained secure. It could do this because of the tremendous leverage it had over the world's diamond miners, who had a very few other outlets. As Ernest Oppenheimer established it, one of the cardinal principles behind the diamond inventories was that the demand for diamonds was fixed each year and waived only with the number of engagements (Read - Can De Beers its Hammerlock? by Richard A. Mechler and Deborah Stead, Business Week, September 21, 1992). Any sudden increases in the production of diamonds would therefore be added to De Beers stockpile rather than its profit