Problem Summary
De Beers used to be a major player in the diamond market by producing up to 45% of all diamonds of the world. At present, a shift towards synthetic diamonds production is observed, and the company needs to decide whether to continue selling natural diamonds or switch towards lab-created stones (Richard Ivey School of Business Foundation 5).
Analysis of the Problem
The difficult situation in which the company found itself roots from the early 1990s. Back then, they were still dominating the market, but several new producers entered the industry, and the socio-political situation has changed (Richard Ivey School of Business Foundation 2). The main complexities faced by De Beers are listed below:
- One of the companies terminated their contract with De Beers and started to work as an independent producer.
- The enterprise was forced to withhold its sales to ensure the prices for its diamonds were high enough.
- Apart from that, the company was trying to keep its dominance in the market by buying out all the diamonds, including the conflict ones, to establish a monopolistic form of trading. However, when mining on the African territories, this implied that they got engaged in blood diamond trade, which could affect the brand image dramatically (Richard Ivey School of Business Foundation 3).
- In recent years, an important shift in diamond trade was observed – the clients wanted to be offered synthetic diamonds rather than the ones received from ground mining (Richard Ivey School of Business Foundation 5).
- De Beers has to decide whether to continue mining the ground and ignore the recent trend for synthetic diamonds or change its course of action.
- The company also needs to determine whether to open its own laboratory for these purposes or purchase an existing one.
Recommendations
For the past year, the company was doing a good job of maintaining its leadership position in the market; however, the current setting requires it re-evaluate its approach.
- It can be recommended for De Beers to carry out an assessment of whether it is feasible to continue mining diamonds instead of producing them in a laboratory.
- The company has multiple sites in Africa, which allows it to provide the population with employment opportunities while executing control over aggregation duties (Richard Ivey School of Business Foundation 2).
- Nevertheless, an important shift may be observed in the industry, which should push De Beers to amend its strategy towards a cheaper diamond alternative instead of fixating on the image that mined diamonds are rear.
- It may be recommended for the company to finalize its operations in countries once the agreement has expired, and experiment with entering the new market.
- Synthetic diamonds are not as expensive to produce as the mined ones, although it takes longer to get them.
- It may take up to four days to make a stone in a laboratory, which is quite lengthy as compared to several hours required for extracting a natural diamond.
- Synthetic diamonds are cheaper to produce, and their production is also less damaging to the environment.
- Natural gems extraction causes pollution due to the poisonous gasses that are being emitted in the process.
- Also, during diamond extraction, natural habitats of animals are being destroyed, which contradicts the notion of environmental and social responsibility.
- De Beers either needs to partner with an existing laboratory or open a new one to start producing synthetic diamonds to address the needs and requirements of the contemporary consumer and increase its market share.
Work Cited
Richard Ivey School of Business Foundation. De Beers Group: Marketing Diamonds to Millennials. Ivey Publishing, 2017.