De Beers Diamond Dilemma PDF

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De Beers Case Study analysis and Assignment...

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DeBeers Diamond Dilemma [Name Removed for Peer Review] Department of Business Administration, University of People Business 5117 – Strategic Decision Making and Strategic Management Dr. Donna Pepper September 21, 2021

Background/ Case Summary De Beers has been the leading name in diamonds for centuries (Goldschein, 2011). Debeers is a diamond company that enjoyed market leadership because it once had the monopoly of controlling the diamond business supply and price rate. DeBeers dominated the diamond business in the early 1990s (McAdams & Reavis, 2008). While it only produced 45 percent of the world's raw diamonds, its marketing operation in London sold 80 percent of the total supply. Because of its market leadership, it was able to select who to sell to, how much to sell for, and at what price. Buyers who declined an offer to acquire a diamond parcel may not be invited to buy from DeBeers again (McAdams & Reavis, 2008). Meanwhile, buyers who bought directly from a mine instead than through DeBeers' selling branch would be dismissed by the business or penalized financially (McAdams & Reavis, 2008). While De Beers enjoyed the market monopoly it also had times when it dealt with various attacks example during the era of “blood diamond” and during the collapse of the Soviet Union. Most importantly the emergency of synthetic grown diamonds serving as an alternative to the natural mined diamonds became one of the greatest threat De Beers will face since it invested more in natural diamonds. DeBeers' issue/dilemma is whether they should have entered the market with their very own brand of synthetic diamonds or anticipated the synthetic would be a passing trend because the rock was no longer worth much. Along with their own problems, they had to reinvent themselves, rebuilding a reputation that had been shattered by anti-competitive sales practices. It used to generate around 45 percent of the world's rough diamonds and sell 80 percent of them, but by 2007, it was only generating about 80 percent and selling 45 percent of that production (McAdams & Reavis, 2008, p. 2) Analysis of PESTEL and the five forces. PESTEL Analysis is a strategy framework that breaks down possibilities and threats /risks into Political, Economic, Social, Technological, Environmental, and Legal aspects in order to analyze a company's external environment. PESTEL Analysis is a useful tool for determining the benefits and drawbacks of a business strategy in corporate strategic planning (CFI, n.d.). It is frequently used in conjunction with other

comparable tools, such as Porter's Five Forces or the SWOT analysis, to provide a comprehensive knowledge of a situation and its external and internal components. (PESTEL) elements are acronyms for Political, Economic, Social, Technological, Economic, Environmental, and Legal aspects (Business to you Administrator, 2016). We will review DeBeers Corporation's PESTEL analysis. Political: Here we see that politically speaking DeBeers does not enjoy great political benefits. This shows during the collapse of the Soviet Union and with the different legislations enacted to minimize the company’s market lead (monopoly) (McAdams & Reavis, 2008). Environment: Natural diamond mining was harming the environment because each carat of natural diamond needed several hundred tons of soil to dig. This resulted in habitat damage and the eviction of caribou and grizzly bears. Diesel fuel is used in the equipment that harvest natural diamonds, which contributes to the creation of greenhouse gases (McAdams & Reavis, 2008). Social: De Beers Diamond benefits from the sociological perspective, which has a high attraction for diamond merchandise. From my opinion so long as there will be weddings, anniversaries or fashion trends DeBeer will benefit from this social factor unless any of the social activity ceases. Technology: It was crucial in the development of new procedures and products. The most significant technical advancement was the invention of synthetic diamonds, which came in a variety of color shades that seriously impacted the natural diamond industry. Synthetic diamonds were able to be utilized for industrial applications because of advances in laboratory technology. DeBeers must concentrate on Supply Chain Logistics from a technology standpoint in order to identify improvements that will make supply chain management more flexible and lucrative (McAdams, Reavis, 2008) Economic: This factor is not very favorable because diamond is expensive and not everyone can afford it. Legal: The legal factor was favorable, this explains why Debeers refused to make itself available for any court action in the US because it did not want to give US court’s jurisdiction since the transactions were done abroad.

Porter's Five Forces model is used to assess competition and possible profit margins. When a company knows the factors that influence its profitability, it may modify its plans appropriately (MINDTOOLS, 2009). Porter's forces are Competitor Rivalry (which deals with looking at the organization's strengths), Supplier Power (which measures how easy it would be for suppliers to raise their prices), Buyer Power (which measures how easy it would be for purchasers to influence prices thereby bringing it down), Threat of Substitution (which refers to different ways that customers can do what you do), and Threat of Substitution/ alternative (which refers to different ways that customers can do what you do). Threat of New Entrants (the extent to which people's capacity to enter a market can impact an organization's position). Consider the five factors in relation to DeBeers Corporation. New Entrant: The Company developed a strong brand name and identity, making any rival face an enormous challenge, which helped them reduce the risk of new entrants. DeBeer's significant history in the natural diamond industry, established channels, mining knowledge, and expansion have proven to be sustainable characteristics for the company, making it difficult for competitors to adapt. Competitor Rivalry: Despite competitors joining the market, they faced little competition since they lacked DeBeer's enormous knowledge and technology from mining to sales, which made it difficult to copy (McAdams, Reavis, 2008). Supplier Power: Supplier negotiating power was not a danger to De Beers Diamond, according to the company, because suppliers did not have other options at the time (McAdams, Reavis, 2008). Threat of Substitute: Synthetic Diamonds that are more ethically sourced and recognized can provide a more inexpensive and nearly indistinguishable alternative to genuine Diamonds, making this a feasible option. This posed a serious threat of a substitute for naturally mined diamonds, as well as a possible risk to the company (McAdams, Reavis, 2008).

Buyers Power: At that time buyers also did not pose a threat to the monopoly diamond market DeBeer operated in. Solutions and Strategies Dealing with political and government authorities so that they may obtain support from the public authority and deal with legislative concerns in the district are the two things to mention in order to decrease vulnerabilities. They could also ensure that they comply with all rules and regulations so that they do not have a negative brand impact on the business and can seek appropriate assistance from the government. Conclusion The largest threat to the DeBeers Diamond Industry, according to the PESTEL and Porter Analysis, is a societal change in the perception of diamonds and their perception within the culture. This was compounded by DeBeers' reputation for unethical methods, the diamond industry's environmental effect, and the availability of more inexpensive and sustainable synthetic alternatives. If I were to be named CEO of DeBeers, my plan would be to improve on what is already in place by adding some innovative advertising concepts through the use of social media, creating room for brand ambassadors who will showcase DeBeers diamond and help bring in customers. I will also make sure diamonds gain more relevance so they can be used by people at any time not restricted to marriages or anniversaries.

References

CFI (n.d.). What is a PESTEL Analysis? Corporate Finance Institute.com https://corporatefinanceinstitute.com/resources/knowledge/strategy/pestel-analysis/ Goldschein, E. (2011, December 19). The Incredible Story of How De Beers Created And Lost The Most Powerful Monopoly Ever. Insider. https://www.businessinsider.com/history-of-debeers-2011-12 McAdams, D. & Reavis, C. (2008). DeBeers’s Diamond Dilemma, MIT Sloan School of Management. This work is licensed under the Creative Commons AttributionNoncommercial-No Derivative Works 3.0 Unported License. MINDTOOLS. (2009). Porter’s Five Forces Understanding Competitive Forces to Maximize Profitability. Mindtools.com. https://www.mindtools.com/pages/article/newTMC_08.htm The way companies use SWOT Analysis to analyze their strengths, weaknesses, opportunities or threats is the same way individuals can understand and apply this same technique in other to access these four pillars in their own life. When a company uses the SWOT Analysis it is able to standout (distinguish) itself from others in the industry (competitors) which helps the company compete better in the market’s industry (.

https://www.mindtools.com/pages/article/newTMC_05.htm SWOT analysis is helpful to executives, and it is used within most organizations. Important cautions need to be offered about SWOT analysis, however. First, in laying out each of the four elements of SWOT, internal and external factors should not be confused with each other. It is important not to list strengths as opportunities, for example, if executives are to succeed at matching internal and external concerns during the idea generation process. Second, opportunities should not be confused with strategic moves designed to capitalize on these opportunities

According to Tolbert and Zucker, there is a pre-institutionalisation stage characterised by experimentation as organizations seek to align themselves to their task environment in such a way as to gain a competitive advantage. As the success of particular experiments (e.g. new strategies, new products, new technologies or new structures) becomes known, other organizations copy them. The motivation for doing so is to become more competitive. To this point, Tolbert andZucker are consistent with strategic choice theory . But, as more and more organizations adopt the same practices, mimicry occurs not because the new practices are calculated to give economic advantage, but because the practice has attained the status of being the 'appropriate' or 'right' way to do something. Adoption has become not the outcome of calculated rational intent, but the product of social beliefs and expectations. Importantly, organizations adopting the new practice in this semi-institutionalised stage are knowingly adopting the innovation....