{"id":2342,"date":"2015-12-07T17:09:02","date_gmt":"2015-12-07T22:09:02","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/de-beers-from-discovery-to-desire\/"},"modified":"2015-12-08T15:47:20","modified_gmt":"2015-12-08T20:47:20","slug":"de-beers-from-discovery-to-desire","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/de-beers-from-discovery-to-desire\/","title":{"rendered":"De Beers: \u201cFrom Discovery to Desire\u201d"},"content":{"rendered":"

The De Beers Group of Companies (“De Beers” or “the Group”), founded in 1888 as a South African company, once controlled some 80% of the world’s supply of rough diamond stones. Although not without its many commercial\u00a0and\u00a0socio-political controversies, much of the company\u2019s success and dominance of the global diamond market resulted from a very close alignment of its business strategy and operating model. By 2014, De Beers produced about a third of the world\u2019s rough diamonds by value, generated revenues of ~$6 billion per annum, employed over 20,000 people across six continents and\u00a0was widely recognized as the world\u2019s leading diamond company.<\/p>\n

BUSINESS MODEL<\/b><\/p>\n

The De Beers value proposition lies in the exploration, mining and marketing of rough diamonds across the world. Anglo American owns 85% of De Beers, with the remaining 15% owned by the Government of the Republic of Botswana (GRB). The company produces and markets its supply of rough diamonds from its mining operations located in Botswana, Namibia, South Africa and Canada. As such, the company\u2019s business strategy is primarily driven\u00a0by its ability to find new sources of diamond supply, manage its shareholder relationships with Anglo American and the various government \/ joint venture partners and drive sales and marketing in the retail sector.<\/p>\n

OPERATING MODEL<\/b><\/p>\n

Exploration:<\/b> As in most mineral extractive industries, finding geologically extractible resources is a significant operational activity and value driver, and requires continued investment. Current De Beers exploration projects are located in the Democratic Republic of Congo, India, Angola, Canada, Botswana, Namibia and South Africa. Through its subsidiary, Debswana, the company started a $500 million expansion project (Cut-8) at Jwaneng Mine at an estimated cost of $3 billion. This project is expected to provide access to additional 95 million carats until 2025.<\/p>\n

Mining:<\/b> The vast majority of the Group’s production comes from underground and open-pit kimberlite mines. The Group also uses onshore extraction techniques and specialised ships to mine alluvial stones along the south-west African coast.<\/p>\n

Marketing:<\/b> The company sells rough diamonds to world-leading diamantaires through its Sightholder sales and auction sales operations. De Beers manages its sales and marketing activities through Diamond Trading Company (DTC), a wholly owned subsidiary of the company. DTC sells its gems and diamonds to clients, called Sightholders, based principally in cutting, polishing and retail centers of India, China, Israel, Belgium, the U.S., Botswana, Namibia and South Africa.\u00a0The company also markets polished diamonds through the Forevermark brand and sells diamond finished pieces through De Beers Diamond Jewellers,<\/span> an independently managed retail joint venture with Moet Hennessy Louis Vuitton (LVMH). Over time, it\u00a0has built significant marketing prowess in this area, having pioneered key campaigns such as its\u00a0flagship 1947 “A Diamond is Forever” campaign, which maintains and drives\u00a0the emotional and ego-expressive elements of diamond ring purchases around the world even today. Indeed, such has been the success of this marketing strategy that it has been credited with singlehandedly building the global engagement & wedding ring category<\/a> in the jewelry sector from the ground up. The company’s more recent slogans such as “The Pursuit of Brilliance<\/a>” and “From Discovery to Desire<\/a>” also continue to support this unique capability.<\/p>\n

\"De<\/a><\/p>\n

Caption: Select De Beers “Seize the Day” print, online, celebrity endorsement marketing campaigns and retail outlets (above)<\/p>\n

KEY PERFORMANCE DRIVERS AND SOURCES OF COMPETITIVE ADVANTAGE<\/b><\/p>\n

Deep expertise in kimberlite and marine exploration: <\/b>The company’s strong focus on exploration activities strengthens its operational presence and supports its\u00a0leadership position in the market. De Beers\u00a0is also a global pioneer of marine\/offshore diamond exploration<\/a>. Further, the company’s\u00a0unique shareholder relationship with Anglo American allows it to leverage the parent mining company\u2019s much broader exploration and mining expertise beyond the diamond industry to deploy new technologies and improve its mining operational processes (Anglo American\u2019s exploration and mining operations include iron ore, coal, manganese, platinum, copper, nickel, phosphate and niobium operations).<\/p>\n

Strong Sightholder relationships and market intelligence: <\/b>The\u00a0DTC’s sole purpose is to supply rough diamonds to its diamantaires, known more colloquially in the industry as\u00a0“Sightholders”. Other than auction sales, being accredited as a DTC sightholder is the only avenue by which any entity can\u00a0access, view and purchase\u00a0DTC\u00a0rough diamonds. DTC Sightholders form the\u00a0critical mass\u00a0of the world’s leading diamantaires, collectively handling approximately 75% of the world’s diamonds. DTC Sightholders receive\u00a0various benefits from their relationship with the DTC, including reliable supply of rough diamonds through supply agreements<\/a>, consistently high quality (per the “Diamond 4C’s” \u00a0– carat weight, color, cut, clarity) assortments of rough diamonds, customized account management capabilities and access to in-depth DTC diamond industry insights<\/a>. In turn, the relationship with Sightholders affords De Beers downstream access to most of the world’s polished diamond market (thereby protecting brand equity and maximising indirect end-user retail market share). Critically, the DTC also markets other non-De Beers produced rough diamonds (subject to specific terms and conditions) which enhances the company’s overall competitiveness in the sector.<\/p>\n

Differentiated retail presence and brand equity: <\/b>Through the DBDJ network, comprised of over 50 retail stores across the globe, the company effectively participates in the high-end luxury jewelry\u00a0diamond market and competes with various manufacturers and retailers of luxury goods, diamonds, jewelry and watch retailers, including Harry Winston, Cartier, Boucheron and Tiffany & Co. This is achieved through its\u00a0Forevermark branded diamonds, which give assurance of quality and integrity through the\u00a0use of a patented technology to inscribe a unique identification number on the diamond. A critical enabler of this differentiation is the Group\u2019s control of its own\u00a0diamond supply from the upstream mining business \u2013 a particularly key feature given the importance of demonstrating each diamond’s ethical integrity to protect the De Beers brand equity in the market. De Beers also focuses strongly on sustainable development by working closely\u00a0with stakeholders including customers, shareholders, employees, suppliers and the mining communities in which it operates.<\/p>\n

Effective leverage of strategic joint-venture partnerships: <\/b>Strategic partnerships have been a key source of competitive advantage for the business. Most of the Group\u2019s rough diamond production is derived from joint-venture operations with governments. In addition to requiring government approvals and permits to maintain mining and exploration activities, mining and exploration operations are also subject to various regulations, including local socio-economic development and environmental protection. As these governments continue to increasingly assert their importance to the Group, these relationships are becoming a key driver of corporate strategy. For example, recognizing the strategic importance of Botswana to the Group, in 2011 the company entered into a further agreement with the GRB on a new 10-year contract for the sorting, valuing and sales of the DTC’s entire\u00a0global diamond product mix. This is transforming\u00a0Botswana into one of the world’s leading diamond trading and manufacturing hubs\u00a0as\u00a0the company has transferred all of its previously London-based rough diamond sales activity to Botswana. This in turn has helped to stimulate the local Botswana economy through the beneficiation and sale of higher-value diamonds and has established Gaborone (the capital city of Botswana) as an emerging diamond destination for global diamantaires.<\/p>\n

References:<\/strong><\/p>\n

De Beers Group, 2015. “2015 Diamond Insight Report” [online].\u00a0http:\/\/www.debeersgroup.com\/en\/reports\/insight\/insight-reports\/insight-report-2015\/foreword.html. Accessed 6 December 2015.<\/p>\n

De Beers Group, 2015. “2015-2018 Rough Diamond Supply Agreement” [online]. http:\/\/www.debeersgroup.com\/content\/dam\/de-beers\/corporate\/documents\/Reports\/2015-2018%20ROUGH%20DIAMOND%20SUPPLY%20AGREEMENT.pdf. Accessed 7\u00a0December 2015.<\/p>\n

De Beers Group, 2015. “The pursuit of brilliance: Our heritage and the people who are leading us into the future” [online].\u00a0http:\/\/www.debeersgroup.com\/en\/our-story.html; https:\/\/vimeo.com\/97821179. Accessed 7 December 2015.<\/p>\n

Global Data, 2013. “Report: De Beers s.a”. Global Data Limited: London, UK.<\/p>\n

Kolowich, L., 2014. “The Engagement Ring Story: How De Beers created a multi-billion dollar industry from the ground up” [online]. http:\/\/blog.hubspot.com\/marketing\/diamond-de-beers-marketing-campaign. Accessed 7 December 2015. Hubspot: Boston, MA, USA.<\/p>\n

Roelf, W., 2014. “De Beers big green machine sucks up diamonds” [online].\u00a0http:\/\/www.reuters.com\/article\/namibia-diamonds-idUSL6N0OZ1QA20140618#CDCMScXGxCeugKxo.97. Accessed 7 December 2015. Reuters: Cape Town, South Africa.<\/p>\n","protected":false},"excerpt":{"rendered":"

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