De Beers

De Beers has been known for years as the major diamond distributor of the world. The company started in 1889 in South Africa as a result of a consolidation of several smaller companies, initiated by Cecil Rhodes, a businessman, and Barnet Barnato, a financier. During this time in South Africa, only licensed companies were allowed to trade diamonds, and since De Beers were in control of 90% of the diamond mines, this helped to solidify their top market share position(Hitt, M., Ireland, R., and Hoskisson, R., 2007).

When Ernest Oppenheimer became chairman of the company in the 1930’s, he helped De Beers keep control of the supply of diamonds by bargaining with different rulers of the diamond mining countries; in exchange for a large return, De Beers would have total domination of the diamond mines. In addition to this agreement, De Beers held a function several times within a year which allowed sight holders to purchase a lot of rough cut diamonds at a non negotiable preset price, which limited the power of buyer’s. If a buyer refused the lot they were offered, it was unlikely they would be invited to future gatherings (Hitt, M., Ireland, R., and Hoskisson, R., 2007). De Beers could also control the supply by reducing the inventory of diamonds when they felt the surplus was getting too big.

During the depression De Beers was able to keep control of the monopoly by closing a number of the mines in South Africa, and only selling to a set of particular clients. When new mines starting opening in other countries, De Beers quickly bought them and made similar negotiations with their governments (Hitt, M., Ireland, R., and Hoskisson, R., 2007). By owning majority of the diamond mines in multiple countries, this made the threat of new entrance obsolete. When diamonds were discovered in the Soviet Union, Oppenheimer continued to solidify his monopoly by making a deal with the government which said all diamonds produced would be sent to the Central Selling Organization for distribution; which was a great deal for both parties because De Beers would purchase 95% of the diamonds produced, and the other 5% could be sold unrestricted (Hitt, M., Ireland, R., and Hoskisson, R., 2007). However many buyers refrained from buying directly from the Soviet Government in fear of being prohibited from buying from De Beers in the future.

As the market fluctuated, and prices went up and down, De Beers needed to find a solid demographic. In the 1920’s – 1930’s they focused on the United Stated and in particular young people who were getting engaged. De Beers came up with a successful marketing strategy that focused on making diamonds a major symbol of love, and more specifically the size and cut of the diamond in relation to that love (Hitt, M., Ireland, R., and Hoskisson, R., 2007). Throughout the next several decades, De Beers focus shifted from young lovers to older married couples, and marketed the diamond as a symbol of renewal of love.

In the 90’s, new technologies appeared that would make it possible to create diamonds in a lab. These new diamonds were pouring into the market at a much lower price and threatened De Beers’ top spot. De Beers reacted by created the machines necessary to differentiate real diamonds from synthetic and insisted that