De Beers are a South African diamond company that has made sure over the years that the scarcity value of diamonds has remained intact. They did so by keeping down all competition and by manipulating the market so much that no other competitor could buy or sell without going through them first. It went smoothly until new diamond firms starting selling their product on the open market where De Beers had no control. This created more value chains outside of the value chain that De Beers had which mean less profit for them. The other problem they were facing was illicit trade of conflict diamonds within the trading community which also affected the profit of De Beers Company.
PESTEL Model
Technology: New technology offered the possibility of …show more content…
The problem was that these firms had to purchase diamonds from De Beers wholesalers. If they did not, they would forever be excluded from the De Beers value chain. Any firm caught buying from someone else would be blacklisted.
Political: De Beers had signed a long term contract with the Russian diamond producer Alrosa for all of its supply. By signing De Beers could purchase diamonds worth 800 million a year and prevented any other competitors from getting in on the business which was a major part of the global supply. This also restricted open trade on diamonds. An agreement was reached upon between De Beers and the Competition Commission where the amount De Beers could purchase would decrease by $75 million each year till the limit became $275 million. This greatly reduced the power De Beers once had.
Legal: De Beers was indicted by the U.S. Department of Justice for antitrust violations saying that De Beers and General Electric fixed their prices on industrial diamonds. This stopped De Beers from operating within the United States. De Beers had to settle and ended up paying $10 million dollars, but this did not stop De Beers from making a name for their new market …show more content…
When De Beers had control of all the diamond minds with their stockpiling strategy, there was no threat. Any possible threat would have been besmirched by De Beers. No one was able to trade outside without having to go through De Beers first. Then the Competition Commissioner came and changed all that and indicted them with antitrust violations. After the violation and more Commissioner Interference, threats of new entrants became high.
Threat of substitute products or services: The only threat to this diamond company was the technology to make indistinguishable synthetic diamonds which were cheaper and easier to produce. Even though it was the only one, the threat is high because there is more potential and less risk with this new diamond. Refined diamonds made from natural sources are still demanded, but there is more possibility and less conflict with the artificially produced diamond.
Bargaining power of customers (buyers): By reducing their size of wholesalers from 120 to 80, De Beers was able to choose their customers in a more cost- effective
PESTEL Model
Technology: New technology offered the possibility of …show more content…
The problem was that these firms had to purchase diamonds from De Beers wholesalers. If they did not, they would forever be excluded from the De Beers value chain. Any firm caught buying from someone else would be blacklisted.
Political: De Beers had signed a long term contract with the Russian diamond producer Alrosa for all of its supply. By signing De Beers could purchase diamonds worth 800 million a year and prevented any other competitors from getting in on the business which was a major part of the global supply. This also restricted open trade on diamonds. An agreement was reached upon between De Beers and the Competition Commission where the amount De Beers could purchase would decrease by $75 million each year till the limit became $275 million. This greatly reduced the power De Beers once had.
Legal: De Beers was indicted by the U.S. Department of Justice for antitrust violations saying that De Beers and General Electric fixed their prices on industrial diamonds. This stopped De Beers from operating within the United States. De Beers had to settle and ended up paying $10 million dollars, but this did not stop De Beers from making a name for their new market …show more content…
When De Beers had control of all the diamond minds with their stockpiling strategy, there was no threat. Any possible threat would have been besmirched by De Beers. No one was able to trade outside without having to go through De Beers first. Then the Competition Commissioner came and changed all that and indicted them with antitrust violations. After the violation and more Commissioner Interference, threats of new entrants became high.
Threat of substitute products or services: The only threat to this diamond company was the technology to make indistinguishable synthetic diamonds which were cheaper and easier to produce. Even though it was the only one, the threat is high because there is more potential and less risk with this new diamond. Refined diamonds made from natural sources are still demanded, but there is more possibility and less conflict with the artificially produced diamond.
Bargaining power of customers (buyers): By reducing their size of wholesalers from 120 to 80, De Beers was able to choose their customers in a more cost- effective