MGMT 003: Business, Government and Society
Individual Assignment on De Beers:
“The Diamond Business Gets Rough”
This paper seeks to address the 1998 article “The Business Diamond Gets Rough” and explores De Beers’ success and challenges, as well as the measures it attempts to put in place in anticipation of these challenges. Next, this paper will consider the questionable ethics of De Beers as well as its influence on the market, and vice versa, and argue that only a small degree of government regulation should be put in place in order to keep such a corporate goliath in check.
De Beers is the diamond industry. Founded in 1888, De Beers is responsible for 50% of the world's rough gem diamond production and covers the whole range of processes involved in mining in Africa. Over the years, De Beers has established an iron grip of production and control over the diamond industry through the Central Selling Organisation (CSO) and controls 70-80% of the rough diamond market. The CSO negotiates with producers on the world stage – both companies and countries – to manipulate global supply and the value of uncut gem diamonds, effectively influencing the market forces of supply and demand in favour of keeping diamond prices high. One way it does this is through the means of its financial muscle, soaking up supply so that the quantity of diamonds in the market is regulated and kept low.
Another factor of De Beers’ success is in its winning marketing strategy. Diamonds have no real practical value other than the fact that they can last for very long, so De Beers has always positioned diamonds as an object of mystique and class to capture life’s moments for eternity. The fact that the slogan “a diamond lasts forever” comes from De Beers’ advertising campaign is testament to its successful marketing and diamonds as precious symbols have since flourished in many cultures that were initially alien to the stone, such as Japan. Leveraging on the emotional aspects of what a diamond entails, De Beers has created a necessity out of nothing, enabling them to fix the prices. De Beers’ powerful marketing creates not only the demand but also the confidence to ensure that it is worthwhile investing in production as diamond-mining is a capital-intensive business. De Beers’ long-term foresight and marketing capability towards market vicissitudes has ensured that supply and demand has remained in their favour thus far.
However, after about a century of dominance, De Beers’ position as a market leader as well as its control on the industry’s demand and supply is being threatened. Other major producers look set to bypass De Beers’ CSO as an intermediary, and ‘junior players’ are developing at a surprising rate. These could result in a flood of diamonds into the market and prices would plummet, and market share can be potentially snatched from De Beers. Furthermore, De Beers has always marketed its product but never itself. Hence, upcoming firms in the diamond business can easily capitalize on De Beers’ marketing efforts of championing the diamond, as the supply of diamonds would no longer just belong to De Beers in such a future.
In anticipation of the possible competition, now that the allure of diamonds has been well-positioned, De Beers is moving itself away from product marketing towards brand marketing by developing technology that will enable the inscription of its brand name in fine print onto gems that flow through its CSO sales. Through brand positioning, it its hoped that consumers will continue to buy diamonds from De Beers based on confidence in the De Beers brand name. De Beers is also looking towards developing a corporate identity to gain focus in the light of shedding its monopoly status and learning how to compete.
There is a huge shout for De Beers to be regulated by governments. Considering De Beers’ incredible leverage, it has artificially kept diamond prices stable, clearly violating antitrust laws in hampering fair market competition. Through manipulative marketing, people all over the world have been psychologically conditioned to want diamonds, which are essentially useless rocks that have no real value, contributing to the perceptual problems that are bred by marketing, the brainchild of the darker side of capitalism. The cut-throat nature of the diamond industry does not simply surface in the glamour of our obsessions and what owning diamonds entails at a social class level, but percolates into the manipulative nature of the CSO’s power and influence over other players as well as at the production and mining level and politics, where slave labour, diamond wars and arms trade are potentially linked to the enterprise (http://www.fguide.org/?p=53).
The movie, Blood Diamond, brought to light many atrocities pertaining to the abuse that the diamond industry, which is essentially what De Beers is all about, brought to Africa and how the trade contributed to upholding the Apartheid (http://www.africaresource.com/content/view/246/90/). These were not mentioned in the article “The Diamond Business Gets Rough”, though they are of noteworthy concern especially when we consider if the government should intervene in such unruly practices. The DeBeers operation is therefore unethical not only towards the end buyers, the public which buys diamonds but also to all distributors and retailers of diamonds in the whole world (http://www.ewtn.com/library/BUSINESS/ANTDEBRS.HTM).
However, despite the obvious lack of ethics from De Beers, not everyone wants the balance that De Beers has put in place to be disrupted. Particularly in Botswana, affluence, education and infrastructure has increased significantly since 1966 (http://forums.csis.org/africa/?p=20) because of the economic infrastructure that De Beers has established. Besides this, there are many other stakeholders linked to De Beers, such as firms dealing with cutting tools. Furthermore, is the developed world ready to forgo their obsession with diamonds and what it means to own one?
We also cannot overlook the advantages of a laissez-faire market system with minimal government intervention as it is viable source of wealth creation and, on the flipside, governmental programmes may not fully satisfy the needs of the people. (http://wmugop.blogspot.com/2007/08/understanding-government-responsibility.html). To further support this view that the free market referees itself well, the fact that new emerging players are threatening De Beers’ grip on the industry shows that over time, even a monopoly will be subject to the rules of the market. Various stakeholders contribute to this as they take active roles in highlighting the negative externalities that come along with De Beers’ monopolistic reign (Gold, 2006).
We also cannot say for sure if governments themselves know what policies best suit the circumstances, as many African governments have proven to be influenced themselves over what the lucrative diamond trade potentially offers, and whether or not the US government can be trusted with the best policies and regulations is questionable, as realists will strongly contend, in the light of their involvement in the UN and the Iraq war debacle amongst others. Even so, the US government anti-trust division has been after De Beers for years, but they have not had much success since De Beers is not within their jurisdiction (http://www.users.drew.edu/jolmsted/econ5/ch13.htm). Pressures from various other angles have proven to be more effective at chipping away at De Beers’ armour.
It can be therefore argued that De Beers should be allowed to run with minimal degree of governmental jurisdiction, while at the same time ensuring that the public can have faith in its dealings by actively engaging in corporate social responsibility. As can be seen, the biggest threat to the continued success of the diamond cartel is not by antitrust laws, but by the fact that new players have entered the market and are increasing the supply of diamonds, refusing to play by De Beers' rules (http://www.users.drew.edu/jolmsted/econ5/ch13.htm). De Beers’ manipulative marketing to create an illusion of scarcity will be attacked if consumers feel overwhelmingly cheated enough to do something about it. This is especially so since it is the affluent who will be more likely to indulge in buying diamonds, and at the same time being the ones more educated and enlightened and, hence, more likely to engage in postmaterialistic activities such as rallying for better awareness.
On the point of postmaterialism and slave labour, there are enough instances to show that the world is moving towards taking a dim view of the exploitation of cheap labour. Thus, no firm will be able to indulge long enough in the process without being met by resistance from civil society. Government regulation would hence be only as necessary as when the efforts taken by the general public are inadequate in stopping such exploitive acts.
It is easy to be emotionally swayed by the unethical practices of De Beers and call for heavy government regulation on such firms, but it is important to consider the repercussions of heavy government intervention on firms and the market. We also cannot overlook the market’s ability to police itself, especially with the active involvement of stakeholders. Hence in conclusion, there is adequate evidence to show that De Beers should be regulated only to a small extent by governments, allowing instead for market forces to police its dealings and ensure that it updates its act for the better.
References:
- Stanton, L. (2002, February 14). Ten Reasons Why You Should Never Accept a Diamond Ring from Anyone, under Any Circumstances, Even If They Really Want to Give You One. Retrieved March 12, 2008, from http://www.fguide.org/?p=53.
- Davey, D. (2006, December 11). Blood Diamond: Russell Simmons and De Beers. Retrieved March 10, 2008, from http://www.africaresource.com/content/view/246/90/.
- St. Antoninus Institute (1996, January 4). South Africa’s De Beers: The Most Unethical Corporation in the World. Retrieved March 11, 2008, from http://www.ewtn.com/library/BUSINESS/ANTDEBRS.HTM.
- Holm, J. D. (2007, January 8). Diamonds and Distorted Development in Botswana. Retrieved March 12, 2008, from http://forums.csis.org/africa/?p=20.
- Allan (2007, August 27). Understanding Government: Responsibility. Retrieved March 12, 2008, from http://wmugop.blogspot.com/2007/08/understanding-government-responsibility.html.
- Gold, D. (2006). The Attempt to Regulate Conflict Diamonds, The Economics of Peace and Security Journal, Vol. 1, No. 1, pages 49-52.
- Olmsted, J. (2005). Chapter 13: De Beers. Retrieved March 12, 2008, from http://www.users.drew.edu/jolmsted/econ5/ch13.htm.
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