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Why The Diamond Cartel Is So Long Lasting Economics Essay

First, in the area of producing, De Beers controls approximately 45% of the global production, because it cooperates with African producers in Botswana, Angola, and Namibia (which are the top 8 diamond producing countries) through the strategy that offers De Beers` capital and expertise to its partners. Moreover, in exchange, because of relatively stable prices, guaranteed purchases, and little competition, producers prefer the traditional benefits of a cartel, which leads to approximately 50 to 60 percent of global rough diamond sales controlled by De Beers. From the data that De Beers has, it is clearly that De Beers possesses the conditions of monopoly.

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Second, due to the unique nature of diamond, diamond is the only set of the highest hardness, strong refractive index and high dispersion of precious stones in one species which makes diamond unmatched by any other gem, in other words, the substitute of diamond is limited. Furthermore, the demand and consumption of diamond is relatively stable. Attributed to the classic advertisement-“A diamond is forever”, diamond has played an increasingly significant role in modern society, especially in wedding. Diamond has almost become compulsory which creates a stable demand, as the number of wedding keeps steady every year.

Third, De Beers possesses both the unique will and power to enforce cartel arrangements. De Beers has a very clear strategy, which is “Expand demand, limit supply and maximize long-term profit”. De Beers` strategy created a sustainable development, especially in the postwar decades. More importantly, De Beers has sufficient capability to punish the traitors and cheats. In 1981, Zaire broke away from De Beers by marketing its own diamonds directly. However, the traitor was punished by De Beers through the strategy that flooded diamonds to market. Zaire had become a negative example to warn other probably potential cheats.

Four, De Beers keeps friendly relationships with most governments of diamond-producing countries and successfully avoids the prosecution from its biggest consumption nation- the USA. These two reasons offer a good condition for a stable development both in supply and demand market in the long-term, which could be an important guarantee for De Beers` longevity.

Drawing on industry-, resource-, and institution-based views, explains why De Beers has been phenomenally successful.

Industry-based view,

First, the diamond industry has an extraordinarily high concentration, which De Beers controls all of South African production and all sales through its own subsidiary (CSO), in London, during the period of Rhodes.

Second, De Beers is the price leader. The buyers have no right to bargain with De Beers. Even though, the number of sightholders has decreased from approximately 350 in the 1970s to 120 in the 1990s, and the number of sightholders was less than 100 in 2004.

Third, De Beers creates friendly social relationships between participants of the cartel, which is benefit for its long-term development.

From these three different periods, it shows that De Beers keeps the concept of sustainable development whether in the past or in the future.

Resource-based view,

First, although, South Africa was no longer the leading producer, De Beers still exhibited skilled strategy to cooperate with other main producing countries. De Beers inputs its capital and expertise to its partners in Botswana, Angola, and Namibia, which are the top eight diamond-producing countries. These friendly relationship leads to De Beers is still the biggest diamond miner, despite no longer dominant in diamond producing.

Then, De Beers adopts reasonable marketing strategy to consolidate the monopoly of diamond supply. Whether the purification of sightholders in the late 1970s or the compromising of Zaire in the year of 1983, it was clearly that De Beers made reasonable use of marketing strategy to create sustainable development by controlling the supply of diamond resources to keep price stable.

Institution-based view,

First, De Beers controls the pillar of South Africa`s economy through dominance of the stock market, and the government has to be friendly with De Beers, which guarantees there is no prosecution. Moreover, De Beers maintains friendly relationships with the governments of other main diamond-producing countries.

Then, the only barrier- the US antitrust laws has been successfully solved. De Beers has managed to beyond the extraterritorial reach of US laws by technical approaches. This avoiding method has played a significant role in its biggest market selling.

Given the multidimensional current challenges, what are the opportunities for De Beers? What are the threats? What strengths and weaknesses does De Beers have when dealing with these challenges?


The biggest opportunity is the US market, which has the biggest consumption capability. Although De Beers indirectly offer diamonds to the US market, its profit is still divided by intermediaries, who are the key to avoid the strict US laws. The current transit sales methods have become an important barrier of financial increase for De Beers. A reasonable approach to avoid the US law could efficiently benefit the financial increase for De Beers in the future.

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Another opportunity is developing countries, especially China and India. These countries have been experiencing wealth increase and concept update. A good advertisement might affect new generation to accept the value of diamonds. Once the compulsory conception for diamond wedding has been created, combined with the increasing wealth during these potential countries, this opportunity must become a new growth point for De Beers.

Finally, following the development of society, there is an increasing number of social problems needed to be solved especially in the diamond-producing countries. As a significant approach to create reputation, CSR (Corporate Social Responsibility) reflects more directly and clearly the contribution to society, especially for the consumers.


The main threat is from the competition. New players, like Lev Leviev and Soviet, have made De Beers less powerful than before through reducing diamond supply to De Beers and directly market operating. “Cartel fails if noncartel members can supply consumers with large quantities of goods”.

Another threat is global financial crisis. Although there is a manifest phenomenon that global economy have been recovering, diamond sale is seriously negative impacted by the purchase ability decreasing and purchase desire decreasing to consume this luxury.


Although there are so many challenges appearing in front of De Beers, De Beers is still the leading player of the global diamond supply. The advantage of resources and friendly relationships with many countries creates the best guarantee for stable producing development. In addition, the reputation of De Beers also plays an important role in the current competition. Finally, De Beers has sufficient capital, experience and expertise to create new diamond fashion which might be most important for honorary competition.


Adapting to the new industry structure leads to the main challenge to De Beers. Increasing power of competitors has negatively affected the development of De Beers. De Beers is no longer a monopolist, which makes it is difficult to performance previous strategy. Updating the operating strategy has become the most important issue for De Beers to keep sustainable development.

Discuss the future of the rivalry between De Beers and Leviev, especially in the new arena of retail competition with branded jewelry. What does the future hold for both firms? (Consult Closing Case in Chapter 8)

Besides the rivalry between Dees and Leviev will be concentrated on the area of resource, supply and price control which directly affect the future of global diamond market, the core of rivalry between these two competitors, retail store has become an important part of competition in diamond market.

In the year of 2001, De Beers entered into a retail joint venture with Louis Vuitton Moet Hennessy (LVMH, a leading luxury French firm), and established an independently managed Diamond jewellery company (De Beers Diamond Jewellers Ltd). The first boutique opened in London as the brand`s flagship store in 2002. One year later, the brand store expanded to Asia with opening of Tokyo stores. Finally, it successfully opened its brand stores in the US. Now, there are over 20 De Beers` stores all over the world.

Leviev was a sightholder of De Beers in 1985, however it was removed its privileges in1995 by De Beers. Now, Leviev controls approximately 22% of the global diamond output and has sufficient power to threaten De Beers` leading status. Leviev operates independently and marketed diamonds directly. On the other hand, with the increasingly difficuly-to-control cartel, De Beers is facing more and more internal problems, which might further narrow the gap between Leviev and De Beers.

The future rivalry is brand`s rivalry in some extent. Whether De Beers or Leviev, they should increase their reputation to lead this luxury fashion by more reasonable advertising strategy, marketing strategy and even CSR.


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