Q1.Identify the key drivers of change in DeBeer's Macro-environment?

The key drivers according to the PESTEL Analysis are: Political: Growing pressure from the African communities to increase DeBeers' participation in economic and social development. This led to DeBeers' focusing more in the African region and selling some of the assets to African Group of Buyers. Technology: With the advancement in technology the production of synthetic diamond will become more prominent and cost effective. If this happens the mining industry can face a serious challenge since discovering a rich mine and then mining the diamonds is a costly affair. Also the manpower and skills required are highly efficient in mining. Such complexities can be overcome once the manufacturing becomes in home.
Social : DeBeers' in the past was associated with the mining and supply of conflict diamonds. Due to the increased pressure from the NGO's in the 90's DeBeers was forced to adopt the Kimberly Process that meant that all the diamonds that are traded in the market have to be conflict free. Moreover being one of the biggest companies in Africa, DeBeers is required to contribute by taking an active part in social development Environmental: In time past, firms involved in the natural resources industry did not take into consideration other stakeholders apart from the government and the shareholders. This position has changed. With increase in awareness by NGOs on issues like environmental degradation and conflict diamonds45, for a firm to ensure SCA, there is the need to engage in stakeholders analysis, in order to determine how to manage them effectively46. Bearing in mind that the profitability of diamond industry is based on perceived value placed on the product by the consumer, and to promote this value, the firms use movie stars and models47. Where these same stakeholders speak against the product, this might signal the end of the industry.48 To avoid this, the firms will need to take seriously first the issue of conflict diamonds. De Beers is in the forefront of this campaign. Little wonder why it retains its leadership role in the industry. Legal: DeBeer's in the past had virtually controlled the entire diamond trade. They would have the control over the mines and the distribution of almost all the diamonds in the world. Seeing this the European Commission enforced some restrictions over how DeBeer's would purchase diamonds from other suppliers. This had forced DeBeer's to cut down on their purchases from Alrosa and they also faced a penalty of 10% of net revenue if they crossed that limit. Moreover they are now legally require to follow the Kimberley Process Certification Scheme (Kimberley Process) for the mining and supply of diamonds.

Q2.Using Porters(5+1) Forces, identify the critical success factors in the diamond industry. Which of these forces have seen the largest fluctuations?

Threat of Substitute products or services: Moderate As of now the only substitute of the original diamond is the artificially produced diamond. Even though they are produced largely and are considered to be cheaper than the original diamond, its acceptance has been low in the society. But it does find its place in the industrial use where it is widely used. As mentioned in the porters five forces, that a threat to the

substitute becomes credible only when the consumer finds the price performance trade off to be better than previous product. As the technology to produce artificial diamonds improves it can pose a serious threat to the mining industry as the work will become less risky for the miners and economies of scale can be reached. Another point to be noted is that in this industry there are millions of consumers who would want the diamonds to be free from any conflict, thus an artificial diamond would ensure the consumers to be free from such worries. Thus the two main industries to be affected by this are mining industry, jewelry industry and industrial applications.

Threat of New Entrants: High to Moderate A number changes has been experienced by the industry. The discovery of new diamonds fields in countries where De Beers has lost control, the break-up of the Soviet Union and change in government policies, the Political upheavals taking place in developing diamond producing countries, all this led to the rise of the 3 other major companies (RTD, BHPB and Alrosa). The changing trend in the industry has also made it possible for mid-tier or junior companies to come on stream. In fact to enable them have a stronger hold in the industry, the past few years has seen the merging and acquisition between these mid-tier companies. In addition, the strategy employed by Australia of operating in a niche market, such as rare, colour gems, & near gems, opened aspects of the industry that before then was in accessible to other companies. This has been a gradual and long process, and still De Beers has 50% market share as per 2005 survey. Hence barrier to entrance

From diamond cutters perspective it is very difficult to enter the market. Several of the existing firms have contracts with well-known diamond distributing companies. New entrants may find it difficult to contract with these companies, because they lack the financial status. Also new entrants do not have a reputable name, which may lack trust from a diamond distributing company and thus no contract will be created. E.g.: De Beers follow supplier of choice system and sell to only one hundred carefully selected clients. From jewellers perspective: The entry into this market is getting increasingly difficult due to the growth of companies already established in the industry and due to high initial investment costs. Existing firms experience economies of scale from large investments in research and development, brand advertising, or in physical location of stores.

Q3.Do you think DeBeers enjoy unique resources and distinctive competencies? Does the value of these resources and competencies increase or decrease with time?

DeBeers have a vast experience in the exploration, mining and distribution of diamonds. With over 120 years of experience in these activities , DeBeers has been and is the world leader in all of these three activities. According to us the following are the unique resources and core competencies that DeBeers enjoy and give them the competitive advantage:

1)Exploration and Mining:

DeBeers' experience in exploration and mining is over a century old and has helped them to maintain a dominating position in the diamond industry. They control and operate the best diamond mines in the world and at the same time have the necessary technology and skills needed to explore potential assets in different parts of the world.

2) Distribution of Rough Diamonds:

DeBeers' through its distribution arm DTC handles the distribution of rough diamonds extracted from their mines to sight holders and other purchasers. Because they enjoy a strong position in the production of diamonds , they enjoy huge bargaining power with these buyers. DeBeers' has the control over the supply of rough diamonds and until few years they controlled the rough diamond rates in the world.

Q4. What do you call the strategic move corresponding to the opening of boutiques by de beers? What justified the strategy? In your opinion, what resources and competences must De Beers acquire to implement it successfully? A4. One of the main strategies of De Beers was to keep a stronghold on customers with high loyalty and high socio economic status. In order to do so, they had decided to move down the value chain, what we call it as a vertical integration. This vertical integration enabled them to get higher margins as the value created downstream was higher. As mentioned in the case, the value downstream was three times the value created in mining. Another reason we think that they chose to move downstream was because of stockpiling. The stockpiling had deteriorated the value of their stock to $1.95 billion as against the original value of $9.25 billion. So the consultant company Bain gave them with 3 solutions to eliminate the stockpile and produce a rise in the share price. So the extra money they got from the stockpile was used to enhance their marketing efforts and open up their own retail stores. The Next step they took was to then eliminate the not so cost effective wholesalers. Finally they went on to improve their luxurious product line as against earlier selling only engagement rings. These efforts led them to have more liquidity by getting them more customers, where earlier they had their money tied up in excess inventory. In our opinion the resources must be acquiring good marketing personnel and have a good marketing scheme. The marketing scheme should be focused on the value of the real diamond, since the major threat they will face in future is from the synthetic diamonds. This will help them create loyal customers who would prefer nothing less than the original.

Since De Beers is associated with luxury therefore it should have joint ventures with the luxurious brands only to keep their brand image in the premium segment. Like they had supplier of choice similar model should be applied in the jewellery market.

Value Chain the Beers Company The Beers as a diamond company is situated in the downstream value chain, they are making allies and strategic partners, working in partnership with the government to create value that support long term economic development. They are focus on increasing the value of diamond resources to share with the partners and stakeholders as well as maximizing value for the diamond assets. The most important activities are: Offer marketing upkeep to the sight holders Provide jewellery design and manufacturing thought different joint ventures Creating local sorting and valuing operations Supplying rough diamonds to maintenance national certification systems Therefore for the Beers Company is able to preserve capabilities in the external downstream activities and keep improving the activities nearer to the end consumers to equilibrate the upstream competencies to needs of the market.

Internal Analysis of Mining Industry specific to De Beers:

Resources

Valuable

Rare

Costly to imitate

Exploited by Competitive Economic the Implication Performance organisation

Yes Temporary competitive advantage Sustained competitive advantage Competitive Parity Above Normal

Availability of good quality mines Technical know how Human Resource

Yes

Yes

Yes

Yes

No To an extent

Yes

Yes

Above Normal

Yes

No

Yes

Above Normal

Internal Analysis of Cutting and Polishing Industry specific to De Beers: Costly to Imitate? Exploited by the Organization?

Resources Valuable? Rare?

Competitive Implications

Economic Performance

Sustained Suppliers Yes Yes Yes No Competitive Advantage Skilled workforce Competitive Yes Yes Yes No Disadvantage Competitive Buyer Yes No No Yes Parity Below Normal Normal Normal

Internal Analysis of Jewellery Industry specific to De Beers:

Resources

Valuable

Rare

Costly to imitate

Exploited by Competitive Economic the Implication Performance organisation

Yes Sustained competitive advantage Competitive Parity Competitive disadvantage Above Normal

Availability of good quality diamonds Skilled designers Brand Value

Yes

No

Yes

Yes

Yes

Yes

No

Normal

No

Yes

Yes

No

Average

Q5. TOWS Strategic Alternatives Matrix External Opportunities (O) 1)Increase in purchasing power of people in developing countries will fuel demand for diamonds First mover advantage by promoting "real diamond" 2)Exploration in untapped External Threats (T) 1.Synthetic Diamonds 2.Economic Recession and financial instability 3.Blood diamonds 4.Political instability 5.New competitors.

areas. 3.Increase presence in developing countries 4 Increase their presence in cutting and polishing centres in India and use the output in their own branded diamonds

Internal Strengths (S) 1.Expertise in exploration and mining 2.Controls 50% of the rough diamonds trade 3.Has valuable mining assets in Africa and Canada. 4.Able to influence prices in the value chain . 5.Premium image because of association with LMVH and other high profile brands. Internal Weaknesses(W) 1.Huge dependence on the USA market. 2.Poor brand recognition in the retailing industry 3.Associated in the past with blood diamonds 4.Weak foothold in the cutting and polishing business.

SO "Maxi-Maxi" Exploration in the untapped markets like Australia, Europe and middle east with their strong mining experience. Creating brand awareness by promoting "real diamond".

ST "Maxi-Mini Strategy" Can use their expertise in mining to emphasize the value and beauty of real diamonds. This will counter the threat of synthetic diamonds. Acquire or merge with small and growing companies to add new expertise and increase market cap.

WO "Mini-Maxi Strategy" Increasing the advertising spend in new markets for their retail business. Setup DeBeers' certified and DeBeers' owned cutting and polishing centres in low labour areas and use the proceeds for their jewellery business

WT "Mini-Mini Strategy" By adopting the Kimberlite Process DeBeers' has avoided the threat of blood diamonds. Introduce flexible payment and financing option for the Sightholders and cutter and polishers to enable them to trade in times of financial instability.