De Beers

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The De Beers Group is a Johannesburg-based diamond mining and trading corporation. In the 1980s, the firm had a near de facto monopoly on the world's diamond trade (80% share). However, that share has been reduced to 60%^[1] due to discoveries outside of De Beers' control (such as in Russia and Canada).

In the past, De Beers was able to create an artificial scarcity of diamonds through its wholly-owned Central Selling Organization (CSO), thus keeping prices high. The modern tradition of diamonds as a part of engagement in many cultures has been largely created by De Beers through an amazingly effective advertising campaign started in 1938. The "A Diamond is Forever" campaign not only convinced the public that the only suitable gift for engagement is a diamond, but also served to limit the market in used diamonds. [1]

De Beers distributes diamonds to favored customers (called sightholders) by selecting batches of diamonds themselves and offering them "as is". Now and in the past De Beers has sold diamonds mined from their own mines, most of which are in South Africa and Botswana. Currently, De Beers is involved in a joint venture that is developing a diamond prospect in Canada.

Contents 1 History 1.1 Early history 1.2 Recent history 2 Marketing 2.1 Diamonds as luxury items 2.2 'A Diamond Is Forever' 2.3 Laboratory created diamonds 3 Legal issues 4 Retail ventures around the world 5 Popular culture 6 See also 7 Notes and references 8 External links 8.1 U.S. court case links

[edit] History

[edit] Early history

De Beers was founded on 13 March 1888 by Cecil John Rhodes along with Charles Dunell Rudd. In 1902 the De Beers Association Football Club was established when De Beers commenced construction of a dynamite factory near The Strand and Somerset West. The factory was located on the False Bay coast just west of the mouth of the Lourens River. In the 20th century the Oppenheimer family became the major shareholders. Sir Ernest Oppenheimer, his son Harry Oppenheimer and his grandson Nicky Oppenheimer have been chairmen of the company. Also see Alex Oppenheimer and Taylor Plant, both heirs and relatives.

The company's name comes from Johannes Nicholas de Beer and Diederik Arnoldus de Beer, two Afrikaner farmers on whose farm, called Vooruitzicht, near the confluence of the Orange River and the Vaal River, diamonds were discovered. The brothers were not able to protect the farm from the ensuing diamond rush, and sold it for £6300. Two diamond mines formed on the site, known as the Kimberley Mine (also known as the "Big Hole") and the De Beers Mine. Although the brothers did not become the owners of the mines, one of the mines was named after them. Cecil Rhodes and Charles Rudd gained control of both the De Beers mine and the Kimberley, South Africa mine and merged them, forming De Beers Consolidated Mines Limited. See also Barney Barnato, an important competitor to Cecil Rhodes, whose company's diamond interests in the Cape Colony were bought out by De Beers for a check written for 4 million pounds, the largest single check written up to that time in history.

In the late 19th century, South Africa underwent rapid industrialization during the "Mineral Revolution", creating an increasingly high demand for laborers to work in the colony's gold and diamond mines. In Kimberley, industrial labor was largely provided by Khoi and Xhosa seasonal migrants - young men who would travel to the diamond mines to work for wages in the summer, but this was unreliable and did not provide a static pool of workers. This, combined with the increasing paranoia that workers were stealing diamonds, led to De Beers introducing closed compounds for their workers. Mine workers signed fixed-term contracts with the company agreeing to remain on-site for the duration. Although white workers were allowed to live in the town, black workers were required to live on the compounds, where their wages were exchanged for accommodation, meals, and vast amounts of cheap sorghum beer provided by the company. Black workers were allowed into town on weekends, but this was curtailed in 1887 to prevent the entire labor force turning up on Monday mornings with hangovers. During the apartheid era, the company was granted state permission to use prisoners for prison labor. By the end of the 19th century, De Beers was using over 10,000 prison laborers daily. ^{[dubious — see talk page]} The majority of the prisoners were incarcerated because of strict apartheid laws, similar to the Pass Law which was enacted in 1952.[2]

[edit] Recent history

In the first half-decade of the 1970s, the world's mines began producing an increasing number of small (less than 0.25 carats) stones, which caused De Beers to purchase more small stones than it could sell at its current prices. Instead of placing the surplus small stones on the market, which would reduce their price and possibly ramify the prices of diamonds in general, De Beers reduced the flow of small diamonds to the market and began an advertising campaign to increase the demand for small diamonds. Some of De Beers's advertisements attempted to make the public "think small." Others enticed the public to buy small diamonds clustered into brooches, pendants, rings, and other jewellery.

Other campaigns attempted to establish a new tradition (similar to the engagement ring) which encouraged older married people to give their spouses an "eternity ring" — which consisted of a band containing many small diamonds — as a symbol of continuing affection and appreciation. This campaign was very successful, as the demand and price of small diamonds rose throughout the 1970s.^[2]

In the late 1970s and the '80s, several factors collectively threatened De Beers's diamond monopoly:

1. An Israeli attempt to break the CSO's control over the market (although this endeavor backfired and nearly broke the Israeli diamond-cutting industry)
2. The early 1980s recession.
3. The former Soviet Union's increased sale of polished diamonds in the world market.
4. Investors and speculators who reacted to the falling prices by releasing their diamonds into the market in an attempt to sell before prices drop further.
5. Lower inflation rates in the industrialized countries.
6. Tremendous production from De Beers's new Jwaneng mines in Botswana.
7. The withdrawal of Zaire (the world's largest producer of diamonds) from the CSO.
8. Western Australia's Ashton Argyle mine, which added est.40% to the world's diamond output in 1985.

In 1981, both the CSO's sales and De Beers's profits fell by almost 50%. The rate of return on equity was reduced from over 30% to 20%. The price of a "one-carat D-flawless brilliant" investment diamond dropped dramatically from C$60,000 to $6,000 between 1980 and 1985. However, De Beers maintained its monopoly and price structure as it reacted decisively with:

1. The preservation of the rough-cut stones' prices.
2. C$1.3 billion of De Beers's diamonds withheld from the market in 1981.
3. An agreement with Australia to market nearly all of the gemstone-quality rough diamonds from Ashton Argyle.
4. Reduced production from the Premier Mine.
5. The layoff of almost 500 workers.
6. The closing of the Koffiefontein and Lesotho mines.
7. Reduced production of diamonds by more than 2 million carats in 1982.
8. Coercion of Zaire (mainly a producer of poor-grade stones, known as bort) back into the CSO; De Beers unloaded its large inventory of bort into the market, which reduced the price of bort by 67% in two years before Zaire rejoined the CSO.
9. A multimillion-dollar ad campaign which promoted large diamonds, increasing demand for the most expensive stones.^[2]

Recently, De Beers has built a retail location in the Beverly Hills section of Los Angeles. This is De Beers's second retail location in the U.S. The first one is located in New York City. The company is also actively seeking space for a Chicago location.

[edit] Marketing

[edit] Diamonds as luxury items

De Beers has actively promoted diamonds as being symbolic of eternity and love, and therefore the ideal jewel for an engagement or wedding ring. Their famously successful advertising campaigns have included measures such as:

• Showing diamonds as wedding gifts in popular romance films
• Publishing stories in magazines and newspapers which would emphasize the romantic value of diamonds and associate them with celebrities
• Employing fashion designers and other trendsetters to promote the trend on radio and, later, television
• Enlisting the British Royal Family to directly promote diamonds
• Sponsorship for high-profile events such as the 2007 Formula 1 car for Scuderia Ferrari Marlboro[3]

This campaign was described by De Beers' PR agency N.W. Ayer & Son as "a new form of advertising which has been widely imitated ever since" with "no brand name to be impressed on the public mind. There was simply an idea—the eternal emotional value surrounding the diamond." Indeed, the campaign succeeded in reviving the American diamond market, which had been weakened by "competitive luxuries", and in opening new markets where none had existed before. In Japan, for example, diamonds were successfully promoted as a western symbol of status, which coincided with Japan's cultural opening after World War II. Japan is today the second largest market for retail diamonds.

[edit] 'A Diamond Is Forever'

The slogan "A Diamond is Forever," invented by N. W. Ayer, is one of the most successful slogans in marketing history. Its purpose is to prevent the creation of a secondary market by dissuading women from selling the diamonds they have received and by discouraging them from buying diamonds which other women have owned. The consequence of this is that retailers can sell diamonds at a high price without competition from a secondary market, and it allows De Beers to maintain control of the diamond trade at wholesale level.

[edit] Laboratory created diamonds

Main article: Synthetic diamond

In recent years, techniques for creating high-quality real diamonds in a laboratory setting have become a threat to the pricing of natural diamonds. De Beers has defended their market by taking the following actions:

• A marketing campaign aimed at convincing potential customers that laboratory diamonds are "fake" (even though they are real diamonds, and potentially may be of higher quality than natural diamonds).
• All natural diamonds will be imprinted with a serial number and registered, to prevent laboratory diamonds from being sold as natural diamonds.

[edit] Legal issues

In 1994, De Beers was charged by the United States Justice Department with antitrust violations for conspiring to fix prices for industrial diamonds. On 14 July 2004 De Beers pleaded guilty to the charges and paid a $10-million fine.[4] The plea has enabled De Beers to trade directly in the United States diamond market after years of acting through intermediaries.

[edit] Retail ventures around the world

In 2001, De Beers launched a joint venture with French luxury goods company LVMH in order to establish De Beers as a retail brand. The joint venture, called De Beers LV, has a license from De Beers SA to use the De Beers brand name in a retail environment. Before the venture was allowed to begin, the European Union competition commission launched an investigation into whether the venture would give De Beers too great a control over the rough diamond market. An initial one-month probe determined that a longer investigation was necessary. The commission eventually allowed the joint venture to go ahead in July 2001.

The venture has since opened ten retail stores across the globe:

• London
  • Bond Street
  • Royal Exchange
  • Harrods
• Tokyo
  • Ginza Matsuya
  • Nihonbashi Takashimaya
  • Shinjuku Isetan
• Osaka
  • Shinsaibashi Daimaru
  • Hankyu Umeda
• New York City
  • Fifth Avenue — The first United States venture. Opened on June 23, 2005.
• Beverly Hills
  • Rodeo Drive
• Paris
  • Le Printemps
• Dubai
  • Mall of the Emirates

[edit] Popular culture

• Crime journalist Kris Hollington has written a book, Diamond Geezers, about the spectacular attempted theft of the De Beers Millennium Collection from the Millennium Dome which took place in November 2000.
• The James Bond film Diamonds Are Forever directly cites De Beers.
• In the Family Guy episode "Peter, Peter, Caviar Eater", the famous De Beers commercial is parodied. Silhouettes of a man giving a woman a ring are shown. Afterward, the woman appears to kneel, presumably to perform oral sex. The end card reads, "She'll pretty much have to."
• In Clive Cussler's book Shock Wave, a De Beers investigator tried to recover a huge cache of diamonds to prevent them from flooding the market if they are removed by someone and dumped into the market.
• Comedian Ron White has a joke about truth in advertising, stating De Beers's slogan should be "Diamonds, that'll shut her up."
• On Kanye West's second album, Late Registration, there is a song called "Diamonds From Sierra Leone" which features a sample of Shirley Bassey's "Diamonds are Forever." The original song was part of the soundtrack for the James Bond movie of the same name. West's song, which features rapper Jay-Z, criticizes the diamond industry for its ruthless practices in parts of Africa.

[edit] See also

• Diamonds as an investment

[edit] Notes and references

1. ^ Boone, Louis E., Contemporary Business, Thomson South-Western (2006), p. 81
2. ^ ^{a b} Thexton, James D. (1992). Economics: a Canadian perspective. Toronto: Oxford University Press, pp.182–3. ISBN 0-19-540747-4.

[edit] External links

• De Beers official homepage
• Official homepage of the De Beers/LVMH retail joint venture
• Yahoo! - De Beers Centenary AG Company Profile
• Yahoo! - De Beers Consolidated Mines Limited Company Profile
• DeBeers and Beyond: The History of the International Diamond Cartel
• History of the deBeers company
• History of Diamond Marketing and DeBeers
• Have You Ever Tried to Sell a Diamond?
• PBS Frontline: The Diamond Empire
• The History of Diamond Mines in South Africa by Gardner F. Williams Vol I and Diamond Mines Vol. II 800-page work by former General Manager of De Beers.

[edit] U.S. court case links

• De Beers settles from BBC News (17 July 2004).
• De Beers plans to settle from The Age(10 July 2004).
• De Beers plans to settle (10 July 2004) from the Washington Times
• The Times (London) 8 February 2004 article on recent developments.
• Mail on Sunday (UK) 20 April 2004 article on history of USA indictment.