GRADUATE SCHOOL OF MANAGEMENT

Prepared by: Ahmad Mustafa Al-Malhuki B. Abdul A i !G""#$%%&'

Case: D( B(()s* Add)(ssi+, th( N(- C.m/(titi0(+(ss Chall(+,(s

Course: Cas( M(th.d.l.,1 !MGT 2&34'

Background of the company De Beers was engage in diamond industry which was established since 1888. Cecil Rhodes went to South Africa to explore further opportunities. e started sei!ing few mines and De Beers was the biggest mines sei!ed by him. e in"ited his old friend# Barney Barnato to merge with his company then formed De Beer Consolidated $ines. Rhode subse%uently became a politician and became the &rime $inister of Cape Colony. De Beers established its existence in most countries in Africa continent. De Beer was also the operator for tremendous number of countries. 'ith the capacity of ((#))) wor*forces# o"er 1+#))) wor*forces wor*ed in African continents alone. ,n the 1--)s De Beers had diamond stoc* in hand totalling ./ billion. ,n the same period# De Beers contributed 8)0 of the world rough diamond. owe"er# in 1---# their mar*et share has dropped to two third of the world mar*et for rough diamonds. De Beers was managed by the founder of an Anglo American company i.e. Sir 1arnest 2ppenheimer and it was owned by two sister companies. De Beers was listed in the 3ohannesburg Stoc* 1xchange. De Beers remained the biggest diamond producer in the new millennium i.e. ())). 4hey recorded total re"enue of ./ billion. ,n the same year De Beers went progressi"e with its diamond exploration. 4he company spent more than .+) million on the exploration acti"ities which in"ol"ed ()) geologists in the (/ 5oint6"enture pro5ects in o"er 17 countries across fi"e continents. Background of the case Diamonds were disco"ered in the remote area# sometime disco"ery of diamond by chance. 4he main problem of mining locations was the infrastructure. $ost of the mining locations were located hundred miles away from the ci"ili!ation. Some of the wor*ers of the mining ha"e to tra"el from their settlement to the mining on wee*ly basis# sometimes monthly basis. 4he operator of the mining ha"e to established infrastructure such as settlements# roads and water utility. 4hese infrastructures were "ital to ensure efficiency of the mining. 4he cost to establish infrastructure may reach millions of dollars which the cost were absorbed into the diamonds production which in turn will ma*e the world diamonds price expensi"e.

4he locations of mining in ())) were dominated by 8 main countries which are Botswana 9(+0:# Russia 9()0:# South Africa 9180: and Angola 9-0:. 4he margin for mining located in Botswana was higher due to fa"ourable climate and a"ailability of power supplies. 4he condition of location played ma5or role in determining the production le"el of the mining. Diamond 4rading Company 9D4C: was considered as middle parties whereby the diamond producers would sell their raw diamonds to D4C. De Beers did the same way whereby all the raw diamond found by them would be sold to D4C for grading and shaping acti"ities. $ost of the D4C were located in Belgium. ,n the 8)s# the number of D4C has reduced from 7)) to 1(/ only. By ha"ing D4C in supply chain# De Beers and other producers could not become the frontlines for the gold as only D4C will meet customers; demand and re%uest. ,ndirectly# D4C made "alue6added to the diamonds which in turn sometime ma*e the retail price for diamonds were ridiculous. De Beers started to reali!e that reaching the end customers is "ery "ital in order to en5oy lucrati"e margin. <ear ())) has witnessed the transformation of the diamond industry. 1"en though the diamond sales in =.S were better than before# but De Beers; sales were not really fa"ourable. De Beers; management team was restructured and the restructuring was also included the management team of D4C. 4hey did not only change the management team# but they also ha"e introduced a new >?our6legged@ strategy which co"ered almost entire business module. 4he strategies wereA a. ?irst leg B to focus on the efficiency of the production b. Second leg B 4o stimulate diamond demand by at least /0 per year. c. 4hird leg B 4o establish De Beers; own brand which could reach customers directly. d. ?ourth leg B 4o impro"e efficiency and producti"ity of sightholders. Corporate Social Responsibility was ne"er been neglected by the De Beers. $r. 1rnest has helped the blac* Africans by raising the Apartheid issue in 3ohannesburg. also helped blac* Africans by pro"iding funds for education. is son

SWOT Analysis Strength Weakness

1. 4hey owned most of the mines in African 1. 4hey sold their products to middle party continent. (. De Beers was considered as mar*et world;s diamond "alue. 7. Cecil Rhodes was a politician. ease their business operation. 8. 1stablished sightholders. relationship with a"ing which e"entually the middle party could ma*e higher margin.

leader. 4hey owned two third of the (. Some of the mines were really far away from ci"ili!ation. De Beers had to construct the infrastructures which cost them millions of dollars.

connection with the go"ernment could

Opportunities

Treat

1. De Beers could in"ol"e in cutting and 1. Diamonds are "ery sensiti"e product for polishing the diamonds by themsel"es rather than gi"e raw diamond to D4C# subse%uently# the diamonds shall be sold to retails shop. (. De Beers may ha"e their own brand name. By ha"ing their own brand# they could en5oy lucrati"e margin. international trading. Some of the diamonds are fa*e. 4he fa*e diamonds could 5eopardi!e De Beers; reputation. (. Some of the African countries are not preferable to America. 4hey may impose sanction on the countries which could stop trading acti"ities.

7. De Beers may ac%uire the sightholders or 7. Some diamonds form China and 4hailand partially own share in their companies. may not as %uality as De Beers; diamonds. owe"er# they could offer the price which customers difficult to refuse.

Problem Statement

Despites of increasing sales of diamonds in the world mar*et# De Beers; profit was decreasing. 4he management team of De Beers was restructured and they ha"e come out with few strategies in order to ma*e them continuously be the mar*et leader.

Practical Solutions De Beers may integrate with their sightholders in order to ma*e sure they could reach the mar*et under their own brand name. 4his will help them increasing their profit margin as they could benefit the sale "alue to the end customers. 2n top of that# the integration could also increase the efficiency of the diamonds distribution in the mar*et. 2ne of the main problems why De Beers could not en5oy high margin e"en though they were the diamonds producer was because of too many layers of dealers. 4hese dealers would bargain for the lower price from the producer and subse%uently will sell at higher price in the mar*et. 4herefore# it is the best if De Beers could do the cutting and polishing wor*s on the diamonds and sell it to the retail shops directly. De Beers adds "alue to the raw diamonds before selling it off. De Beers should acti"ely search for more diamond mining location. De Beers should establish a team to explore new potential locations. Ac%uisition and merger should be considered if the company is interested to explore new mines outside of the countries. De Beers should *eep in"ol"e in Social Corporate Responsibility acti"ities. 4his is not merely about a"oiding taxes# but it is about the real concern to the society as the *ids are the future leaders of the world. Some of them may wor* with De Beers in the future. SCR also create "alue to the company as public will align the name with the charity they performed.