INTERNATIONAL BUSINESS MANAGEMENT

De Beers and the Diamond Industry

LVMH Partnership and the Chinese Market
Robert Kennedy College 6/5/2011

DeBeers have establishment the diamond industry through single channel trading techniques and branding of Diamonds as a Fashion statement instead of a symbol of love. This is why they have been the front runners for the past 120 years and is by far the largest in terms of mining, trading and industrial diamonds. But the time has come to enter the Retail market

A Diamond is Forever International Management CONTENTS

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Executive Summary ................................................................................................................................................................ 3 a Diamond is Forever ............................................................................................................................................................. 4 De Beers Invades China........................................................................................................................................................ 4 Market Penetration ............................................................................................................................................................ 4 Trading Factors ................................................................................................................................................................... 5 Partnership ................................................................................................................................................................................ 5 Strategic approach ............................................................................................................................................................. 5 LVMH & DeBeers................................................................................................................................................................. 6 Business Relationship ....................................................................................................................................................... 6 Diamond Purchasers .............................................................................................................................................................. 6 China ........................................................................................................................................................................................ 6 South Africa ........................................................................................................................................................................... 7 References and Bibliography .............................................................................................................................................. 8

A Diamond is Forever International Management

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EXECUTIVE SUMMARY
Emerging markets calls for investment (FDI) opportunities and the current market in China is ready for high-end retail products due to China who is becoming a more Western like civilization. The country might still be a long shot of but has developed far enough to take on these new opportunities. The Chinese market is very stable selling only the best and highest purity diamonds. It is better to enter the Market now to gain that advantage on other competitors. Limited factors contribute to China being a distant country in terms of trading diamonds. Some include Language, Knowledge and Government Political views.

When one look at the partnership between DeBeers and LVMH it can be seen that both parties have a very high sense of trend and quality. The partnership is an appropriate venture opportunity especially when entering Chinese market where demands is high and risk for failure seems low enough at current growth of market share. Both parties are the front runners and only deliver the best to their clients, being in the Fashion world. It will benefit both in terms of DeBeers being a world famous diamond Brand as well as LVMH who is a world famous brand in terms of various products. DBDJ and LVMH is a good combination of branding to the fashion world, but can the partnership can still be improved to be even more competitive in various trading areas. A Long term agreement to become the retail leader in the buyers market is essential. This can be achieved through investments in previous disadvantaged (under developed) countries, to develop and establish a global awareness on diamonds form the mining to the final piece of jewelry. This will give them a major advantage in the retail sector when promoted; it will also reduce the current conflict diamond trading. Another improvement would be to brand and promote the Industrial markets in the Industrial Sectors. China is not distant form the world any more in terms of diamonds which cannot be said to be the same for South Africa. China expanded and improved to compete on the global markets (diamonds) whereas South Africa diluted and stabilized its diamond environment which made buyers turn away or seeking other opportunities elsewhere or in other industries.
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DeBeers Diamond Jewellers

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A DIAMOND IS FOREVER
Star of Africa can be said to be the start of the Diamond era. This 83.5 carat diamond attracted people to Kimberly (South Africa) when discovered and Cecil Rhodes was one of them. An Englishman who sold Ice (initially) to buy mining rights with the profits (age 17); and owned one third of the De Beers mine when restrictions was dropped, this allowed him to control diamond supplies. The company grew and Sir Ernst Oppenheimer incorporated the Central Selling Organization which controlled all diamond trading through a single channel until 1990s when a ban to trade in the U.S was enforced due to anti-trust and competitiveness. This had a massif blow on the group and they were forced to re-strategize. Harry Oppenheimer engaged with HW Ayer to discover why people buy diamonds . The study indicated that people bought diamonds as a symbol of love, not fashion. This was about to change when they introduced the famous slogan a Diamond is forever. This changed the market to a fashion statement selling diamonds to the rich and famous.
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DE BEERS INVADES CHINA

MARKET PENETRATION China is the world 2 largest diamond market (overtaking Japan), where more than 50% of the diamond has been sold during 2010, and diamond sales increased by 25% for the same year. China is following the trends of Western civilization and with limited diamond resources they established a market where most of the world diamond buyers currently reside. Beijing being the main contributor where China grew their consumer demands, this fitted the new private / branding idea of DeBeers. Diamonds of highest value and purity is what the people of China wants, making this the ideal situation for an elite supplier like DeBeers (LVMH). Currently DeBeerLV have 17 Shops situated around eastern Asia, making it a bigger and more successful geographic choice than anywhere else in the world.
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1930s

A Diamond is Forever International Management

TRADING FACTORS

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Distance factors can and will affect the diamond industry to some extend but not as much as the average product being traded globally this is because of diamonds is a statement and not a need, even though the world promotes it as one. China can be said to be a new country in a sense where the people have more freedom of choice and this increases the opportunity for the diamond market. They value their old traditions and they are driven by political input but China has recently proven itself as a country full of investment opportunities. The world recognizes China for its strict labor laws and human factor involved to be competitive in the world. China quadrupled its economy in a period of 30 years and is number 27 on the global competitive list, more interesting is the -0.8% inflation and a population of 1.3 billion people. This allow for some of the worlds richest people to invest due to the good Return on Investments . Some distance factors have been mentioned below to motivate the success of the diamond market. Diamonds is not as much labor intensive than retail intensive due to importing factor. India is the worlds largest diamond cutting and polishing country and China is also one of the major cutters/polishers and is divided by a border line only. China also has some of the world largest Harbors and Airport which allows them to trade mostly anything, it is also situated close to other major global players such as Australia, Japan and India. The growth in the (Chinese) diamond market gives a direct indication that the market is healthy, meaning that the value, demand and response is in a good condition to expand. China might have many different dialects, but they made a huge effort to attract international investors through various communication methods being used by western civilizations, making China an ideal country to trade diamond to due to size, culture, infrastructure and financial stability. Diamonds is a fashion statement and is therefore not being affected by distance factors as much.
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PARTNERSHIP
STRATEGIC APPROACH De Beers had a three step strategy that would put them back on the map to gain trust as selling world class diamonds. Firstly, they had to clean up their act for the murky price fixing schemes, where they established the supplier of choice initiative. Secondly, did they have to consider and take actions against current conflict diamond trading which had a major effect on the Industry? The last and most important step was to change their approach
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Average company double their investment within 7years. Blood diamond Leonardo dicaprio. This film will give you a good understanding of the effect and actions taken.

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to selling high-end jewelry. They did exactly that when they partnered with LVMH in early 2000s. This allowed them to detach from the rough diamond market and into the Luxury Jewelry market.

LVMH & DEBEERS Bernard Arnault, the 4 richest man in the world ($41b) is the owner of LVMH. Selling more than 60 luxury brands in 2545 stores around the world (employing 83500 people), made this the Ideal company to partner with. The company is well known for selling and setting the worlds fashion trends. DeBeers on the other hand is company that sets the trends for the diamond sector. They are major players in the diamond sector being it Mining, Trading or Industrial diamonds.
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BUSINESS RELATIONSHI P A Long term agreement to become the retail leader in the buyers market is essential and a key point to reach this over time is to invest in conflicting areas and underdeveloped areas to increase the global awareness of fashionable diamonds. Another improvement would be to brand the Industrial diamonds to the market which will give them the upper hand on the industrial diamond market being developed by DeBeerLV. This can be an interesting marketing campaign even though this might not be the direct approach being followed by LVMH.

DIAMOND PURCHASERS

CHINA As mentioned in this article, Chinas demand for diamonds is very healthy due to the new culture that has been developed by westernizing of the Country. China is becoming of the worlds fashion focuses and the citizens are much more aware of the value of diamonds than some years ago. Another contribution to this is the fact that the country has some of the best business opportunities at present and is not controlled by a communist environment (not everywhere). The Chinese industry is currently seeking new economic ventures to further expand and jewelry (fashion) seems to be doing well when looking at the figures.

Forbes 2011.

A Diamond is Forever International Management

SOUTH AFRICA

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DeBeers has been delisted from the Delisted from JSE in 2001, but this did not stop them from staying ahead of the rest and still penetrating the retail market. Even though Southern Africa produced most of the worlds diamonds and is still the front runners after 120 years and still supplying the highest valued diamonds. The South African buyers market is not as effective as the western or Chinese markets due to the very long exposure in this industry. The diamonds have been exported and sold back to the South African market making it unattractive for the buyers and end users. The value of the diamonds being sold is also lower than the average diamond sold elsewhere due to clarity, purity and size demands being higher outside the country. This being said, it is not difficult to get hold of a diamond of highest quality and the buyers are all aware of the resources available, due to the DeBeers (South African Company) group who dominated the global demands for so long. South Africa is still famous for the diamond auctions especially rare and unique diamonds. The current buyers market is more focused in Equity and Black empowerment than fashion statements. The majority of the people cant afford diamonds which also allows for the diamonds to be sold in a more fashionable environment.
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Johannesburg Stock Exchange 40% (50 million carats)- high value diamonds

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REFERENCES AND BIBLI OGRAPHY

De Beers and the global diamond industry. 905M40. Richard Ivey School of Business. 2005. Edward, Tse. Is it too late to enter China? R1004J. Harvard Business Review. April 2010. Pankaj Ghemawat. Distance still matters. R0108. Harvard Business Review. September 2001. Anglo American plc Fact book 2007/8. Diamonds. 2008. McAdams, D. Reavis, C. DeBeers Diamond Dilemma. 07-045. 7th January 2008. De Beers Sales, Profits soars on rising India, China Demand. Solitaire International. March 2011. De Beers SA, A Diamond is forever. MKT04-01 NYU Stern. December 2004. Commission opens in-depth probe into DeBeers joint venture with LVMH. IP/01/573. Brussels, 18th April 2001.

http://www.ibtimes.com/topics/detail/567/de-beers/ International Business Times. 17th May 2011. http://online.wsj.com/article/BT-CO-20110510-714021.html Wall street Journal. UPDATE: Bulgari swing to nett profit as China Sales Surge. 10th May 2011. http://www.chinapost.com.tw/business/asia/b-china/2010/01/25/242238/China-now.htm The China Post. China is now worlds second largest diamond market. 25th January 2010. Reuters. http://globaledge.msu.edu/countries/china/ Global Introduction. China: Introduction. 6th June 2011. http://www.lvmh.com/comfi/pg_home.asp?rub=6&srub=0 LVM, Investor Relations. 6th June 2011. http://www.forbes.com/profile/bernard-arnault Forbes. Bernard Arnault. 6th June 2011. http://www.artmarketmonitor.com/2011/03/21/chinese-buyers-take-over-diamond-market/ ART Market Monitor, Chinese buyers take over Diamond market. 21st March 2011.