Lev Leviev

Vs
De Beers
 Introduction to the case
• View of De Beers’ glorious History
• State of sightholders
• De Beers’ monopoly
• Challenges now and ahead
• Leviev entering as a competitor
• Mining countries
• Road Ahead
 What is De Beers?
• not retailer
• not manufacturer
BUT
• miner and buyer of 70-90% of the world's rough diamonds
• arbiter of their prices.
• It is an international company that:
- buys rough diamonds directly from the mine owners
- resell them to the cutters
- cutters sell the cut diamonds to the dealers who in turn sell
them to the jewelry stores.
• And still De Beers spends $180m a year worldwide to
advertise cut diamonds--a product it doesn't even sell !!!
 Cecil Rhodes
started by renting water pumps to miners
during diamond rush.

Invested profits in buying up claims of small

miners.

De Beers Consolidated Mines was formed

on 12th march 1888 by the merger of the
companies of Barney Barnato and Cecil
Rhodes.

Formed a cartel with ten largest merchants.

Sir Ernest Oppenheimer

- started buying his own mines

(Consolidated Diamond Mines)
- started competing with De Beer
- took over De Beers
- Chairman in 1929
- Oppenheimer family still controls De Beers

“THE ONLY WAY TO INCREASE THE VALUE OF DIAMONDS

IS TO MAKE THEM SCARCE, THAT IS TO REDUCE
PRODUCTION”
But De Beers still manages to
control the world Market and
still manages to make us
believe that diamonds are
rare!!!
 MONOPOLY

It is a market structure in which there is

only one seller producing and selling a
product which has no close substitutes
and there are barriers to entry.
 Causes of Monopoly

 Ownership of strategic raw material

 Patent rights
 Government licensing
 Market size
 Limit pricing policy
How De Beers Created a
Monopoly?

 Lack of close substitutes

 Control of inputs
 Control Of Inputs
 The Central Selling Organization(CSO),purchased the
production of 13 mines owned or co-owned by debeers
in South Africa, Botswana,Namibia and Tanzania.

 The CSO buys as well as sell diamonds. By holding on to

stockpiles of gems, it can threaten to dump diamonds
on the market to lower prices and thus ruin any
independent seller.

 It acts to control the price of diamonds in order to

maximize the profits
 Lack of close substitutes

• De Beers advertising campaign, A Diamond is

Forever created this belief that there are no other
gems that exhibit the same beauty of the diamond.
• Both men and women were made to percieve
diamonds as an inseperable part of courtship and
married life.
• Illusion was created that diamonds were forever.
BRANDING OF DIAMONDS
 REASONS FOR
BRANDING
 Less generation of earning and profit
margins earning as compared to other luxury
goods business

 Very less market share of diamonds

 Inspiration from example of ROTHMAN
 Diamond is a commodity which cannot be
discounted.
 INITIATIVES BY DE BEERS
FOR BRANDING
 FOREVERMARK a trademark for integrity of De Beers.

 Using Its De Beers Name .

 Partnership With French Luxury Goods Company

• LVMH to Develop A Retail Strategy.

 Advertisement Of Cut Diamonds.

 Opening Of Retail And De Beers Diamond Boutique.

 SIGHT HOLDERS
 These are authorized bulk leaders who
purchase rough diamonds from de beers.
 De beers, the single largest producer and
purveyor of rough diamonds in the world
provides rough diamonds.
 Currently no of sight holders are
 SUPPLIERS OF CHOICE STRATEGY
FOLLOWED BY DE BEERS
 Removal of inefficient sight holders
 Rewarding sight holders that built strong brands
 Placed its diamonds into the hands of market
savvy sight holders.
 Amended the criteria for being a sight holder.
 Focusing on market savvy sight holders rather
financially strong sight holders.
 Sight holders were allowed to use de beers
forever trademark.
 .
 Collected detail data about their sight holders.
 Assured sight holders of the profits which De
Beers is going to get.
 Assuring them the payment of money spent
on marketing of diamonds.
 Maintained consumer marketing department
to track the buying habits and number of
customer worldwide.
 CHALLENGES FACED BY
DE BEERS
• NEARLY 22,42OOO CARATS STOCK PILED UP
DURING THE GREAT DEPRESSION REDUCED
TO 18000 CARATS.
 LOW INFLATION
 FALL IN SHARE PRICES.
• IN 1980; INCREASE IN LUXURY GOODS
DEMANDS.
 Brand-conscious consumers viewed the stones as
anonymous commodities.
 CONT…
IN 1990’S NEW SOURCES OF DIAMOND WERE
DISCOVERED, EXAMPLE – CANADA

 DEPOSITS IN NORTHERN TERRITORIES OF

EKATI, DIAVIK AND WINSPEAR.
 ABLE TO SECURE 35% PRODUCTION IN EKATI.
 IN AUG 2000 – TAKEOVER WINSPEAR.
 NOT OVER YET…
• IN 1996; AUSTRALIA’S ARGYLE DIAMOND MINE TERMINATE
ITS CONTRACT WITH DE BEERS.
 PRODUCE A LARGE VOLUME OF DIAMOND.
 POOR QUALITY OF DIAMOND: INEXPENSIBLE JEWELLERY.
• IN 2004; DE BEERS PLEADED GUILTY TO CHARGES OF PRICE
FIXING BY OHIO COURT.
 US $10 MILLION FINE
• ‘BLOOD DIAMOND’ AND ‘CONFLICT DIAMOND’.
 De Beers so as to control the world's diamond supply,
bought lots of diamonds from areas controlled by rebels.
‘A DIAMOND MAY BE
FOREVER’
 LEV LEVIEV
Lev Avnerovich Leviev, born
on July 30, 1956 in Tashkent,
Soviet Union, is ranked 210th
among the world’s wealthiest
people, with an estimated
personal net worth of $6.5
billion.
 FOUNDATION
• Leviev opened his own cutting factory in
1977.
• Adapted laser technology and used computer
software.
• In 1987, De Beers invited leviev to become a
sightholder.
 DEVELOPMENTS
• World's largest cutter and polisher of the precious
gems.
• Dealt directly with diamond-producing governments
and shattered De Beers' all-important relationship with
sightholders.
• In 2003, leviev owned 100% of his diamond business,
Lev Leviev Group.
• Held a controlling stake in Africa Israel investments.
• Leviev was a controversial figure.
• He had developed strong political connections.
RUSSIA
 RUSSIA
• Important battle ground for Lev Leviev and
De Beers.

• Strong relationship with Russian president

Putin.

• Joint venture of Alrosa & Lev Leviev in the

late 1980s - Ruis.
 RUSSIA
• In early 1990s, De Beers suffered a set back in
Russia

• Lev Leviev was main player in liquidating

stock.

• In 2003, Leviev owned 100% of Ruis.

ANGOLA
 ANGOLA BRIEF HISTORY

• World’s Third Largest Producer Of ROUGH

DIAMONDS

• One-fifth Of The Production Came From The

Country’s Only Mine, CATOCA
 OBSTACLES FACED BY DE BEERS’
• De Beers’ Was Accused Of Indirectly Funding
Unita
• In 1998,debeers Operations In Angola
Threatened To Become A Public Relations
Nightmare
• De Beers’ was singled out for operating with
an extraordinary lack of accountability
 WHY DID LEVIEV DIAMONDS
SHINE…

• Leviev had taken advantage of De Beers’

problems there
• Leviev Offered To Generate More Revenues
For The State
• Leviev Kept The Promise He Made To Santos
 OVERHAULING EFFORTS OF
DE BEERS
• De Beers’ did not seem very comfortable
giving up control over such an important
source of diamond
• De Beers’ continued its public relation efforts
that projected it as a “conflict-free” supplier
• De Beers’ also decided to not only to deal
with producers but also get involved in the
branding of diamonds
NAMIBIA
 NAMIBIA
• Namibia was another rich country in diamond reserves.
 Just like Russia Namibia wanted to process own stones hence De
Beers established a cutting factory.
 De Beers supplied rough diamonds for cutting from its London office.

• Leviev took the advantage of the situation by paying

US$ 30 million and acquiring 37% share of
NAMCO( Namibian Minerals Corp).
 Namco’s equipment broke down and because of dispute with the
partners Leviev forced the company into bankruptcy .
 Bought all its mining concessions for a meager US$ 3 million.
 Namibia Cond..
• In 2004 Leviev’s factory in Windhoek was considered
the largest diamond factory.
• Namibia was considered to be the first step for other
African countries to polish and cut their own stones.
• Leviev wanted to gain direct ownership of rough
supplies in Russia, Angola and Namibia.
• Meanwhile De Beers had been cultivating a strong
relationship with Botswana .
• Leviev wanted to challenge De Beers by opening a
factory in that country because that was the right time.
A rough comparison between the
strategies of De beers & Leviev
• c
Strategies De beers Leviev

Main strategy Buyer of last resort Vertical Integration

Strength Supplier of choice & Building strong

Branding relationships

Conflict Diamonds Conflict free Opportunistic

diamonds
 Buyer of last resort

During the Great Depression when diamond prices

had slumped, De beers offered to buy all the rough
stones on the market.
Had prices continued to fall, the move would have
probably led to De Beers' bankruptcy. But the price
recovered and De beers became the owner of the
largest stock pile of diamonds.
 Why changed to
“Supplier of Choice”

Low inflation and the emergence of new players .

Fall in share prices because the stockpile assets were not
earning an attractive return.
 Erosion of De Beers' market share by rivals such as BHP,
the Australian group and Rio Tinto of the UK
What is supplier of choice?
Selection of sight holders who were market savvy and
had strong brands.
Adding value to the diamonds already under its
dominion through marketing and branding initiatives.
 Vertical Integration

Vertically integrated companies are united through a

hierarchy with a common owner. Each member of the
hierarchy produces a different product and the products
combine to satisfy a common need.
In 1977,Leviev started as a diamond cutter.
In 1987a he became a sight holder.
In 2003 Leviev owned 100% of his diamond
business.
Launched the Vivid Collection
 Building
strong relationships

During 1980s’ Leviev cultivated a cozy relationship with Valery

Rudakov who ran Alrosa simultaneously forming a joint venture
called Ruis.
Leviev’s friendship with Putin dated back to 1992
Leviev kept the promise he made to President Dos Santos of
Angola and gave the Angola govt. 51% share of Ascorp.
After acquiring the Namibian Minerals Corp., Leviev opened a
polishing factory on the Namibian Coast as part of the deal.
 Conflict diamonds

De beers was accused of indirectly funding UNITY, the

rebel army in Angola.
The phrase “blood diamonds” became commonly used.
Leviev had already made $60m investment
It secured contracts with the Angola govt. by giving it
51% share of Angola Selling Corp.
 Conflict-free diamonds

De beers projected itself as a conflict-free supplier

“Forevermark” diamonds were guaranteed to be conflict
free.
Announcement of blacklisting of sightholders with conflict
diamonds.
Cooperated with other industry leaders to form World
Diamond Council for eradication of conflict diamonds.
 De Beers: Fights Back
• De Beers is entering many aspects of global value
chain
• Has entered retail operations with LVMH(luxury
goods company)
• Reduced sightholders from 120 to 80 by 2004.Its
sales actually increased from US $5.5 to $5.7 B
while restricting sightholders
• Entering International Markets
• Aggressive Advertising
• Adopted Sustainability Programme
 Market Share
• DeBeers' share of the total market has fallen.
• At the moment, Leviev's market share is about 20%
to 30%.Its the only vertically integrated diamond
dealer in the world
• De Beers is still the biggest diamond producer.

Year De Beers
1980 80%
2000 65%
2005 43%
 Alternatives
1) Liquidate smaller, lower-quality diamonds,
use proceeds to purchase and hold higher
quality stones

2) Find new sources of capital, continue to buy

surplus inventory

3) Decrease production

4) Increase demand
 Financial Status
• Turnover increase in De Beers group over
2003 of 5% - US $6.2Billions

• Decrease in operating cash flow from US

$1.58B to $985M

• DTC sales reach US $5.5Billions

• Suffering from weak US Dollar

 Diamonds lose their glitter
• De Beers reported a 99% drop in net profits for the
first half of 2009 with a net profit of $3 million as
demand for luxury goods was hit by global recession.

• Had a profit of $316 million in the same period a

year ago .

• Sales of rough diamonds by DTC were down by 57%

with production slashed by 73%
 Conclusion
• De Beers one of the most successful
monopolies in history
• Used numerous tactics to successfully control
supply and demand
• Monopoly fell apart when it could no longer
stop other entrants
• Fighting the competition
 Thank You !
Presented By:
Deepti Sharma
Mayank Thakral
Priyadarshini Tripathy
Radhika Nanda
Kaushal Rathore
Rohit Sharma
Ritesh Gupta
Sanchit Arora
Saloni Jain
Saumyendra Pratap Singh