De Beers was established in 1888 as a joint venture between Cecil John Rhodes and Barney Barnato, who was instrumental in the development of the South African diamond industry. Sir Ernest Oppenheimer started the Anglo-American Corporation in 1917 to develop the gold mining industry in South Africa. In 1926 he was elected to the De Beers board after Anglo American Corporation became a major shareholder in De Beers. Two generations of Oppenheimer's followed suit to manage the business to become one of the world's biggest diamond suppliers with a monopoly on the extraction and selling of diamonds. In 2012 Anglo American bought out the Oppenheimer family's share of De Beers, making it the majority shareholder with the remaining shares being held by the Botswana government. Today De Beers is an international corporation with a diverse portfolio which can be seen as a vertical integration process. It focusses on diamond exploration (finding new sources of diamonds), diamond extraction through the mining of diamonds in various parts of the world through open-pit mining, finding alluvial diamonds in coastal waters, and through deep sea extraction, the trading of diamonds on wholesale level, the selling of diamonds through its own and other diamond retail outlets, as well as manufacturing industrial diamonds for industrial use. De Beers remains one of the leading diamond companies in the world, with a diversified portfolio of mines in different parts of the world. In South Africa the Venetia open pit mine near Mussina is one of the prime suppliers of diamonds in South Africa. This open pit mine will also, in future, delve deeper, developing an underground mine below the Venetia open pit area. In Botswana, De Beers has four open pit mines, namely Jwaneng, Orapa, Letlhakane and Damtshaa. 4 The De Beers group is also active in Namibia, mining on land and at the Orange River mouth as well as in the Atlantic around this area. The group also has a diamond mine at Gahcho Ku in Canada in a joint venture with the local mining group Mountain Province Diamonds. In its early years, when the company produced over 90 per cent of the world's diamonds, it was able to control the production and hence the supply of diamonds almost at will (atypical monopoly situation). Then, from the early 1900s - when competitors began to challenge its prominence in the supply chain of diamonds - De Beers used its position to co-ordinate and regulate the supply of diamonds in pursuit of price stability and consumer confidence. Today, this could be interpreted as price-fixing and setting up a cartel. During the 1990s, the diamond industry experienced dramatic swings in the supply of diamonds, the world economy moved onto a low inflationary path and the industry experienced a period of pricing pressure, causing De Beers to rethink its business model and strategy regarding the supply of diamonds. Today, De Beers is 130 years old and has adapted to various changes through the years. It has seen through two world wars and changes in government in various countries. Its longevity is a reflection of its ability to adapt to changing situations, a long-term approach that is needed to be successful in the diamond business, and a sophisticated approach to sustainability that lies at the heart of its business model. There is, however, concern over the long-term supply of diamonds with exploration finding it more difficult to identify major new diamond deposits. Well-known De Beers mines such as Cullinan and Finsch and the diamond mines in Namaqualand have also been sold off, limiting its access to new diamonds sources. However, De Beers has achieved much in recent years by reshaping the business, interalia, through diversifying its mining operations to all parts of the world, seeking cost and capital efficiencies, and driving profitability. Tough decisions made in the good times helped De Beers to prepare its portfolio for the less favourable trading conditions that it has encountered in the past number of years. The company sees future opportunities downstream in the value chain by extending its high-end jewellery stores: De Beers has a 50per cent joint venture with luxury goods company Louis Vuitton Mot Hennessy (LVMH), which has 70 prestigious houses or brands such as Hermes, Bulgari, Dom Perignon, Glenmorangie, Guerlain and Givenchy. These brands are grouped into five different sectors: wines and spirits; fashion and leather goods; perfumes and cosmetics; watches and jewellery; and selective retailing. All of this indicates that De Beers has evolved from being a producer of rough diamonds to being a retailer selling final products to well-off customers in diverse countries ranging from the USA, the UK, Europe, and new upcoming world consumption economies such as China and India

Questions: 1. Examine the most dramatic changes in the external environment that forced De Beers to reconsider its business model. (30)

2. Do you think De Beers still wields some bargaining power in the supply chain as a supplier of diamonds, seeing that its diamond market share has decreased steadily over the years? Motivate your answer. (20)

3. Analyse the current competitive situation in the global industry. Refer to Porter's five competitive forces and their impact on the global diamond industry. (40)