please identify the Strength, Weakness, Opportunity, and Threats ( swot analysis)

CASE 15 De Beers's Diamond Dilemma The mystique of natural diamonds has been built by the industry One hundred fifty million carats of mined diamonds are produced every year, so they are really not that special if you look at those terms.' -CEO OF GEMESIS CORPORATION We don't see synthetic diamonds as a threat, but you cannot ignore it completely.? -STUART BROWN, FINANCE DIRECTOR, DE BEERS David McAdams however, a laboratory environment could produce a Cate Reavis flawless diamond within days. Lee was starting to think that a synthetic diamond T WAS EARLY summer 2007 and Lee Mandell was a great alternative. But how would Diane react decided that the time was right to propose upon learning he had bought her a diamond that was to Diane, his girlfriend of four years. Being the made in a laboratory just outside of Boston? Would romantic he was, Lee wanted to pop the ques- the be relieved and touched by his humanitarian and tion over a candlelight dinner that included an ooo-friendly purchase or would she wonder if the 20% uncoptional bottle of Bordeaux. Logistical details of to 40%% he would save by buying a synthetic damand where to buy the special ring and what type of dis- was an indication of the depth of his love? mand, however were loss curtain in his mind. For producers of synthetic diamonds, it was con- Loo and Diane had recently rented the movie Blood sumers like Lee Mandell that proved there was a mar Diamond, set in Sierra Leone in the 1990s when a civil ket demand for an alternative to the natural diamond. war was raging and the rebel group. the Revolutionary But for South Africa-based De Beers, which up until United Front, relied on proceeds from smuggled dis- the lata 1990s single handedly controlled the world's monds to finance its military operation. The 11-year supply of dumonds. Lea's rationale was misguided war, which ended in 2002, resulted in the deaths of and he was giving his girlfriend nothing more than cos- tens of thousands and the displacement of more than ture jewelry Nevertheless, the fact of the matter was 2 million people, nearly one-third of the country's pop- that people were buying lab-produced diamonds and ulation. Both Diane and Lee had been disturbed by the the number doing so was growing at a faster rate than story the movie told, the hardship and viclance, the those buying those extracted from the ground. children who wore forcibly recruited to fight, and the The dilemma that De Beers faced came down to lives that were destroyed all over gems that were worn whether it should enter the market with its own syn by hundreds of millions of people, men and women thetic diamonds or whether it should have faith that syn- alike, throughout the world. theties would be a passing fad and that, at the end of As he thought about his options, Lee recalled the day consumers would shewys prefer buying what a magazine article he had recently read about the growing market for synthetic diamonds. The article described the process by which dumonds could be grown in a laboratory environment, far from the war MIT Sloan torn Lands of Africa. Chemically, Lab-grown diamonds Lazed order the Creative Common Ainbuice were identical to diamonds that were extracted from the ground. Instead of taking millions or billions of years to form, hundreds of miles underground,in De Beers's mind, was the real thing. Complicating the CHANGE IN INDUSTRY STRUCTURE. The $19 billion company's dilemma, however, was the fact that it was in processing industry (which involved the cutting and the midst of trying to remake its image, tamished from polishing of diamonds) was dominated by India. The I decades of anti competitive business practices, to one million people employed by India's processing indus- that was demand driven and focused on brand develop try processed more than half of the world's diamonds mont. While De Beers at one time produced 45% of the in value terms, at costs significantly lower than other world's rough dismonds and sold 80%% of the total sup processing countries-$10 per carat as opposed to ply. by 2007 it was producing 10% and selling just 45%." $17/carat in China, $40/carat in South Africa and Israel Did synthetic diamonds in fact pose a threat to the and $70/carat in Belgium. Israel and China were the diamond industry and if so, what should De Boers's second and third largest processors with 15% and 10% off response be if any? The market, respectively." But this part of the value chain, at one time dominated almost exclusively by Belgium The Diamond Industry and Israel, was undergoing significant changes." Since the late 1990s, empowered by De Beers's Natural diamonds, the hardest, most transparent mate- shrinking market position, the voices from Southern rial in existence, were made of carbon atoms that African countries to keep more of the value added over the course of millions of years and with tremen- activities such as cutting and polishing in country had dous heat and pressure deep under the earth's surface become noticeably louder and a number of countries bonded into a cubic structure." Due to their heteroge- were amending their diamond laws to support and build ncity, unlike gold or silver, diamonds were not consid local diamond-related industries. In 1999, Namibia cred a commodity. As one diamond trader explained, inserted a clause in a new law permitting the govern- "When you talk about commodities, you know that a ment to force miners to sell a percentage of their dia- ton of copper is worth this much, and an ounce of gold monds to local polishers," and in 2004, Lev Leviev, an is worth this much because they are homogenous. But Israeli of Uzbek decent who was one of Israel's largest diamonds are not homogenous."* manufacturers of polished stones, opened the coun- try's first cutting and polishing factory. At the opening SUPPLY. The global diamond industry produced an of the new factory. Namibia's president was quoted estimated $13 billion of rough stones and $62 billion in as saying, "To our brothers and sisters of neighbor- jewelry annually. Between 2000 and 2005, world pro- ing states, Angola, Botswana, South Africa, I hope that duction of diamond rough grew 31% by volume and this gives you inspiration to try to imitate what we have 70% by value, highlighting the upward trend of dia- here." In 2005. South Africa passed the Diamonds mond prices (Figures | and 2). Amendment Act establishing a State Diamond Trader Seven countries-Angola, Australia, Botswana, Canada, FIGURE 1 the Democratic Republic of Diamond Rough Production by Volume and Value (2000-2003) the Congo, Russia, and South Africa-represented 88% of Source "The Global Gems and Jewelry Industry: Vision 2015 Transforming for Growth, " KPMG, December 2506 the value of diamond produc- 180 $14.0 tion and 96% of global pro- 160 $12.0 duction volume." As depicted 140 120 $100 in Figure 3, for some produce 1:00 Volume ers, there was great disparity USS billions Millions Carats 56.0 #Value in the relationship between the volume and value of pro- duction. While the Congo and Australia were significant 7000 producers on a volume basis, 2001 2002 2003 7004 7005 the value of their production 110 117 131 144 156 171 was quite low. Angola pre- $7.8 $7.5 $7.3 $9.3 $110 $127 sented the reverse scenario.Alongside shifts in the value chain, the FIGURE 4 industry was experiencing an increasing World Sales of Diamonds, 2005 (polished wholesale price) level of forward and backward integration: Sources "The Global Gone and Jewelry Indowly Vision Work Trandonning ian Growth," mines were integrating forward into retail and retail outlets were integrating backward by investing in mines. In 1999, high-end 2% 16% jeweler Tiffany & Co. announced that it was buying a stake in a Canadian mining concern 2% 46% for $104 million and would no longer source its diamonds through De Beers. In 2003. 2% Aber Diamond, a Canadian mining group. purchased U.S. luxury jewelry retailer Harry Winston giving it storefronts in the United States, Japan and Switzerland." In 2005, Russia's mining giant Alrosa opened up a diamond retail store in a shopping complex off Red Square." As De Beers's 5% CEO remarked, "The verticalization of the industry is clearly its long-term trend; it's absolutely the way to grow a business and build a brand, Retail clearly adds value. But 6% there are several different kinds of know- how involved in the different levels of the 9% 12% chain and you have to respect, and learn, all of them,"Is U.s. Middle East if Japan India Italy China Turkey LUK. ROW DEMAND. The United States was far and away the world's biggest purchaser of dia- monds accounting for 46% of total demand followed by the Middle East with 12% and to, how much to sell, and at what price. Buyers who Japan with 9% (Figure 4). However, demand, par- turned down an offer to purchase a parcel of diamonds ticularly for diamonds over 2 carats (worth $15,000 might not be invited to purchase from De Beers again. or more), was soaring in India and China" in concert Meanwhile, buyers who strayed from De Beers's sell- with increasing disposable incomes and a growing ing arm and purchased directly from a mine would be middle class. India was the fastest growing diamond dropped by the company or financially punished." In jewelry market with a growth rate of 19% in 2005. 1981, after Zaire decided to stop selling its industrial- While at one time the diamond industry was supply- grade diamonds to the syndicate, De Beers dipped into side driven, with little attention given to the end con- its stockpile and flooded the market bringing down the sumer, by the late 1990s the industry began focusing price of Zairian diamonds by 40%." more on the demand side. The main catalyst for this De Beers's monopoly was shaken in the 1990s by shift was De Beers's decision to conduct business in a the emergence of three producers that fell outside of whole new way. its grasp, making its strategy of controlling supply couly both financially and legally. The first big hit De Beers under Attack came shortly after the collapse of the Soviet Union in 1991. Through a marketing agreement that dated back In the early 1990s De Beers ruled the diamond indus- to the late 1950s when diamond deposits were first try. While it only produced 45% of the world's rough discovered in Siberia, the Soviets had sold their entire diamonds, it sold 80% of the total supply from its mar- diamond production to De Beers's Central Selling keting unit in London. Its market dominance enabled Organization. Once the Soviet system disintegrated, its Central Selling Organization to choose whom to sell however, De Beers was unable to enforce contractsand Russian diamonds were soon being smuggled industrial diamond products, to fix the world prices onto the international market causing prices to fall. of industrial diamonds in 1991 and 1992. While the But De Beers' challenges in Russia could not be United States Justice Department was unable to pros- blamed solely on the country's economic and politi- ecute De Beers because its operations were overseas cal upheaval. Lev Leviev, one of Israel's largest man- and it refused to subject itself to the jurisdiction of an ufacturers of polished stones, was making his move American court, the company was prohibited from in Russia where he was well connected politically. In conducting business in the United States. 1989, two years after Leviev became a sightholder for On a completely different front, De Beers faced De Beers, Russia's state-run diamond mining and trad- yet another threat, which was quickly turning into a ing group, now known as Alrosa, entered into a joint public relations nightmare for the entire diamond venture with Leviev to establish the country's first cut- industry. In the mid-1990s, Angola, the world's third ling factory. the stones of which would be supplied largest producer of rough diamonds, was overrun by directly by Russian mines, not through De Beers." rebel forces opposed to President Dos Santos, Gaining The partnership marked the first time in which rough control of the country's diamond supplies, the rebels diamonds were cut in their country of origin. Over the flooded the market with up to $1.2 billion worth of next five years, Leviev's position in the Russian dia- rough diamonds. To maintain control over supply, and mond industry grew to the point where, in 1995, De therefore prices, De Beers had liule choice but to buy Beers terminated his sightholder status." what were becoming known as "blood diamonds," the The second jolt to De Beers's position came in proceeds of which went toward financing the armed 1996 with the decision by Australia's Argyle diamond conflict. Angola was not a lone participant in the blood mine, which produced low quality diamonds suitable diamond trade. Rebel forces in Sierra Leone, Liberia, for inexpensive jewelry, to terminate its contract with and the Democratic Republic of the Congo were also De Beers and begin marketing its own diamonds. It using the illicit diamond trade to finance their respec- sold 42 million carats directly to polishers in Antwerp tive armed conflicts. that year. I De Beers's involvement in the "blood diamond" trade Finally, the emergence of Canada in the early 1990s was exposed in a 1938 report by Global Witness which as a diamond producer served as a further threat to De accused the company of "operalling] with an extraor- Beers's position. While the company was successful in dinary lack of accountability."As Martin Rapaport, acquiring stakes in a couple of Canadian mines, the major- publisher of the diamond industry pricing guide, asked ity of the country's production fell outside of its control. rhetorically. "How can it be that tens of millions of dol- In order to keep prices high, and therefore safe- lars are exported from diamond areas and yet there is guard its market dominance, De Beers was forced to no electricity, no plumbing. no wells, no improvement both hold back a large portion of its diamonds from in the lives of the people?" Rapaport went on to ask the market and purchase much of the excess supply the more complicated question, "Do we owe anything from these producing countries often at inflated prices. to the people of Africa just because we buy their dia- By the end of the 1990s, De Beers's market share had monds? Are we responsible for what we buy?" fallen from 85% to 65% while its diamond stockpile For De Beers, these challenges and threats in ag- had grown from $2.5 billion to $5 billion. Between gregate were creating a "perfect storm" of sorts. December 1989 and 1998 De Beers's share price fell Significant changes to the company's strategy that had from $17 to $12, a nearly 30%% drop. served it well for decades had to be made. In addition to the financial sting De Beers was feeling resulting from its supply-side strategy, anti- A NEW DIRECTION. In 199%, on the advice of U.S. Trust regulators in the United States and the Baropean consulting firm Bain and Company, De Beers decided Union were becoming increasingly aggressive in their to "ditch its role of buyer of last resort" and develop attempts to formally end the company's price con- a strategy that was demand-driven and brand-focused Trol practices. In a 1994 indictment, the United States whereby profits were more important than market accused De Beers of violating the Sherman Antitrust share. "When explaining its strategic shift, De Beers's Act by fixing the price of industrial diamonds. The Managing Director stated, "We don't have to go rush- government contended that a subsidiary of De Beers ing about the world trying to buy every diamond. What conspired with General Electric, another producer of is the point of us buying diamonds close to or over ourselling prices? It's silly. I'm perfectly happy to market In step with the Supplier of Choice Program, De 60%6. What I want to do is differentiate the portion that Beers developed a marketing and retail strategy to does come to us and create value on those goods . . . in position its diamonds as a branded luxury item. Unlike order to sell them first, more advantageously, and at other luxury brand producers, diamond producers better prices." had suffered from poor financial performance over As a part of its strategy, De Beers ended its practice the years due to the lack of branding. In fact, many of stockpiling diamonds, stopped buying diamonds in the industry lamented that although not traded as on the open market, and began only selling diamonds one, diamonds had become a commodity of sorts. Lev from its own operations which enabled it to guaran- Leviev implied that De Beers was largely responsible: lee that its supply was "conflict free." The company "There are two main reasons why diamond retailers promised the European Union it would stop buying fail. Lack of innovation-they have the same stones in diamonds from Alrosa, the state-owned Russian firm the same settings in the window year after year-and that accounted for 20% of global production by 2009 dependence on one supplier for their stones. You can to promote competition. " The promise was formal never plan your sales even one year ahead, because ized in a 2006 agreement with Russia. you can only work with what they give you, and they A new demand-centered strategy required that decide, "31 De Beers build new relationships with its suppliers. A Boston-based diamond wholesaler, however, This came about in what was dubbed the "Supplier of had proven that branding diamonds could work, Choice" program, the goal of which was to make De especially since the market was shifting to a demand- Beers the supplier of choice in the eyes of its custom- driven model. In 1997, the wholesaler, who sourced ers, in lieu of the buyer of last resort. De Beers scaled his raw stones from De Beers sightholders and others. down the number of its sightholders from 120 to 80 began selling a branded diamond called Hearts on Fire and formalized business relationships with those that which was differentiated by its cut. Marketed as "the were chosen with a written contract."Sightholders world's most perfectly cut diamond," the diamonds were no longer expected to purchase whatever stones were cut by hand in Antwerp, Belgium in a pattern De Beers offered to them. Rather, they requested a spe- known as "hearts and arrows." When viewed under cific package of stones based on sales and marketing magnification, cach diamond revealed a symmetrical strategies they had created."The criteria to being a ring of hearts and eight pointed arrows." The brand sightholder were no longer based on financial strength produced $40 million in sales each year. In 1999, De and manufacturing capabilities but rather marketing Beers entered into the brand world by marketing a savvy. limited-edition (20.000 stones) Millennium diamond, Under the new arrangement, sightholders were engraved with the company's logo and the year 2000. entitled to use De Beers's Forevermark, a tiny logo that The Millennuim diamond's campaign came with a tag was etched into natural diamonds which guaranteed line of, "Show her you'll love her for the next thou- the polished diamonds were natural, ethically traded sand years." and non-treated. (The Forevermark diamond was sold De Beers's brand positioning was accompanied in Hong Kong, China, Japan, and India.) Sightholders by attempts to widen its customer base. A number of also benefited from De Beers's marketing data include non-wedding advertisement campaigns were launched ing consumer buying habits and patterns and the num- including the "Celebrate Her" campaign which urged ber of engagements worldwide. Those sightholders men to show their love for their significant other by that successfully built strong brands were partially buying her a three-stone diamond ring. The cam- reimbursed for the money they spent on advertising paigns' advertisement pictured a middle-aged man and marketing efforts. As Nicky Oppenheimer, De on bended knee asking. "Will you marry me again?" Beers's Chairman, explained, "We want people to say. There was the "Women of the World Raise Your Right "While I can get diamonds from people other than De Hand" campaign which encouraged women to indulge Beers, the package De Beers gives me is so valuable. in a diamond ring to be worn on their right hand as I get a better return from them."Accompanying De an expression of personal style. In addition to now Beers" efforts at building a new identity, the compa- messages enticing consumers to buy diamonds for ny's Central Selling Organization was renamed the purposes other than engagements, in 2001, De Beers Diamond Trading Company (DTC). entered into a joint venture with LVMH to open up aseries of retail stores. Diamond jewelry was sold under marketing." As of 2006, four international diamond the De Beers name. By early 2007, De Beers had 22 businesses had cutting factories and II now licenses stores spanning the United States (3), Europe (4), the had been issued. By some estimates, 3,500 new jobs Middle East (1), and Asia (14). would be created. Costs of cutting and polishing, how- ever, would likely be significantly higher than they From Public to Private were in India and China. In early 2007. De Beers signed a similar agreement At the same time the new strategy was being rolled with the Namibian government. All diamonds pro- out, De Beers delisted from the Johannesburg Stock duced by their joint venture, Namdeb, would be sorted Exchange where it had traded since 1893. Purchased in Namibia and just under 50% of output, worth $300 by a consortium that included the Oppenheimer fam- million, would be sold locally." ily. Anglo American ple, and Debswana Diamond Co. While De Beers was reorganizing its traditional (Ply) Lid, De Beers became the world's largest private operations and making various amends, a new poten- diamond mining company. The privatization, which tial competitor to the natural diamond quietly began to cost $17.6 billion (a 31% premium)" left De Beers emerge: laboratory-grown or, as De Beers would call heavily in debt. Ironically, the terrorist attacks in the them, "synthetic" diamonds. United States on September II, 2001 helped alleviate the company's debt. As De Beers's Chairman Nicky Oppenheimer explained, "Sentiment changed dramatic Enter Synthetic Diamonds cally after September 11, though we did not realize Unlike a cubic zirconium which was altogether a dif- it at the time. There was a swing back to traditional ferent chemical substance, synthetic diamonds were values such as family and all the sorts of things that chemically identical to the mined variety." Nearly diamond jewelry plays into."is $50 million worth of synthetic diamonds were sold One of De Beers's first major media grabbing acts each year and analysts predicted the market would as a private company came in 2004 when it pleaded grow at a CAGR of 456 until 2015, by which time guilty to charges of price-fixing of industrial diamonds sales would exceed $2 billion." In 2006, 400,000 and agreed to pay a $10 million fine. Settling the synthetic diamond carats were produced in the United 10-year-old charges meant that De Beers executives States and prices rose 2096. "We are selling all that we could visit and conduct business in the United States. can produce," admitted one synthetic producer" In 2005, the company agreed to pay $250 million to There were a handful of synthetic diamond pro- settle a class action suit by diamond consumers who ducers in the United States including Adia Diamonds accused the company of monopolizing the interna- (Michigan/Ontario), Gemesis (Sarasota, Florida), tional diamond business through its control of mines Apollo (Boston, Massachusetts), Chatham Created and agreements with diamond suppliers around the Gens (San Francisco, California), and an outfit called world. Life Gem (Chicago, Illinois) that created lab-grown In 2006, De Beers made another surprising move diamonds with the carbon from a person's ashes. The when it signed an agreement with the Botswana gov- company's slogan was "Love knows no boundaries, emment to establish the Diamond Trading Company love knows no end." A I-carat diamond from Gem Botswana. The 50:50 joint venture would start sort- Life sold for $13,000." Producers typically retailed ing and valuing all of the diamond production of their collections through a wide variety of jewelers Debswana (50:50 partnership between De Beers and spread mainly throughout the United States. Apollo the Botswana government) likely at the end of 2007 was scheduled to begin selling its diamonds via its or carly 2008 upon completion of a $83 million com- website sometime in 2007. plex near the capital's airport. From 2009, the part- While there was no disagreement over the fact that, nership would take over aggregation duties (mixing of chemically speaking, synthetic diamonds were equal diamonds from different countries into similar assort- to their natural counterparts, there was disagreement ments) of De Beers's entire aggregation operation, within the industry over what to call them. Preferring currently carried out by De Beers's DTC in London. the term "cultured," synthetic manufacturers objected As a result of the deal, Botswana had moved up the to the term synthetic, used by various industry groups value chain from mining and sorting to sales and including the European Gemological Laboratories,as consumers could very well associate it with Imita- atom by atom, into a much bigger diamond. The pro- lion stones. The Gemological Institute of America, the cess could be tweaked to produce diamonds other than organization responsible for developing the color, cut, those used for jewerly. For instance, by adding enough clarity and carat standards for diamonds back in the boron to allow the diamond to conduct a current, the late 1950s, used the terms syorkeric, man-made and CVD process could turn a diamond into a semicon- laboratory grown interchangeably. ductor."In 1996, Robert Linares, founder of Apollo The diamond industry was appealing to the U.S. Diamond Inc., received a patent for the CVD process Federal Trade Commission to prohibit laboratory dia- he had developed for producing flawless diamonds. As mond producers from calling their products "cultured," one diamond scientist exclaimed upon putting a CVD suggesting that syarsenic be the formal descriptor. diamond under a microscope, "It's too perfect to be Their fear was that the natural diamond industry could natural. Things in nature have flaws. The growth and suffer the same fate as natural pearls did as a result of structure of this diamond is flawless."19 the introduction of cultured pearls in the early 1900s. Unlike their natural counterparts, the major- According to Gem World International, cultured ity of synthetic diamonds came in colors-yellow, pearls accounted for more than 95% of all pearls sold green, pink, orange, and blue-filling a market niche. globally." It's essential that synthetics are readily Colored natural diamonds, formed by impurities in detectable from diamonds and that clear, unequivocal the earth (e.g, nitrogen-yellow, boron-blue, natural language is used to describe these man-made prod- radiation-green") were rare and therefore prohibi ucts." noted a De Beers spokeswoman." tively expensive for most consumers. "The market wants more fancy [colored] diamonds, so this is what PROCESS. The technology used to make lab-grown we've decided to concentrate on," explained the CEO diamonds had been around since 1955 when General of Genesis." Although possible, manufacturing col- Electric began making industrial diamonds used to orless diamonds (a process that entailed removing cut hard substances such as stones, ceramics, metals, the nitrogen from yellow stones) was an expensive and concrete." De Beers followed suit and also began process. making industrial diamonds and in the late 19505, De One challenge the industry faced was that none of Beers's Chairman Harry Oppenheimer let it be known the synthetic manufacturers had found a way to pro- that the company would not produce synthetic stones duce a synthetic diamond bigger than I carat for the unless it became economically necessary. jewelry market. There were two types of processes for producing synthetic diamonds. The first process, called high WHY BUY SYNTHETIC? Laboratory diamond pro- pressure high temperature (HIPHT), involved mixing ducers focused on the financial, environmental and a microscopic diamond grain with graphite and metal political advantages that their product had over natural and placing the mixture into a 4,000-pound machine diamonds. Synthetic diamonds cost anywhere from the size of a kitchen oven. The grain, put under pres- 15% to 40% less than naturally mined diamonds and sure equal to 58,000 atmospheres and exposed to sometimes considerably less for colored stones. As 2,300 degrees Fahrenheit (close to the melting point of Table I shows, a one-carat natural pink diamond could steel), would then grow one atom at a time. " It typically cost upwards of $100,000, while its synthetic counter- took four days to grow a 2.5 carat diamond and approx- part would retail for around $4,000. imately 20 kilowatts of energy was used per caral." Environmentally, compared to a natural dia- HPHT was the process General Electric used starting mond which required several hundred tons of earth In the 1950s to manufacture industrial diamonds. be extracted for each carat' often at the expense of The second process was known as chemical vapor both huntan and animal habitats, lab-grown diamonds deposition (CVD). A more modern and delicate pro- were considerably more eco-friendly. According to cess than HPHT, CVD used a combination of carbon the Canadian Arctic Resources Committee, as far as gases, temperature and pressure that replicated condi- 200 kilometers downstream from the lake where tions present at the beginning of the universe. Atoms Canada's Ekati diamond mine sat, environmental from the vapor landed on a tiny diamond chip placed destruction, particularly of fish habitats, was seen in the chamber. Then the vapor particles took on the in numerous lakes and streams. Diamond mining structure of that diamond-growing the diamond, had also taken a toll on land-based widlife habitats.Natural va. Lab-Made Diamond Price Comparisons Natural Lah-Made Cubic Zirconia Colorless Stones 1 carat = $5,800-$9,100 Is carat = $300-$2,500 1 carat = $5-$15 Colored Stones 1 carat = $3,000 (yellows)-$100,000 (pinks) I carat = $2,000-$7,000 1 carat = $10-$15 Source: Vinessa O'Comel "Gom Way" The Wall Street Journal January 13, MJF. Scientists had observed that caribou and grizzly bears in 2006 after reporting that it had no diamond exports were spending far less time feeding in areas around for 2005. The process, however, was far from perfect the mines. Meanwhile diamond mines required the use and enforcement was proving to be next to impossible. of diesel fuel to operate, adding to the production of As one example, Sierra Leone, which accounted for greenhouse gases. up to 33% of the world's smuggled diamonds, had a More than their financial and environmental advan- mere 200 monitors for the entire country sharing 10 tages, lab-grown diamond producers emphasized the USAID-donated motorcycles." political advantages of buying a synthetic diamond, However, some in the industry felt the Kimberley namely that consumers would in no way be at risk of process was working and that the human rights argu- acquiring a "blood diamond." A growing number of ment could in fact hurt those it intended to help. As one customers wanted to know where their diamonds came industry observer stated, "When you're buying mined from and wanted a guarantee that they were clean. diamonds, you're helping communities in Africa. Once cut and polished, however, it was impossible When you're buying them made from a machine, for consumers to tell which diamonds were blood dia- you're helping 20 guys in Florida.""One international monds. All distinguishing characteristics which identi- diamond trader took issue with this sentiment stating fied a diamond's country of origin were washed away that working conditions for many Africans involved with the polishing process, # in the mining business remained appalling, opining. Measures had been taken by the diamond industry "Conflict-free diamonds should not be confused with and various governments to assuage agitated consum- ethical diamonds," ers and curtail the number of blood diamonds that A new selling point for the synthetic diamond indus- circulated on the open market and by 2006 blood dia- try came in early 2007 when the Gemological Institute monds made up a mere 1% of the overall diamond of America's Synthetic Diamond Report began grading trade." Much of this success was attributed to the the quality of lab-grown diamonds using the same 4-Cs Kimberley Process Certification Scheme, introduced (cut, carat, color, clarity) rating system used for natural in 2002, as an attempt by the industry to monitor its diamonds. Certification papers would now accompany own abuses, and as a way to avoid a widespread con- synthetic diamonds just as they did natural stones and sumer boycolt. The 70 countries that participated in would include a note stating. "This is a man-made dia- the Kimberley process could only trade with other mood and has been produced in a laboratory."GIA's participants who met the minimum standards. Each public benefit mission required it to "describe and participant pledged to prevent the trade of conflict report on synthetics so that consumers can rely on full diamonds by implementing stricter monitoring prac- and proper disclosure" upon entering the marketplace." dices which included shipping all diamonds in tamper- proof containers with certificates verifying they came BEYOND JEWELRY. Whether or not synthetic diamonds from a legitimate source. (Exhibit 1 provides more would make a significant dent in the natural diamond details on requirements.) Everyone who handled a market was still unclear. But many in the industry diamond was responsible for maintaining an identity believed that due to the chemical composition of the tag affixed to the stone from the time it was extracted diamond and its ability to be used in a wide array of from the ground. * Non-compliers were punished. industries, synthetics would inevitably have a bright The Democratic Republic of the Congo was ousted in future beyond the jewelry industry. As microprocess 2004 and Venezuela was threatened with suspension sors became holler, faster, and smaller in accordanceCAM CABE IS | De Brus's Diamond Dilemma with Moore's law, diamonds could be used as a sub- howcon, were proactively supporting De Beers's ituse to heal semitive silicon. Diamond microchips Sciection efforts by lasering the words "bab-created" could handle extreme temperatures allowing them to on their durock. De Beers had spent $17 million run at speeds that would liquefy ordinary silicon. As a Research to differmarion moral and synthetic professor of materials simnot from MIT explained, " Moore's law is going to be maintained, processors and A good defining doingy bound on con- going to get howler and honor Eventually silicon is just carton. In anticipation of the movie blood going to turn into a puddle. Diamond is the solution to Diamond De Beers bunched a completely different that problem." Find of diamond abortivement campaign than those Up until the recent improvements in Laboratory of the past. In Bre of the glitzy pictures of model- technology, there had been three main barriers to wing toget women downing the perfect sparkler, the ads diamonds as an input to semiconductor. First, dia- focused on how the industry provided mining com- monds had always boon viewed as boo cupcusi to wat fire with acomes to runployment opportunities. in such a scaled-up way. Synthetic diamonds horiped schools for its children, and accus to anti-HIV drugs address that problem. Second, there had never boom a for its mine workin giving off the general scrimme steady and consistent supply of large pure diamonds. that buying a diamond from Southern Africa was "an One mined diamond did not necessarily have the same electrical properties as the most. CVD-prodwood dia For the most part, however, De Beers was fairly monds solved that problem. Finally, prior to the Bow int about the potratial theral poond by symbolic dai- processes used for lab created diamonds, no company or individual had been able to manufacture a negative charged diamond with sufficient conductivity mooded so form microchip circuits diamond is 900 million years out"Believing that Alongside their use in the semiconductor industry. the "real thing" would trump synthetics, the company the thermal conductivity, hardness and transparency was actively scorching out ofw uppline of natural da- of diamonds made them an attraction component for monks In 3004. the company discovered 39 ow dia- text-generation optics, digital data storage." as well mond deposits and signed marketing agreements with as for biological purposes including skin implanted produce in Canada, Botswana, India, the Democratic electrodes due to their ability to resist corrosion from public of the Congo, the Central African Republic. acids and other organic compounds The market for industrial diamonds was growing at 10%% to 15% a year" Synthetic diamonds accounted for 90% of the industrial market." As the CEO of syn- Conclusion thetic diamond manufacturer Apollo remarked, "Man- Lee Mandel waked up to the counter in one of the made diamonds will be with us in many different ways more reputibly jewelry Homes in Boston, The salut that we can only begin in imagine right now that will man mind if he would like some help. Lee responded materially affect everybody on the planet." that he wait shopping for in engagement ring but with uncertain of to whather be wit in the market bora natur De Beers Responds alor a synthetic damond. With a book of viter homer on his bion the sicuman said "the simply can not given Although De Beers maintained a fairly nonchalant ani your girllend a syntactic I won't let you The appeal of Dude about the emergence of joudry-grady synthetic a diamond in its opt and whine and how it was created diamonds, there were two ways in which the company Where in the romance in something opted in a lab by was attempting to protect the future of the natural a cold metallic machine? Besides, the synthetics don't diamond. One way was through its Gom Defensive come in thes loper than 1 ouat and I can tell that you Programme. In the early years, De Beers warned jew. want something gander for your loved one" elers about the arrival of synthetic stones and in 2000. The jeweler's response was not totaly convincing the company began supplying gem labs, at no charge. to Let His mind kept drifting back to that article he with machinery designed to distinguish man-make had need about the sminging synthetic diamond indis from natural stones. Marry synthetic manufacturers, try and the rationale one defibutor give for buying a