Research Report On The De Beers Group Economics Essay

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1.1 ) Introduction: In 1888, Cecil Rhodes founded De Beers Consolidated Mines in South Africa by unifying with the companies of Barney Barnato. At that clip the company wholly owned all the diamond excavation activities of that state. In 1889, Rhodes managed to negociate a strategically convenient trade with a Diamond Syndicate based in London, which agreed to purchase a preset measure of diamonds at a settled monetary value, therefore commanding both supply and monetary value in the market. The understanding shortly seemed to be really successful – for case, when the trade slack took topographic point in 1891-1892, supply was traveling through the individual channel made of Rhodes and the London mob to keep the monetary value. The company got listed in Johannesburg stock exchange in 1893. In 1902 when Cecil Rhodes died, De Beers was commanding over 90 % of universe ‘s diamond production.

In 1927, Ernest Oppenheimer became the president of the company by purchasing a place in the board one twelvemonth before that. He was stand foring another powerful London mob in 1902 who later became the city manager of Kimberly ( so Colesburg Kopje ) . At that clip a new mine called “ Cullinan Mine ” was discovered which shortly started bring forthing same sum of diamond as DBCM, but its holder declined the proposal to fall in the De Beers trust. Alternatively he joined the frontier with Oppenheimer and another trader named Bernard. This confederation weakened the De beers trust and made it easy for Oppenheimer to take over. Subsequently during the World War 1 the mine was absorbed by the De beers. Since so this company has gone through a batch of alterations, complicacies and contentions. Yet it is, by far, the biggest corporation in the diamond industry who still controls 40 % of the universes diamond supply.

1.2 ) Company construction: At present twenty-four hours, the De Beers Investments is the private ownership of De Beers Societe Anonyme ( DBSA ) which is registered at Luxembourg. Its shareholding construction is as followed: Anglo American plc holds 45 % , Central Holdings ( the Oppenheimer household ) holds 40 % , and Republic of Botswana has a 15 % straight.

The De beers household of companies operates all over the diamond value concatenation. The household includes:

* De Beers Consolidated Mines – excavation

* De Beers Canada – excavation

* Debswana – excavation

* Namdeb – excavation

* Diamdel – trading

* Diamond Trading Company Botswana – trading

* Diamond Trading Company – trading

* Diamond Trading Company South Africa – trading

* Namibia Diamond Trading Company – trading

* De Beers Diamond Jewellers – retail

* Forevermark – retail

* Element Six – Advanced Materials / industrial diamonds

FIGURE 1- De Beers household of company

1.3 ) Activities: DeBeers operates all over the universe today with the entire work force enumeration over 20,000 worldwide. Its chief activity includes excavation in Botswana, Canada, Namibia and South Africa. The authorities of those states hold a per centum of portions in company that operates in their several states. The trading of the unsmooth diamonds is handled by the diamond trading companies in South Africa, Botswana, Namibia and UK. They established retail mercantile establishments in Europe, Asia, Middle-East and US.

2 ) ETHICS AND DE BEERS GROUP

2.1 ) Ethical motives and De beers household: The De Beers group had a monopolistic control over the diamond market all through the twentieth century. And to maintain that monopoly tendency traveling, the Family really carried out some strenuous undertakings to extinguish or minimise the competition to stay in the market-leader place. However, non all of those activities can be marked as the ‘responsible jewelry patterns ‘ and some of them are in fact distressing. Those are the actions which put the Family at the Centre of a batch of contentions. Such actions included equivocal and hardline selling, irrational pricing, non-admission of the beginnings of the diamonds, supposed noncompliance of the competition jurisprudence, suspected concealed stockpiling of unsmooth diamonds and so on. These kinds of actions gave the company a really low degree of lucidity within the company and the stakeholders. Among many other dirts there were two chief engagements helped the Family to lose ‘consumer assurance ‘ rapidly. First, the Bushman community were evicted from their fatherlands in Botswana after find of the chance of diamond excavation in that country. Second, affecting in the purchase of struggle diamond, therefore fuelling the civil war in the struggle infested countries in Africa.

After traveling through several unsmooth spots, the Family has withdrawn from the controversial concern methods and has formed a house set of ethical policies. A complete publication of their ethical policies will be attached with this paper during entry. Here we will discourse a brief overview of those policies.

The Family does non lend in any sort of party political relations nor does it do payments to public functionaries. In extraordinary instances, political contributions may be made in support of the democratic procedure in Africa. Any or all signifiers of graft are prohibited in concern minutess undertaken by the Family or through 3rd parties including subordinates, joint ventures or agents. This is one of the precise values of the Family, every bit good as a demand of the Best Practice Principles ( BPPs ) and duty to the UN Global Compact. De Beers besides supports Extractive Industries Transparency ( EITI ) and is a founding signer to the Partnering against Corruption Initiative ( PACI ) of the World Economic Forum ( WEF ) .

In 2009, De Beers initiated a new Anti-Corruption programme which clearly specifies policies and processs to unclutter out corruptness from the whole concern. The Family is committed to the bar of money laundering and to battling the support of terrorist act.

While the DTC acquires its diamonds from the Family and authorities screening offices straight, some of the Family ‘s Sight holders do purchase diamonds on the unfastened market. This is the ground why the De Beers joint committedness with Sight holders is entrenched in the BPPs.

In 2006, the Family developed a separate policy on Anti-Money Laundering and Battling the Financing of Terrorism. The policy is applicable to all of its operations worldwide and has besides been communicated to joint ventures and spouse companies. The BPPs require conformity with national and, where appropriate, international statute law with regard to money laundering, terrorist act funding, graft, corruptness, smuggling, peculation, fraud, transportation pricing and revenue enhancement equivocation. BPP demands are really strict in this country. Demonstrable conformity is required and audited by a 3rd party through the BPP Assurance Programme. The BPPs require policy, programmes and pattern in this country, including the recording of all minutess over US $ 10 000.Most significantly, they require grounds of due diligence by 3rd parties and exceeding recordkeeping throughout the administration. Performance by the Family with regard to the BPPs is first party verified by De Beers Internal Audit ( DBIA ) and 3rd party verified by Societe Generale de Surveillance ( SGS ) .

In Botswana, a long dissension has existed between the involvements of the excavation company, De Beers, and the repositioning of the Bushman folk from the land to work diamond resources. The Bushmen were confronting bullying from authorities policies from around 1980, when the diamond resources were revealed. A run was being carried out in order to complete to what the autochthonal rights organisation, Survival International, considers to be race murder of a folk that has been populating in those terrains for coevalss. On the evidences that their manner of life and civilization has become disused and their presence is non compatible any longer with continuing wildlife resources, they were victimized by the authorities in order to do them go forth the modesty. To drive them off from their land, their H2O supplies were cut off ; they have been punished and tortured in every possible manner. Several international supermodels, including Iman, Lily Cole and Erin O’Connor, who were taking portion in advertisement for the companies ‘ diamonds, have withdrawn themselves after understanding the effects of this dirt, and now back up the run. In May 2007 De Beers sold its diamond sedimentation at Gope ( on the lands of the Kalahari Bushmen ) to Gem Diamonds, for $ 34 million. Gem Diamonds ‘ main executive called the Gope sedimentation ‘a debatable plus for De Beers ‘ because of the Bushmen contention.

Prior to the period of twelvemonth 2000, De Beers was purchasing and selling conflict diamond from the guerillas of three African states. And therefore the Family was financing the civil war in that part. The Family came under heavy force per unit area from UN to halt purchasing any outside diamond and to vouch flatly the conflict-free position of De Beers diamond. Soon after took topographic point creative activity of the ‘Kimberley Process Certification Scheme ( KPCS ) ‘ which sets up the eligibilities for commanding all unsmooth diamond production, intervention and trade and came in consequence in 2003. Now the Family warrants that 100 % of the diamonds it now sells are clean and that all De Beers diamonds are acquired in acquiescence with national jurisprudence, the Kimberley Process Certification Scheme and its ain Diamond Best Practice Principles. The Kimberley procedure has helped re-establish the antecedently held prestigiousness of the industry, every bit good as cutting off the beginnings of extra supply.

From the above treatment, it becomes clear that De Beers group has been at the Centre of some serious contentions due to their foolhardy activities to keep their market leader position. But because of the global non-acceptance of such concern methods, they have changed their policies and seeking to stay by those.

3 ) Law AND DE BEERS GROUP

3.1 ) Legal construction of De Beers group and Luxembourg: The Family operates out of its caput office in Luxembourg. Its concern activities are carried out by a figure of subordinates, investings and joint ventures. Taxes and royalties to authoritiess are paid by each of the different subordinates and investings in a mode consistent with the demands of the legal power in which they operate. De Beers submits one-year and independently audited statutory histories of both the Company and the Family in conformity with International Financial Reporting Standards. These are lodged with the ‘Registre du Commerce ‘ and other governments in Luxembourg every bit good as being sent to each of the stockholders straight. Luxembourg is a civil jurisprudence state. The tribunal system is a two-tier system organized in the signifier of a pyramid: one subdivision, the civil and condemnable legal power includes three lower courts ( justnesss de paix ; , in Esch-sur-Alzette, Diekirch, and the metropolis of Luxembourg ) , two territory courts ( Diekirch and Luxembourg ) and a Superior Court of Justice ( Luxembourg ) , which includes the Court of Appeal and the Court of Cassation. The other subdivision, the administrative legal power, includes an Administrative Tribunal and an Administrative Court. There is besides a Constitutional Court, all of which are located in the capital ( Luxembourg ) . Information on the administrative tribunal system and instance jurisprudence are available on the web site of the administrative legal power every bit good as on the web site of the Ministry of Justice. Case jurisprudence sing societal security statute law is available on the site of the societal security disposal. The jury test was abolished in 1814 ; since so, all tests are conducted by qualified Judgess. Besides the ‘Court of Justice of the European community ‘ besides sits in Luxembourg.

Because of holding a planetary presence, De Beers besides have to follow with a batch of international Torahs and ordinances. Competition jurisprudence or anti-trust jurisprudence, consumer jurisprudence or even Kimberly procedure, although it has been criticised as a soft jurisprudence.

3.2 ) The legal formation of the Family: The assignment of De Beers managers is governed by three lawfully adhering paperss: the Shareholders Agreement, the Management Contract and the Company ‘s Articles of Incorporation. The Shareholders Agreement was entered into on 30 January 2002. It defines the aims and relationship between the stockholders. It besides sets out the specific commissariats associating to the nomination, election and assignment of Board members with mention to the function of Central Management Services Limited ( CMSL ) ( the direction company ) in footings of the Management Contract. It besides sets out the specific commissariats associating to the nomination, election and assignment of Board members with mention to the function of Central Management Services Limited ( CMSL ) ( the direction company ) in footings of the Management Contract.

The Management Contract was besides concluded on 30 January 2002: CMSL has been appointed to help in the assignment of managers, senior executives and direction. It besides assists in the strategic development of the De Beers Family of Companies. CMSL is a company within the Central Holdings group ( stand foring the Oppenheimer household ) .The Articles of Incorporation relate to the legal constitution and enrollment of De Beers as a joint stock corporation in Luxembourg. As the legal constitutional instrument it allows for a lower limit of three and a upper limit of 20 Board managers. The stockholders and CMSL are straight responsible for the assignment and remotion of managers in conformity with the commissariats of the Shareholders Agreement and Management Contract. This ensures that the stockholders they represent have a clear voice in Board meetings and determinations.

3.3 ) Intellectual Property Right and the Family: Intellectual belongings ( IP ) is a term mentioning to a figure of single types of Inventions of the head for which belongings rights are recognised in the corresponding Fieldss of jurisprudence. Under rational belongings jurisprudence, proprietors are granted certain sole rights to a assortment of intangible assets, such as musical, literary, and artistic plants ; finds and innovations ; and words, phrases, symbols, and designs. Common types of rational belongings include right of first publications, hallmarks, patents, industrial design rights and trade secrets in some legal powers. There are national and international Torahs and pacts to protect these sole rights of the proprietors. Violation of these protected belongingss is punishable by jurisprudence. For illustration in UK, The Trade Marks Act 1994 states that “ a individual infringes a registered trade grade if he uses in the class of trade a mark which is indistinguishable with the trade grade in relation to goods or services which are indistinguishable with those for which it is registered ” ( subdivision 10 ( 1 ) of the Act ) . A individual may besides conflict a registered trade grade where the mark is similar and the goods or services are similar to those for which the grade is registered and there is a likeliness of confusion on the portion of the populace as a consequence ( subdivision 10 ( 2 ) ) . A individual besides infringes a registered trade grade where a mark is indistinguishable but the goods are dissimilar if the trade grade has a repute in the UK and its usage takes unjust advantage of, or is damaging to, the grade ‘s typical character or repute ( subdivision 10 ( 3 ) ) . For patents UK has Copyright, Designs and Patents Act 1988.

The Family launched their ain retail division ‘Forevermark ‘ in 2007. This Jewel retail is British registered subdivision of the Family and operates out of UK. Harmonizing to their concern promise, their every diamond is unambiguously inscribed with their registered hallmark icon and a figure in the very bosom of it. These are unseeable to the bare oculus and the procedure is a patented engineering of the De Beers group. Now the hallmark and the engineering both are protected by the corresponding Laws of Intellectual belongings right. They are besides protected by World Trade Organisation ‘s Agreement on Trade-Related Aspects of Intellectual Property Rights ( TRIPS ) worldwide. Besides these, the Family ‘s concern involves find, developing engineering, public-service corporation theoretical account, trade secrets etc. All these are protected Under the IPR and helps the Family to run their maps swimmingly.

The household, on its long journey took some fly-by-night bends every bit good to hedge from the jurisprudence, alternatively it paid the monetary value. From 2001 onwards rather a few cases were filed against De Beers in US State and Federal tribunals. These suspected that De Beers unlawfully monopolized the traffic of diamonds and plotted to command diamond monetary values or the whole concern. Additionally there were accusals of misdirecting advertisement. Although De Beers denied all allegations that it violated the jurisprudence, in November 2005, the household declared that an understanding has been reached to decide civil category action suits filed against the company in the United States, and in March 2006, three other civil category action suits were added to the November understanding. In April 2008, De Beers confirmed that Judge Chesler of the US Federal District Court in New Jersey had entered an blessing of the Settlement, which resulted in a colony agreement of the amount of $ 295 million USD. De Beers does non acknowledge liability. As portion of the agreement, people who purchased treasure diamonds from January 1, 1994 to March 31, 2006 may be entitled for reimbursement. In 2004 De Beers implored guilty and paid a mulct of $ 10 million to the U S Department of Justice to unclutter up a 1994 charge that De Beers had colluded with General Electric to repair the monetary value of industrial diamonds. In February 2006, De Beers entered into lawfully adhering duties with the European Commission to stop buying unsmooth diamonds from Alrosa as of the terminal of 2008. In January 2007, the European Commission announced it had rejected all outstanding ailments against the Diamond Trading Company ‘s Supplier of Choice gross revenues scheme.

Finally in February 2008 it launched its Legal Conformity Policy. The policy states “ It is critical that all relevant De Beers staff undertake legal conformity preparation, and work with De Beers Corporate Legal Services on a regular footing, so as to ( I ) guarantee a successful legal conformity policy remains in topographic point, and ( two ) cut down De Beers ‘ exposure to legal hazard. De Beers Corporate Legal Services assists the Family of Companies to accomplish its conformity ends, but duty for legal conformity lies with all members of staff as an built-in portion of workplace answerability. The policy besides says that the employees will be trained in their ain facets of legal conformity by corporate legal services every twelvemonth as necessary.

4 ) CHANGE AND DE BEERS GROUP

4.1 ) Change direction in De Beers group: From the beginning till present twenty-four hours De Beers has seen a batch of alterations and had to get by with those alterations. In 1988, when Cecil Rhodes foremost founded De Beers, It was a exclusive trading company, merely concentrating on excavation. Soon it merged with another excavation company and entered into partnership. In 1893 it was granted listing in Johannesburg. By so the company was in control of the diamond excavation activity of the full state.

During the Second Boer War, Kimberley, where the most valuable mines were, was foremost to come under besieging. Cecil Rhodes had to go involved in the war for his company. He had to set political force per unit area on the British authorities to call up military resources to liberate Kimberley go forthing other strategic marks aside. Even with the dissension with ground forces, he placed all his resource at their disposal to fabricate shells, defense mechanism, armoured train, and a gun called Long Cecil in the company workshop.

After his decease in 1902, Ernest Oppenheimer became the president of the company. By that clip De Beers was in control of 90 % of universe ‘s diamond production. But in 1908, when diamond was discovered in the German South West Africa, that place was being threatened and the company was afraid of monetary value slack due to over production. But that issue was dealt with when, during WW1, their biggest rival, the culinan mine was absorbed by the company

For a long clip in Diamond industry ‘s history, De beers had no legal presence in US. Former CIA main Stansfield Turner accused De Beers of curtailing entree of much needed industrial diamond to US. During World War II, Ernest Oppenheimer tried to dicker a manner around the Sherman Antitrust Act which states,

“ Every contract, combination in the signifier of trust or otherwise, or confederacy, in restraint of trade or commercialism among the several States, or with foreign states, is declared to be illegal. ” And “ Every individual who shall monopolise, or effort to monopolise, or combine or conspire with any other individual or individuals, to monopolise any portion of the trade or commercialism among the several States, or with foreign states, shall be deemed guilty of a felony ” ,

by suggesting that De Beers register a US subdivision of the Diamond Syndicate Incorporated. In this manner, his company could do available to US the industrial diamonds it desperately needed for the war attempt in return of protection from prosecution after the war, nevertheless his proposal was declined by the US Justice Department when it was revealed that De Beers had no program of carrying any industrial diamonds in the US. In 1945, the Justice Department eventually filed an antimonopoly instance against De Beers.

4.2 ) Business Diversification of De Beers: When diamond production massed, De beers decided to screen and sale their unsmooth diamonds by themselves other than depending on abroad channels. Therefore in 1934, Diamond Trading Company ( DTC ) was formed. The occupation of this subdivision was screening and gross revenues of the unsmooth diamond produced in their mines. In 2004 DTC was transformed into a standalone company within De Beers. In South Africa, it is to the full owned by De Beers. But in Botswana and Namibia, they formed a 50:50 partnership with the authoritiess of those states. Today DTC ‘s maps include screening, rating and diamond mineral extraction. DTC ‘s in all the states can merely sale to the clients based in the several states for cutting and smoothing.

In 1939 De Beers made that expansive move into marketing its ware to the terminal consumer and put the 4 C ‘s in topographic point. These rating and selling standards are still used for diamonds to this twenty-four hours. In 1947 De Beers advanced even further and commissioned a US advertisement bureau to advance diamonds. Francis Gerety, a copywriter for this bureau, penned the phrase A Diamond is Everlastingly. This one phrase took over the universe such a manner that it was voted the motto of the century in 1999. For decennaries De Beers has taken the undertaking of publicity and selling of diamonds for the industry as a whole. It has had extended runs and promotional offices in many states around the universe. It has produced literature, point of sale stuff, telecasting & A ; imperativeness ad runs and immense promotional events. Such has been De Beers function in reding consumers on diamonds, that it even came up with the figure of how much consumers should pass on purchasing an engagement ring. ( the celebrated 2 months ‘ salary regulation ) .

Finally De Beers entered the retail jewelry market by establishing its retail mercantile establishment, Forevermark in 2007 in corporation with Luis Vuitton Moet Hennessy ( LVMH ) . It spread out its stores all over Europe, US, Asia, Middle-East.

4.3 ) The transforming of De Beers: Sometimes it ‘s difficult to pick a defining minute in a company ‘s history, but for De Beers that minute is clear. In 1998 De Beers officially separated its direction and operations from Anglo American, a tie they had had for over 60 old ages.

De Beers began that twelvemonth with a squad headed by a new president ( Nicky Oppenheimer ) and a new Managing Director ( Gary Ralfe ) .

Together Oppenheimer and Ralfe looked closely at the De Beers Group. Changes to the diamond grapevine and De Beers ‘s laterality were go oning around them.

In 1992, serious concerns had risen about the oversupply of diamonds coming onto the market that were outside De Beers CSO, and therefore, their control. This continued intermittently and was compounded by significant leaks into the market of Russian diamonds. Rather than holding universe monetary values for diamonds plummet, De Beers absorbed this immense inflow at great cost. Such was the extent of this surplus in the

CSO ‘s buffer reserve that De Beers were forced to enforce production quotas on its ain mines. De Beers once more had to cut back on its ain gross revenues to guarantee there was n’t a implosion therapy of the ‘Diamond Pipeline ‘ . From 1983 to 1996 De Beers had an agreement with Argyle diamonds to screen and market their rough. These understandings helped supply assurance in the mine and allowed Argyle clip to derive expertness in the countries of excavation, screening, valuing and selling. During this clip Argyle conducted extended industry analysis and created a direct gross revenues office in Antwerp. Argyle began marketing their full production themselves with more than 90 % of their unsmooth being exported to the Indian diamond fabrication industry. Argyle ‘s historical stoping of their ties with De Beers, and their subsequent actions, were deemed hazardous at the clip but they have flourished and developed into a strong rival for De Beers. Enter so into the market BHP ( now BHP Billiton ) . BHP, following Argyle ‘s illustration, entered a supply understanding with De Beers by which De Beers guaranteed to buy 35 per cent of the mines rough. BHP Billiton proceeded to develop their ain sorting, cutting and selling of rough during this clip. The potency of the mines in Russia to endanger De Beers control of the universe diamond market could non be underestimated. There were considerable escapes ( or dumping ) of unsmooth diamonds into the market and these were doing jobs for De Beers.

Above all, De Beers were get downing to experience a displacement in consumer assurance. In 1999 De Beers ceased the practise of purchasing on the unfastened market, in order to control the possibility of covering in struggle diamonds. In 1999, De Beers launched a strategic reappraisal, which focused on making and heightening stockholder value. The Strategic Plan

In 2000, De Beers launched its strategic program sketching its four cardinal action countries:

2. Supplier of Choice

3. Turning diamond demand

4. Gaining the potency of the De Beers trade name

The De Beers group realised that in order to stay profitable with increased competition, and with world-wide economic alterations and events, it must look at bettering its overall operational efficiency and effectivity. Thankss to their advanced usage of engineering in all stairss ( e.g. excavation, processing, and screening ) and their new public presentation civilization, De Beers have found productiveness is bettering. De Beers accent on increased productiveness has besides meant they have redefined their answerability and public presentation demands for all their staff, from council chamber to mine shaft. In 2000, De Beers introduced public presentation scorecards for the direction squad. De Beers have besides looked at their lost-time-injury frequence rate and are seeking to continually better this. The Diamond Trading Company, the unsmooth diamond selling arm of De Beers, kinds and values about two tierces of the universes one-year supply of diamonds, by value. Supplier of Choice

“ To be the ‘Supplier of Choice ‘ in a universe of great chance, De Beers will supply the best value-added service to clients and, through them, their downstream spouses. We believe that this scheme will do our DTC selling arm the first pick for unsmooth diamonds, ” said the Chairman of De Beers, Mr Nicky Oppenheimer.

5 ) Decision

For decennaries everyone has been happy to allow De Beers have the disbursal of industry advertisement. They have been happy to allow De Beers spend money on research. They have been happy to allow De Beers carry reserves. Now they want to shout foul when it starts to take the benefit of making what it has spent 100s of 1000000s of dollars working on over the old ages. De Beers is surely large but one individual company. It is regulated and overlooked by different authorities and international organic structures. It took on alterations and challenges head on and faced them as a company. They struggled and came up prevalent of all the jobs it faced on its long journey over the decennaries. It did whatever necessary to last as the market leader. The whole industry or even the concern community of the universe can larn a batch from their concern schemes.