De Beers has astutely recognized that the diamond industry, unlike diamonds, is not forever and is susceptible to changes. For decades, the diamond major had a supply control business strategy. It owned close to 90% of world’s rough diamond production through complete or joint ownership of diamond mines and sold the roughs to registered manufacturers (“Sightholders”) through auctions (“Sights”) at predetermined prices. Over the course of time many issues such as political changes (split of Soviet Union), regulatory changes, increased competition etc. reduced De Beers market share to less than 40%.
Diamond industry itself has seen its share of modulation. Persisting issue of Conflict diamonds; failure of Kimberley Process; Technological advancements; increasing industrial demand; Traditional diamond manufacturing hubs like India under pressure from new processing zones like China; Rough producing nations of Botswana and Zimbabwe trying to move up the beneficiation value chain; Diamonds facing competition from new luxury goods like high-end gadgets, designer accessories etc. are all testament to the fact that diamond industry is undergoing a metamorphosis of sorts.
De Beers with its long heritage has an edge in sensing the winds of change. Over recent years De Beers has led a change in its strategy that it hopes will benefit not just the company but the overall industry as well and combat the impending threats.
To begin with, De Beers introduced some major changes in its sightholder policy. First change was to allow non-sightholders to bid for certain stones as long as they meet the criteria. This change was aimed to expand its network and transition its pricing strategy from controlling supply to boosting demand. De Beers also moved its sights from London to Botswana.
[Image Courtesy: De Beers]
For the next cycle of Sightholder contract starting from 2015, financial compliance of Sightholders to IFRS will be required. Sightholders will have to submit proof that they adhere to these practices or have a roadmap in place to achieve this by 2017. This change would help attract financing from banking institutions and increase confidence in industry by improving liquidity of Sightholders. This will also somewhat force the manufacturers to grow from family shops to structured corporates.
[Image Courtesy: De Beers]
Forevermark, a diamond branding and marketing apparatus of De Beers is not only giving the company a retail presence but also battling the threat of industry image tainting by conflict diamonds.
Recently launched preowned diamond valuation program allows end consumers to get their diamonds valued by De Beers without any obligation to sell them afterwards, aims to increase consumer confidence.
De Beers also has its own Diamond grading arm and has developed various verification instruments including Automated Melee Screening Machine.
Soon, the company is planning to launch a new research venture for providing market information through reports and website.
At the same time, to gain additional source of revenue, meet industrial demand and remain competitive in the Lab-grown market, De Beers is bettering its infrastructure for Element 6, the industrial diamonds company of De Beers.
Though majority of the revenue will continue to come from rough sales (at least in the near future), De Beers’ new business strategy is to expand across the value chain and not just remain a miner, by foraying into polished retail, grading, equipment sale, industrial diamonds, research and marketing.