Tuesday, 20 May 2008!
HandWritten on; 23:10
Published in 2004
For about 100 years De Beers, the South African company had been the unchallenged monopoly in the diamonds business. Until a few years back, De Beers could determine who could buy uncut stones, in what quantities and quality and decide which cutting centers would be used. But its share of the rough-diamond market, 80% five years ago, had reduced to 45% by mid-2004.
Meanwhile Lev Leviev (Leviev), a former De Beers sightholder (one of the few exclusive direct buyers of De Beers rough diamonds), had emerged as the world's largest cutter and polisher of precious gems. Leviev also provided rough stones to other cutters, polishers and jewelry makers around the globe. Leviev was the diamond industry's first dealer to operate across the value chain from mining and cutting to polishing and retailing. Frustrated by De Beers' high-handed treatment of buyers, who were offered rough diamonds at take-it-or-leave-it prices and risked being permanently cut off if they resisted, Leviev had decided to operate on his own.
Leviev had begun dealing directly with diamond-producing governments. This undermined De Beers' all-important relationship with sight holders. Leviev had taken significant business away from De Beers in Russia and Angola--two of the world's largest producers of rough diamonds.
Leviev's defiance had inspired others like Rio Tinto, owner of Australia's Argyle mine, to bypass De Beers for the first time in 1996 and sell 42 million carats directly to polishers in Antwerp. In the early 1990s, the Russian government also began selling some of its rough supply to others despite its long time exclusive deal with De Beers. A key operator in Russia, Leviev had cultivated good relationships with the political leadership in that country.
Realizing that its monopoly was under threat, De Beers was also reorienting its strategy. It was trying to capture more value, undertake branding exercises and establish strong relationships with carefully selected sight holders. It remained to be seen how the battle between De Beers and Leviev would unfold.
Review
This example illustrates how competition brings about improvement in quality of products.
~ Soon Yu Ming
Labels: econs
