Controversy over Diamonds Made Into Virtue by De Beers - Assignment Example

 TABLE OF CONTENTS 1. The nature, structure, types of products or service of De Beers Diamond Co., and two (2) key factors in the organizations external environment that can affect its success and rationale. 3 2. Three (3) salient stakeholders of the chosen organization based on their key roles and relationships with the company. 5 3. Five ways in which the primary stakeholders can influence the organization financial performance 6 4. One (1) controversial corporate social responsibility concern associated with De Beers Company 8 5. Assuming you are the leader of the most influential stakeholder group, outline a plan to form a stakeholder coalition to force the organization to address your chosen controversial issue. The plan should include the key steps that you would take to identify members for your coalition group, the major reasons why you believe that the particular target group can help you to accomplish your goal, and the method you would utilize to foster collaboration among the various groups you target.... 8 6. Assume the role as the leader of the most influential stakeholder group, and indicate three potential challenges that you may face in encouraging stakeholders to form a coalition to help you achieve your goals. Suggest the significant steps that you would take in order to overcome these challenges that you have identified. Justify the response. ... 9 Bibliography 11 DE BEERS DIAMOND CO. 1. The nature, structure, types of products or service of De Beers Diamond Co., and two (2) key factors in the organizations external environment that can affect its success and rationale. The Business structure of De Beers Diamond Co., is a consortium of miners that merged in order create a monopoly on the production of all diamonds coming out of South Africa. Image below shows diamonds production in 2003 showing featuring Botswana to be the largest diamond producer in the world. Botswana is the biggest source of diamond supply of De Beers. De Beer came from the name of the original owners of the diamond field which was bought by Cecil Rhodes in 1880 and one who created the De Beers Mining Company. Image No. 1 world production of diamonds a Source: Cowell, Allan (22 August 2000). Mergers and acquisitions has been the type of its business structure since it was formed. Its products are rough diamonds. In later years, the company ventured into miniature jewelries and rings. Thru advertisements and mind settings, diamonds have been associated with love as an engagement ring that would show how much they love their fiancé. In 1960s, diamond rings have become popular with brides and among movie stars not only in the United States but in Asian countries as well, so much so that De Beers sales in Japan reached a billion-dollar-a-year (See image 2)The company was able to break Japanese traditions thru advertising by playing diamonds as a symbol of modern west. From zero in 1996, sales grew to 77% in 1990. (Goldschein, Eric. 2011) Image 2. Da Beers Sale in Japan from 1966 to 1990. Source: Goldschein, Eric (20ll) a. Key factors in the organizational external environment are the growing resistance of its diamond producers from several diamond producing countries such as Russia, Canada and Australia who have also a large stockpile of diamond on its monopoly strategy, to cooperate with the single channel system and flat prices of the item. (Goldschein, Eric, 2011). These problems led De Beers to change its company strategy from being a rough-diamond supplier and holding monopoly of the diamond industry to promoting its own brand of diamonds and retail stores. Da Beers present predicament is the high stockpile of diamonds that it has kept in order to watch supply, demand and prices. Stockpiling has been proven to be costly to the company. At the same time, monopoly is being opposed by stakeholders. Still another external environmental problem of De Beers is the human rights group accusations that the company has been buying “blood diamonds” from African rebels who used the money to help pay for their wars. (Cowell, Allan, Aug. 22, 2000) In same report, De Beers was reported holding on to a large supply of diamonds, purposely to control supply and keep prices high but this strategy become a big costly stockpile, while at the same time its share of the market is decreasing, (Cowell, Allan. 2000). 2. Three (3) salient stakeholders of the chosen organization based on their key roles and relationships with the company. a. One of the stakeholders of the company that has keen interest in the company is the Anglo American plc who has a majority share in the company. Anglo American Plc, a public traded company, was started was by Ernest Oppenheimer, a rival diamond producer, who is said to have bought his way to become Chairman of the board of directors, eventually took over the De Beers Company in November 2011. Accordingly, it was Oppenheimer who made the company an empire. Sources said that, although company is profitable, no one in Oppenheimer family is interested to continue the diamond business. (Business Insider, 2011) b. Another stakeholder that presents a key role in De Beers is the Debswana joint venture between Da Beers and Botswana, an African Country. According to the deal, De Beers will have to give 15 percent share of profit from diamonds coming from all-rough mining and distributing done by Debswana to the government. What is plaguing De Beers now is the talk of increasing government’s share to 25%. c. Another organization that will have a key role in diamond production is the World Diamond Council. This council aims to introduce a system for the certification of the source of uncut diamonds and to prevent trade in conflict diamonds. It works in cooperation with the United Nation, governments, and groups such as Partnership Africa – Canada and Global Witness. A system called “Kimberly Process Certification Scheme” formed by this initiative took effect January 2003, (Ethicals. n.d.). This scheme requires all diamond producers to certify that the diamonds they produce/sell do not come from conflict areas and illegitimate sources. 3. Five ways in which the primary stakeholders can influence the organizations financial performance. Diamonds fall under luxury products and only affluent people can afford to buy it, and due to economic recession, United States, its primary market, begins losing its attractiveness and growth. The United States is already a mature market, having been conquered by the company in the l960s. Web definition of a mature market is something whose growth has stopped functioning. Signs of matured market, according to Michael D. Brown (March 2002), Vice-President of Chem Quest Group, Inc. are: when there are slow-overall market growth increased competition for market-share with increased emphasis on price falling industry profitability experienced buyers have leveraged on producers However, there are strategies that could be used in matured markets. a. Accordingly, there is a need to segment the market by looking for products, customers or regions that are growing faster than the industry average, then position the company and capitalize on growth. (Michael, Brown, March 2002. ) An example is globalization, like looking at the opportunities of in emerging countries. b. Another growth opportunity as offered by Brown, Michael is to restructure the value chain of the product. By this, we mean to add more functionalities and features of the product. By introducing technology and breaking the diamond in smaller carats and dimensions, more women would be encouraged to own one, as it is said “ diamonds are forever”. c. With the takeover of Anglo American, plc, it can apply a new structure and marketing strategy whereby they can remove middlemen and distributors. The company can afford to regionalize its operations and establish its own brand and retail stores. Elimination of middlemen will improve pricing and profitability. d. Anglo American can still take advantage of the romanticism of diamond engagement rings ; after all, love, and wedding proposals are eternal. It is done by all races and is expected to continue. It is further popularized by movie personalities in movies and in their personal lives that people emulate and follow. 4. One (1) controversial corporate social responsibility concern associated with De Beers Company. Corporate Social Responsibility (CSR) is defined as the voluntary activities undertaken by a company to operate in an economic, social and environmentally sustainable manner. A remarkable CSR done by De Beers was when they discovered diamonds mines in Orapa, a place in Botswania. The company however did not exploit this discovery but instead entered a joint venture with the government, and eventually sold 15 percent of its stake to the government. This arrangement changed the economic perspectives of Botswania from being a poor country to being a progressive one with a high GDP. The controversial issue that has been described as self-serving for De Beers was the building of roads and schools in Botswania and helping the country deal with its problems with HIV and AIDS. (Nocera, Joe, 2008). Roads are used for their operation, while education and healthy people will provide them employees they need. 5. Assuming you are the leader of the most influential stakeholder group, outline a plan to form a stakeholder coalition to force the organization to address your chosen controversial issue. The plan should include the key steps that you would take to identify members for your coalition group, the major reasons why you believe that the particular target group can help you to accomplish your goal, and the method you would utilize to foster collaboration among the various groups you target. For a long period of time, De Beers thru its scrupulous manoeuvre of the market holds the monopoly of diamond business. The company is so powerful that it can set barriers to anyone trying to enter in the industry. The controversial issue that I would like to address is to be able to buy diamonds from countries that refused to cooperate with a single channel system. These are Russia, Canada, and Australia. The plan. Form a coalition of diamond retailers, then with their vested authority, negotiate with the presidents or their authorized government representatives to allow the new coalition to buy cut diamonds to be sold in retail in worldwide markets. This will set competition, stabilize supply, demand and pricingthat would end monopoly. Retail companies would be willing to cooperate in this plan because they no longer have to go to De Beers since as a member, they are entitled to a market allocation of the quantity of diamonds they need on a stated price and date. The Alliance will have to set a standard fee for its subsistence and administrative cost. 6. Assume the role as the leader of the most influential stakeholder group, and indicate three (3) potential challenges that you may face in encouraging stakeholders to form a coalition to help you achieve your goals. Suggest the significant steps that you would take in order to overcome these challenges that you have identified. Justify the response. a. One of the biggest challenge in encouraging coalition of stakeholders is financial backup of the corresponding coalition members; b. Another is gathering a large number to form a big group that would entice governments with the deal; c. Still another challenge is giving enough incentives to retailers so that they will join the coalition. De Beers might out- perform the coalition in this move. Significant moves to overcome challenges a. To generate funds, the coalition can be formed into a merged company and be registered as a public funded company in stock exchanges. b. There should be a campaign inviting retailers worldwide to join the coalition. This would be an easy thing to do now with the advent of social media. c. Incentives could be an allocated quota, with a set price and date that could assure a member of its market share. A government clout could be done on this measure. Later, this market share could be marketable and a source of another income. BI BLIOGRAPHY Cowell, Allan (22 August 2000). “Controversy over Diamonds Made Into Virtue by De Beers”. New York Times. Retrieved 28 Oct. 2014 from http://www.nytimes.com/2000/08/22/business/controversy-over-diamonds-made-into-virtue-by-de-beers.ht DB Ethicals. (n.d.) De Beers Jewellery. Retrieved 28 Oct. 2014 from http://www.debeers.com/the-art-of-diamond-jewellery/beauty-of-diamonds/peace-of-mind/ethical/ Goldscheim, Eric (19 Dec. 2011) “The Incredible Story of How De Beers Created and Lost the Most Monopoly Ever” . Business Insider. Retrieved 28 October 2014 from http://www.businessinsider.com/history-of-de-beers-2011-12?op=1 Nocera, Joe (2008). “De Beers in Botswana show the promise and limits of good corporate works. Talking Business, New York Times. http://www.nytimes.com/2008/08/10/business/worldbusiness/10iht-wbjoe09.3.15115223.html?pagewanted=all&_r=1& . Read More