Strategic Management of the Diamond Industry

This assignment requires a strategic analysis of De Beers Group within the diamond industry. It asks you to examine their value chain, identify their key competitive advantages, and assess the challenges they face in this market. The analysis should be grounded in relevant academic theories like Porter's Diamond Model, resource-based view, and stakeholder theory.

Strategic Management
Analysis

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
SECTION 1.....................................................................................................................................1
1.1 Developing a new mission and vision statement for DeBeers and helping in developing
competitive advantage.................................................................................................................1
SECTION 2.....................................................................................................................................3
2.1 Five forces analysis of the diamond industry........................................................................3
SECTION 3.....................................................................................................................................4
3.2 Evaluating resources and capabilities by utilizing the value chain framework and the way
company is creating value...........................................................................................................4
SECTION 4.....................................................................................................................................7
Suggestions to DeBeers senior management team to support their position in achieving
sustainable competitive advantage in the global competitive environment................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Strategic management analysis basically helps in analysing and evaluating the strategic
position of the organization as well as industry. It consists of various tools which includes, porter
five forces analysis, SWOT analysis, etc. The report has been made on the basis of case study of
DeBeers which is a successful diamond organization and its main attraction is the synthetic
diamond which it provides to their customers. Due to the changing competitive global
environment, five forces analysis of the diamond industry is carried out so that its attractiveness
can be witnessed. Besides this, value chain analysis has been conducted to assess the operations
which are conducted by the DeBeers. As it has been believed that through the value chain
analysis, the organization can attain the competitive advantage. Further, different relevant
models will be adopted by DeBeers for achieving the sustainable competitive advantage.
SECTION 1
1.1 Developing a new mission and vision statement for DeBeers and helping in developing
competitive advantage
According to the history of DeBeers it has been witnessed that the organization is
successful in providing synthetic diamonds to the people. As per the facts, it has been noticed
that the firm produced around 45% of the world diamond and they supplied over 80% to the
world. But as per the current business environment, two situations are been confronted by the
DeBeers as there are people who wants the real diamond as they focus on the authenticity of the
diamond (Hill, Jones and Schilling, 2014). On the other hand, there are those individuals who
believe that diamond is the diamond even if it is synthetic or natural. Further, in 2004, the
organization discovered 39 new diamond deposits and further signed marketing agreements with
several other countries. Due to this reason, it can be stated that the demand for synthetic
diamonds are quite high and the firm is required to make vision and mission statement to develop
competitive advantage (Verbeke and Yuan, 2010).
Now seeing the current scenario, the vision of the DeBeers is by developing sustainable
advantage to environment, providing benefit to the people. The reason is that by developing the
synthetic diamond, the organization is benefiting the environment (Thompson and Martin, 2010).
In case of the natural diamond, they are required to dig earth and extract the diamonds from it.
Besides this, several years are consumed for building one of the diamonds. According to the
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vision statement, the DeBeers can be helpful for the environment and they can provide benefit to
the people by giving them the diamonds. On the other hand, their mission is to building the best
diamonds by causing least harm to the environment.
This will help in sustaining the competitive advantage because through extracting
diamonds from earth, a time will come where there will be less diamonds in the core. Due to this
reason, the demand will be more and the supply will be less (Luo, Sun and Wang, 2011). The
competitors will be fighting for those diamonds. But in case of DeBeers, the diamonds are made
from the lab process so they can easily develop competitive advantage for the long time (Our
vision and values are what underpin the way we operate, 2017). On the other hand, another way
for developing the competitive advantage is the first mover advantage. DeBeers was the first
organization for producing the synthetic diamond so in that case, they have the advantage of the
customers as well as the other countries that are trading with it (Dögl, Holtbrügge and Schuster,
2012). Further, the sustainable competitive advantage can be developed because due to the
exploitation of the environment. Government are supporting these types of practices which can
fulfil the needs of the people without harming the natural resources.
Besides this, the mission of the DeBeers is becoming the world number one producer of
the synthetic diamond and building trust among the customers. According to the current
scenario, it has been witnessed that the demand of the synthetic diamond has been increasing
significantly. This can be possible because there are certain political advantages which are
associated with the diamonds. Due to this type of diamond the consumer will not aspire for the
blood diamond and this will help in ensuring the political stability of the country (Ahn, and
York, 2011). Through these reason, DeBeers can easily able to achieve the sustainable advantage
of the firm. For building trust among the consumers, the organization has removed all the
distinguishing characters of the real diamond with the synthetic diamond. They have adopted the
polishing process which made the synthetic diamond same as the natural one. Another reason is
that it is one of the old companies so for the firm it will be easy operate in the market and gain
the confidence of the customers (Zhao, Zhang, and Zuo, 2011). Through this mission and vision
statement, DeBeers can easily develop the sustainable competitive advantage in the diamond
market.
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SECTION 2
2.1 Five forces analysis of the diamond industry
For analysing the market and evaluating the demand, the suitable model which can be
used is the porter five forces analysis. This will help in assessing the current condition of the
diamond industry. For the DeBeers it is significant for analyzing the condition of the industry.
 Threat of new entrants- The threat of new entrant in the diamond industry is less because
it is concerned with the mining process. It is very costly as it requires expensive machines
to extract the diamond. Besides this, the organization needs the support of the
government because as it is concerned with the mining process so government rules and
regulations are made for mining (Verbeke and Yuan, 2010). But threat for the DeBeers is
the firms who will be entering the mining industries and the organizations that will be
trading directly with each other.
 Bargaining power of suppliers- The suppliers of the bargaining power are high because
according to the case study it has been witnessed that previously there were different
companies who were performing the task such as polishing, mining cutting jewellery
(Luo, Sun and Wang, 2011). But all these organization have been entered into mining. As
due to this, the suppliers were reducing so the bargaining power of the remaining
suppliers are high. This created issues for the DeBeers because as the bargaining power
increased the terms and conditions also increased and because of this negotiating power
increased of the suppliers.
 Competitive rivalry- The competition rivalry of the DeBeers is medium because the
organization has control over the 80% of the diamond produced. But to reduce the
monopoly of the organization, the government pressurized the others organization to
enter in this field (Dögl, Holtbrügge and Schuster, 2012). But the effect on the DeBeers is
less as it is the oldest organization and further it provides different types of diamonds to
its consumers. Besides this, as the major controlling of diamonds are in the hands of
DeBeers so it is not a big issue for the firm.
 Bargaining power of customers- The customers of DeBeers are the end consumers who
are using the diamond as the jewellery on the other hand, another consumers are the
retailers who are buying the products from the DeBeers. As discussed above they have
taken their stakes in the mining activity, so the concept of middle man has been abolished
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(Thompson and Martin, 2010). Due to this reason, the loss is suffered by DeBeers. So it
can be said that the bargaining power of the consumers are high in case of the diamond
industry. The reason is that the retailers are getting the diamond at cheaper price because
these synthetic diamonds are manufactured at low price as compare to the natural
diamond.
 Threat of substitute products-The threat of the substitute product are high as well as
medium depending upon the types of uses. In case of the synthetic diamond, in the earlier
years they were not used in the jewellery. They were only used in the industrial processes
(Zhao, Zhang and Zuo, 2011). In case of the industrial process, the threat of substitute is
more but in case of jewellery it is low. Even the market share in the jewellery is only 2%
so in that case DeBeers will not be affected by the substitute in this industry.
From the above analysis, it can be said that diamond industry is quite profitable for the
organization who are dealing in diamonds for many years. But there is less scope for the new
entrant as it is quite expensive to enter in this field. Further, the industry attracts other
organization because huge profit margin is witnessed in dealing with the diamonds (Dögl,
Holtbrügge and Schuster, 2012). For the DeBeers the situation is not favourable because many of
their retailers have taken stake in mining activities which has eliminated the middle man. Due to
this reason, the organization has to make certain strategy to operate in the market. The
attractiveness can be measured as there are different countries which are ready to trade with the
existing firms regarding diamonds. These lure other organization to enter in the diamond market
(Ahn and York, 2011). Further, as the demand of diamond is increasing in industry as well as in
consumer market, so it is luring the retailers to enter in this field.
SECTION 3
3.2 Evaluating resources and capabilities by utilizing the value chain framework and the way
company is creating value
In accordance with the case study of DeBeers’s Diamond Dilemma given by McAdams
and Reavis, resources and capabilities of organisation can be evaluated with the help of porter’s
value chain framework. As per the same, all activities performed in the firm are segregated into
primary and support activities. The evaluation of resources and capabilities by utilizing the value
chain framework along with the way in which company is creating value is stated as below:
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Primary Activities: These are the activities which are directly related to the physical
creation, sale and maintenance as well as support that products offered by firm gives to the
business (Bolwig and et.al., 2010). These consist of the points given below:
 Inbound logistics – DeBeers is having the major advantage in business regarding the
location where it is present as from the same, company is having easy access to the
mines.
 Operations – As per the operations it is conducting, it can be said that the production
being carried out by the organisation is of increased quality as well as it is done in such a
way that at low cost, maximum output is gained with superior quality (Soosay, Fearne
and Dent, 2012).
 Outbound logistics – DeBeers make careful selection of the downstream players as with
the help of them only, it is functioning in an effective manner since a long period of time.
 Marketing and sales – As company is manufacturing synthetic diamonds, it is offering
the benefit that they are absolutely flawless since they are made in a lab. Also, with the
same, company gains surety that there will be no possibility of getting a “blood
diamond”. As per the given case study, it can be said that marketing and sales department
of the firm are its one of the major strengths which are playing a significant role in
creating a positive image of company with which it is having high goodwill in the market
(The Diamond Insight Report 2016, 2016). Also, in the marketing practices, high ethical
standards are being followed so that a transparency can be kept in operations.
 Service – Company is known for offering excellent quality of products and services
which is helping it grabbing the attention of large customer base with their loyalty
towards brand.
Support Activities: These activities prove to be helpful in supporting the primary
functions as stated in value chain framework of DeBeers. With the help of secondary activities
only, primary functions take place. Procurement (purchasing) – DeBeers is having healthy relations with the government
and thus, in purchasing the material, linkages with regulatory authorities play a
significant role. This link with the government also helps in eliminating the conflicts that
occur with respect to diamonds in the market. Further, for the same, it is effectually
managing the downstream players. Also, company has collaboration with NGO’s
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working on African diamond mining communities as well as with environmental groups
and diamond cutters (Ahn and York, 2011). Human resource management – Company is having the major strength of highly
motivated and focused workforce which is helping it to attain the targets in the most
effectual manner. Also, firm is having benefit of increase in the size of workforce which
is providing the advantage of dealing with operations in a smooth manner as no one is
overloaded with the work in firm. DeBeers has many policies for the welfare of
employees like their medical insurance. Apart from that, organisation is having an
experienced staff with specialised skills (Dögl, Holtbrügge and Schuster, 2012). Technological development – As per the given case of DeBeers, company is using new
cost reductive technologies by which at reduced cost, they are earning higher profits.
Also, with the help of these techniques, they are checking clients for distribution,
marketing as well as technical manufacturing ability. Apart from that, company is using
environmental friendly technologies that not at all affect the environment or society in
which it is operating the business (Luo, Sun and Wang, 2011). Main aspect under its
technological development is that DeBeers has introduced the Kimberley Process which
is rendering numerous benefits to it. Infrastructure – In accordance with the given case, DeBeers is having joint ventures with
host government like Botswana and Namibia with which now, company is having a huge
and well-maintained infrastructure. Also, it has adopted various anti-corruption
procedures in business so as to gain sustainability (Thompson and Martin, 2010).
Company’s development and improvement with respect to its value chain
In accordance with the value chain framework, the main development and improvement
that DeBeers has gained is that of having control over the whole industry’s value chain. The
organisation has become the market leader in rough diamond sale where it is having
approximately 37% of market share. However, to remain successful, it is important for the firm
to increase its market share. Along with that, by serving the customers with high quality
products, in the present scenario, company is possessing the highest number of long term
customers who are providing their trust and loyalty to organisation (The Diamond Insight Report
2016, 2016). But, to gain improvement in the profits and revenues earned, it is significant to
enhance the existing customer base. In addition to this, currently, DeBeers has owned higher and
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superior quality of diamonds as well with which it is focusing on rich class segment which has
increased its goodwill in the market. Also, development and improvement with respect to the
value chain framework, it can be said that DeBeers is having 48 diamond jewellery stores in
leading diamond consumer markets all over the world. Apart from that, it is having 900 retail
partners in 12 markets across the world (Freeman, 2010). However, to have increase in the
number, it will have to bring innovation as well as differentiation in the products offered.
Further, in absolute value and per carat, company has earned the highest operating income which
shows its growth and success in the market. At present, organisation is having the control over
40% of the worldwide diamonds along with strong partnership in luxury goods (Swayne, Duncan
and Ginter, 2012). Overall, it can be said that with having an effective marketing strategy,
company can keep on growing in the market with gaining a leading position over others.
SECTION 4
Suggestions to DeBeers senior management team to support their position in achieving
sustainable competitive advantage in the global competitive environment
For the purpose of keeping profits and sales up, it is important for DeBeers to maintain its
customer base. This will help in getting developed and improved as till the time company will be
having sufficient customers, no one can stop it from growing. Apart from the young single
women, company can also target the teenage girls as they are also fond of diamond accessories.
With reference to the same, advent of huge gifts and parties for sweet 16 birthdays of girls may
prove to be an opportunity for DeBeers if it would offer diamond rings for this segment ( Bolwig
and et.al., 2010). For the well-off parents, it can be a success as for their daughter who is tuning
16, no gift can be better than this. On the contrary, DeBeers can also adjust the brand of a
diamond in such a way that will mean actually more than just live in between a couple. Also,
promotion can be done in a way that a boy can gift diamond to his mother or father to his
daughter. This will ultimately lead to increase the demand of diamond as customer segments will
increase by the same. In addition to this, DeBeers can also use coloured diamonds and do
branding to specify a colour of diamond for a specific occasion (Soosay, Fearne and Dent, 2012).
Since the diamonds are rare, it will be very easy for organisation to sell it to the premium
segment. With adoption of all these tactics, market would pull the brand itself and with the help
of same, DeBeers can help its senior management team to support their position in achieving
sustainable competitive advantage in the global competitive environment. As the firm is
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generating lower profit in comparison to its competitors, all the suggested measures above would
prove to be very helpful for gaining a competitive edge over others and achieving sustainability
in operations taking place at the global level (Lind and et.al., 2012). Apart from that, company
also needs to reserve more mines as its competitors are already having more than the firm which
is making them earn very high profits. Therefore, to run business in the global competitive
environment for longer span of time, it is essential for DeBeers to have more mines. Last but not
the least; it crucial for the senior management team of company to make efforts for improving its
brand presence as rivals like Tiffany & Co, Cartier, etc. are already having a strong brand image
in the market. All these suggested ways will help DeBeers in achieving sustainable competitive
advantage in the global competitive environment (Wheelen and Hunger, 2011).
CONCLUSION
From the above report, it can be concluded that DeBeers is having a strong position in the
market but along with the same, it is facing high competition as well. This is the reason; to stay
in the market for longer span of time with gaining sustainable competitive advantage, it is
important for the business to offer innovation as well as differentiation in the products. Also, it
has been assessed from the report that the diamonds which are naturally extracted from mines
may get finished one day but DeBeers is having no risk for the same as its diamonds are
synthetic which are made in laboratories. Overall, the firm is performing all its business activities
in an ethical manner and thus, it is having high sustainability and competitive edge over others.
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REFERENCES
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Zhao, Z. Y., Zhang, S. Y. and Zuo, J., 2011. A critical analysis of the photovoltaic power
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Online
Our vision and values are what underpin the way we operate. 2 0 1 7 . [ O n l i n e ] . Available
through: <h t t p : / / w w w . d e b e e r s g r o u p . c o m / e n / o u r - s t o r y / v i s i o n -
v a l u e s . h t m l >. [Accessed on 29th April 2017].
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The Diamond Insight Report 2016. 2016. [Online]. Available through:
<http://www.debeersgroup.com/en/reports/insight/insight-reports/insight-report-2016/
value-chain.html>. [Accessed on 29th April 2017].
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