De Beers Consolidated Mines Ltd. (A)

By: Pankaj Ghemawat and Toby Lenk

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Synopsis: Describes the problems facing De Beers at the start of 1983. De Beers had, since its formation in 1888, exercised a large measure of control over the world supply of diamonds. In 1983, the company itself mined over 40% of the world's natural diamonds and, through marketing arrangements with other producers, distributed over 70%. For 50 years up to 1983 the company had never lowered its prices and, overall, had raised them significantly ahead of the rate of inflation. However, in 1983 the company was faced with a series of problems that threatened the structure it had so carefully built. First, a large producing nation had stopped selling through De Beers. Second, new discoveries meant that the annual supply of mined diamonds would double by 1986. Finally, the industry was experiencing its worst slump since the 1930s, resulting in a significant deterioration in the company's financial position. Describes the structure and economics of the diamond industry and asks the student to decide whether or not De Beers should abandon the business strategy it had pursued for nearly a century.