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De beers diamond mining company

De Beers Diamond Mining Company

Introduction

Ancient Greeks called it "adamas" - unconquerable, Arabs - al-Mac, (the strongest). In India people gave their honor to it, like to the saints. "It's a ray of light, which stayed on earth and cooled down with the time, it combines of the color of rainbow in it, and yet stays clear as a drop" - one a writer said

Almost for two thousand years, our world only knew about the Indian diamonds, as Kohinoor, from the Great Britain's crown. And yet already for more then hundred years, the word 'diamond' is associated with the south of Africa. There was found the biggest diamond in the world - "Kalian". From South Africa come most of the diamonds used in jewelry now a day. Even the diamonds from Brazil are linked with the Africans; there shape, color and other characteristics are very similar. South African diamonds were found after the merge of two rivers Orange and Vaali. This happened in 1867, and two years after the south of Africa became a new meeting place for adventurers and people looking for easy money making. European and American newspapers were mostly talking about three main firms: Dutoitspan, Bellefontaine and De Beers.

First of April 1880 was announced the creation of De Beers Diamond Mining Company with the capital of twenty thousand pounds, and ever since controlled most of the rough diamond industry establishing itself as a monopoly.

De Beers - from a firm to an empire

Now a days De Beers is a world leader in the mining and marketing of diamonds, and this is how it all started.

On the first of September 1870 in the port Durban in an English colony Natal from the ship "Europe" a young man Cecil John Rhodes stepped on sure. This young man, who at that time only had two hundred pounds in his pocket, was meant to become one of the most powerful men in the world, an oligarch and a founder of an enormous corporation.

To make such a career was not that easy. He began collecting his capital with selling weapons, and soon he had enough money to open a small firm, which was called "De Beers" and was nearby diamond fields which were discovered a little later. In 1873 he bought of a lot of land and got quite a bit of profit from it. If in 1872 his capital was five thousand pounds, then in 1873 it doubled and continued in such a pattern for many more years. cal1966, please do not redistribute this paper. We work very hard to create this website, and we trust our visitors to respect it for the good of other students. Please, do not circulate this paper elsewhere on the internet. Anybody found doing so will be permanently banned.

First of April 1880 was announced the creation of De Beers Diamond Mining Company, with the capital of twenty thousand pounds.

At the end of 1885 the capital of De Beers consisted of 842 thousand pounds. Its owner, thirty years old, Cecil became rich and powerful in one of the most promising world industries of that time.

Rhodes was able to lower the cost of mining from 1882 to 1888, twice, being able to raise his dividend by eight times and the capital of the company by almost twelve times, from 200 thousand to 2332 thousand. This was reached through machinations and a lot of fighting against the steeling of diamonds. At the same time, a system of camps surrounded by barbed wire, where Africans were kept to work was introduced. from coursewrok work info

Slow more companies started entering the market, the supply of diamonds grew, resulting in the dropping of price. During that time, only in five years the price of diamonds dropped by thirty percent.

In 1887 he began his last, but biggest battle for the diamond market, a battle for merger of all diamond fields under his control. Through serious stock gambling he eventually gained the power over other companies, leaving them two choices, either to go bankrupt or to join De Beers. On the 13th of March 1888De Beers Consolidated Mines Company took the place of all small competitive companies. On the first meeting Cecil Rhodes said: "we are leading a business, which is like a State within a State."

The 'United' De Beers fired right away two hundred white workers to be able to lower its costs. The mining of one carat now cost no more then ten shillings, and yet on the world market, it was sold for thirty. Rhodes started to control all of the mining in South Africa and 90% of all world mining. The capital of De Beers in 1890 was worth 14.5 million pound, an enormous amount of money at that time.

This was the rise of the diamond empire, which was not only able to monopolized the mining of diamonds in South Africa, but slowly spread on to other countries and continents.

Monopoly

There are a couple of different types of a market, and their categorization mainly depends on the number of firms present. When there is only one supplier of a certain good or service, the market is considered to be a monopoly. In such a market the supplier can truly influence the price by controlling the amount of the product available.

Monopoly first appeared at the end of 19th and beginning of 20th century. Term monopoly in exact sense of the word means - the exclusive possession or control of the trade in a commodity or service. Now this term is used to identify a type of market were there is no competition.

Pure monopoly as a market where there is only one supplier and when there are no reasonable substitutes for the product. The consumer willing to purchase a certain product from a monopolistic market only has one possibility. In a monopoly there is no competition. However, one should take in account that notion of pure monopoly is an abstract concept. Now there is truly a very little number of products for which there are no possible, reasonable substitutes. A situation when there is only one supplier on the entire national market is also very rare. De Beers controls about 85% of the yearly sale of diamonds. Even though the firm can not be considered a pure monopoly, it is on its way there. When De Beers offers in one month more diamonds for sale, the price of diamonds goes down. It controls a big portion of the yearly sold diamonds and is able to control the market. A pure monopoly is more typical for local markets rather then for an international market. For an example one can take a small village with one shop. In this case, the shop is a monopoly.

A firm is a monopoly when it can influence the price of its product and is able to control the amount of product which is going to be sold. The amount of monopolistic power that a firm uses depends on the amount of reasonable substitutes and the importance that the product has on the general market. A firm does not need to be a pure monopoly to be able to have the monopolistic power over a market. De beers no only controls most of the market itself, but also has a great influence of other companies in that same industry. For example a Russian firm Alrosa who is the main diamond supplier on the Russian market, still has to discus every year its prices with De Beers.

Support of Monopolistic power

The barriers to entry are hindrances that prevent the appearance of new products of a monopolistic market. These barriers are necessary to maintain monopolistic power for a long period. If there were no barriers to entry the profit gained by the monopolistic firms would attract new suppliers and market would turn into a perfect competition. Barriers to enter are anything that impedes the ability of firms to enter a market. They are key to maintenance of monopolies because if a monopoly were earning economic profit, new firms would enter the market if they could. The barriers to entry would be: control of a unique resource, patents, special legal provisions, predatory practices and economies of scale. All of this barrier can be directly applied to De Beers and it uses all of these factors to maintain its power.

Demand of monopolistic goods

Monopolies consider the reaction of the consumer to the change in price, when decisions on a certain price are takes. They know that the amount of commodity that they will sell will directly depend on the price that they set, and vise versa, they know that the profit they can receive for selling their good will depend of the amount of product that they make available for the consumer. Benefits of a monopoly are that the supplying firm can set the price of their commodity or the quantity of the product that is available in a certain period. Therefore De Beers always puts a certain amount of diamonds on to the market per year, to keep the prices high.

"De Beers" - view from the inside

Till 1902 the company had the control over 99% of world's diamond production. Now the company only mines 15% of the entire diamond production, and yet still controls over 80% of yearly diamond sales, suitable for jewelry.

It is clear that De Beers used its monopolistic status to control the price of diamonds. It can dictate conditions and prices, on which it's going to sell the product. It distributes the diamonds to огранщикам on the norms which it chooses itself. It guards a big number of stones, which it can use to flood the market and destroy any potential competitor by lowering the prices.

Огранщики who ignore the rules set by De Beers on purchase of diamonds may find themselves without source of supply. Rough diamonds are sold at bargaining, usually held in London. De Beers receives from огранщиков preliminary orders. Then on the sales De Beers presents a "box" of diamonds of different quality and price for at least one million dollars. The firm does not allow the costumer to see the set of stones in the "box". It is offered on the conditions of "took- did not take." It is expected that the site holder will still buy the product, no matter if they are pleased or not.

When the demand is high De Beers does not hesitate to raise the prices. From 1986 the demand grew and De Beers responded with raising its prices. Wholesale price of the diamond of sort "D", not containing any defects and of the size of one carat in 1986 rose in price from 12600 dollars and to 14500 dollars. Since the product is inelastic because it is not only used in jewelry, but also in a lot of factories producing different kinds of industrial materials, and there are definitely no close substitutes De Beers has all the control.

De Beers is a corporation with Mr. Opperheimers as a chief share holder and then all the other share holding groups and shown on the diagram on the left. Since it is a vertical combination, which means that they do everything, starting from mining to put the product on the market, there are thousands of people involved in this business.

De Beers' main feature lies in the fact that in spite of its size, the company is controlled by one family, the Opperheimers. The philosophy of De Beers is closer to the Japanese, eternal life of the company, rather then American, maximum profit. The goal of De Beers is not to reach short time success. Instead preference is given to reliable and long-term partners, with who it is possible to stabilize business and to earn constant profit.

Conclusion

Now a day De Beers regulates 70% of supply to the world market of rough diamonds. It is clear that the prices are settled by this company. One of De Beers' ideologies is: the trust of the client is above all. In other words, the prices are held on one level. In past ten years the prices just fluently grew a couple percent every year and this is the main trump of one channel system. From this all it is possible to conclude that for many more years De Beers will remain the leader on diamond world market and will continue to increase its capital from year to year. Thus, we can say that whilst this represents a progression, in the end we have come no closer to any "real. Redistribution prohibited. © 2004-2005 Student Media Services, a division of Acumen Professional Services



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