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De Beers

From Academic Kids

The De Beers Group is a Johannesburg- and London-based diamond mining and trading corporation. It has historically held a near-total monopoly in the diamond trade, although recent Israeli interests have captured 20% of the market. In 1994 De Beers was charged by the United States Justice Department with antitrust violations for conspiring to fix prices for industrial diamonds. On 14 July 2004 De Beers pleaded guilty to the charges and paid a $10 million fine. The plea has enabled De Beers to trade directly in the United States diamond market after years of acting through intermediaries. The US diamond market is the largest in the world, purchasing approximately $500 million in industrial stones and $60 billion in diamond jewelry annually.

Using its monopoly, De Beers has created an artificial scarcity of diamonds, thus keeping prices high. The modern tradition of diamonds as a part of engagement in many cultures has been largely created by De Beers through an amazingly effective advertising campaign started in 1939. The "A Diamond is Forever" campaign not only convinced the public that the only suitable gift for engagement is a diamond, but also served to limit the market in used diamonds. [1] (http://www.theatlantic.com/issues/82feb/8202diamond1.htm) (requires subscription)

De Beers distributes diamonds to favored customers (called sightholders) by selecting batches of diamonds themselves and offering them "as is". Following the distressing use of diamond revenues by African revolutionaries engaged in diamond smuggling (conflict diamonds, also known as blood diamonds), De Beers now sells only diamonds mined from their own mines, most of which are in South Africa and Botswana. Currently, De Beers is involved in a joint venture that is developing a diamond prospect in Canada.

Contents

History

De Beers was founded on 13 March 1888 by Cecil John Rhodes. In the 20th century the Oppenheimer family became the major shareholders. Sir Ernest Oppenheimer, his son Harry Oppenheimer and his grandson Nicky Oppenheimer have been chairmen of the company. Also see Alex Oppenheimer, heir and relative.

The company's name comes from Johannes Nicholas de Beer and Diederik Arnoldus de Beer, two Afrikaner farmers on whose farm, called Vooruitzicht, near the confluence of the Orange River and the Vaal River, diamonds were discovered. The brothers were not able to protect the farm from the ensuing diamond rush, and sold it for 6300. Two diamond mines formed on the site, known as the "Big Hole" or Premier mine. Although the brothers did not become the owners of the mines, one of the mines was named after them. Cecil Rhodes and Charles Rudd gained control of both the De Beers mine and the Kimberley, South Africa mine and merged them, forming De Beers Consolidated Mines Limited.

Because of South Africa's labor demand in the mid to late 19th century, De Beers constructed the first private prisons in South Africa, which the state filled. De Beers provided the funds to incarcerate the prisoners and also paid the state to allow the company to use the prisoners for prison labor. By the end of the 19th century, DeBeers was using over 10,000 prison laborers daily. The majority of the prisoners were incarcerated because of strict apartheid laws, similar to the Pass Laws which were enacted in 1952.[2] (http://www.iss.co.za/Pubs/Monographs/No64/Chap2.html)

Marketing

De Beers has actively promoted diamonds as being symbolic of eternity and love, and therefore the ideal jewel for an engagement or wedding ring. Their famously successful advertising campaigns have included measures such as:

  • showing diamonds as wedding gifts in popular romantic movies
  • publishing stories in magazines and newspapers which would emphasize the romantic value of diamonds and associate them with celebrities
  • employing fashion designers and other trendsetters to promote the trend on radio and, later, television
  • enlisting the Royal Family of the United Kingdom to directly promote diamonds

This campaign was described by De Beers' PR agency N. W. Ayer as "a new form of advertising which has been widely imitated ever since" with "no brand name to be impressed on the public mind. There was simply an idea — the eternal emotional value surrounding the diamond." Indeed, the campaign succeeded in reviving the American diamond market, which had been weakened by "competitive luxuries", and in opening new markets where none had existed before. In Japan, for example, diamonds were successfully promoted as a western symbol of status, which coincided with Japan's cultural opening after World War II. Japan, which had no diamond tradition before the De Beers campaign, is today the second largest market for retail diamonds.

The slogan "A Diamond is Forever", invented by N.W. Ayer & Son, is one of the most successful slogans in marketing history. Its purpose is to prevent the creation of a secondary market by dissuading women from selling the diamonds they have received and by discouraging them from buying diamonds which other women have owned. The consequence of this is that retailers can sell diamonds at a high price without competition from a secondary market, and it allows De Beers to maintain control of the diamond trade at wholesale level.

Retail joint venture

In 2001, De Beers launched a joint venture with luxury goods company LVMH in order to establish De Beers as a retail brand. The joint venture, called De Beers LV has a license from De Beers SA to use the De Beers brand name in a retail environment. The venture has since opened two stores, one in London and a second in Tokyo. Following the settling of the United States anti-trust case, De Beers said that it planned to open a store in New York. Before the venture was allowed to begin, the EU competition commission launched an investigation into whether the venture would give De Beers too great a control over the rough diamond market. An initial one-month probe determined that a longer investigation was necessary. The commission eventually allowed the joint venture to go ahead in July 2001.

External links

U.S. court case links

de:De Beers fr:De Beers nl:De Beers

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