DE BEERS

De Beers is best known as the company which for more than a century has largely controlled the supply and pricing of fine diamonds throughout the world. However, it has also been very successful in marketing its own range of high-end diamond jewellery, about which you can discover more here.

Contrary to what might be assumed, De Beers was not the family name of the founders of the famous company, but rather that of the South African farmers who sold their land when the first diamonds were discovered on it in 1866. The De Beers company was actually founded by Cecil Rhodes in the 1880s, and was named after the De Beers diamond mine which had been established on the farm which had been purchased from the De Beer family. So, unfortunately for them the real De Beers never became rich from the diamond industry.

Cecil Rhodes and his partners created the De Beers Mining Company Ltd in 1880, and in 1888, after a long bidding war with their rival the Bernato Mining Company, the two companies merged to become De Beers Consolidated Mines Limited, with Rhodes as chairman. The newly formed group controlled most of the mines in South Africa, and, more importantly, the group controlled around 90 percent of world diamond production at the time.

De Beers now sought to control diamond prices as well as supply, so they set about persuading major dealers and brokers, particularly in London, that they had much to gain by allying themselves with De Beers, and in 1990 the London Diamond Syndicate was established, again with De Beers firmly in control.

During the years which followed there were many setbacks for De Beers. There were large fluctuations in demand, disruptions in operations due to the Boer War, discoveries of diamonds by rival groups not only in South Africa, but also in German South West Africa, the Belgian Congo, and Angola, and later on by the outbreak of World War I. However, despite these setbacks De Beers always managed to maintain their grip on the market.

In 1929, the entrepreneur Sir Ernest Oppenheimer, whose company Anglo had acquired several very productive diamond mines in South West Africa following South Africa's defeat of German colonial forces in 1915, became chairman of De Beers. In 1930 The Diamond Syndicate, which had already replaced the London Diamond Syndicate, became the Diamond Corporation Ltd, and in 1934 its subsidiary, the Diamond Trading Company, introduced the practice of selling rough diamonds at invitation-only "sights," where boxes of rough gems were offered to carefully selected clients or "sightholders".  This trading structure was to become known as the Central Selling Organisation (CSO), through which Oppenheimer and the De Beers Group sought to limit the supply of diamonds, thus maintaining their value and the perception of their rarity.

In the early 1940s, De Beers embarked on an aggressive marketing campaign which would prove very influential. Harry Oppenheimer, Sir Ernest' son, set out to persuade women that diamonds, the quintessential symbol of romance, were meant to be kept forever. In order to discourage the resale of diamonds by consumers, Oppenheimer sought to convince women that engagement and wedding diamonds must be new in order to have any meaning. The De Beers campaigns, launched in the United States, caught the public imagination, entrenching such phrases as "A Diamond Is Forever" and "Diamonds Are a Girl's Best Friend" in the public psyche. Ironically, for many years the De Beers Group could not operate directly in the US because of laws prohibiting the formation of cartels, but they were still able to exploit the US market by supplying numerous smaller businesses. The campaign was also very successful on an international level, allowing De Beers to develop huge markets for its diamonds, especially in Japan.

Throughout the post-war period, De Beers continued its strategy of aggressively acquiring new diamond mines, whilst at the same time ensuring that the buying public retained the notion that diamonds had scarcity value. To ensure that they continued to control supply, they bought up excess diamonds on the market and distributed them through the Central Selling Organisation (CSO). Advertising constantly sought to persuade consumers that diamonds were rare and thus very valuable. In the main, De Beers' efforts in this respect benefited both the producers, who were assured of a stable inflow of foreign currency, and dealers, who were assured of stable price increases. De Beers of course profited immensely from its stranglehold on diamond supply and distribution. They were able to charge very high fees to dealers who received invitations to become sightholders, and these dealers were in effect obliged to pay whatever price De Beers decided to set.

Over the years, some diamond dealers have sought to challenge De Beers' control of the diamond market, but they were usually brought back into line through a number of tough measures, including being barred from the CSO's "sights". In order to maintain the cartel's stranglehold, De Beers were also prepared to inflict tough measures upon themselves, such as limiting their own sales substantially to allow stocks that had built up in the cutting centres to be absorbed into the retail markets. But De Beers have always proved to be extremely resilient, surviving lawsuits and investigations by the likes of the Office of Fair Trading. Despite organisations such as the Argyle Mining Group of Australia and the UK based Rio Tinto opting out of the CSO, and their market share falling by some 10 percent during the 1990s, De Beers still maintain their control over the lion's share of the world market. However, the increasing supply of diamonds from new sources throughout the world will surely continue to threaten the supremacy of the remarkably resilient organisation that is the De Beers diamond cartel.