Photo: thefixer via Flickr
For decades, De Beers has been the preeminent name in diamonds.Thanks to a stockpile of the world’s rough diamond supply, indelible marketing schemes and even negotiations with foreign governments for their diamonds, De Beers — owned by the Oppenheimer family since the 1920s — has been the most important name in one of the world’s most lucrative businesses for almost a century.
But with recent news of the Oppenheimers selling out to fellow mining company Anglo American, it’s time to look back at the billion dollar rise and fall of a monopoly that has crushed competitors and cash-strapped governments since the 1800s.
Diamonds became a symbol of love thanks to De Beers, which is fitting, since De Beers became what it is today because of a love story: the love of money.
In the beginning, the diamond trade took place mostly in India and Brazil. With the discovery of diamonds in South Africa, the trade simultaneously took off and become much less profitable
Up until the mid-1800s, diamonds were a rarity and could be seen only on the hand of a monarch. But the diamond rush that began in South Africa in the second half of the 19th century flooded the market with diamonds, which, as any good businessman knows, kills demand.
It would take some ingenious plotting and advertising to keep the diamond's reputation as intrinsically valuable and desirable, which is where De Beers comes in.
The story of De Beers starts with English-born businessman Cecil Rhodes, who broke into the diamond business in South Africa by renting water pumps to miners before buying diamond fields of his own
Rhodes, sensing he had ventured into an untapped market, bought up diamond fields, including one owned by two brothers named 'de Beer.' In 1880, he bought the claims of fellow entrepreneur and rival Barney Barnato to create the De Beers Mining Company.
The tendency in diamond mining is to combine with smaller groups to form larger ones. Individuals needing common infrastructure form diggers committees, and small claim holders wanting more land merge into large claimholders. Thus, it only took a few years for De Beers to become the owner of virtually all South African diamond mines.
In 1888, De Beers Consolidated Mines, Ltd. was formed, creating a monopoly on all production and distribution of diamonds coming out of South Africa
De Beers took on many forms around the world as its influence in the diamond trade grew. To control supply and demand--and thus, prices--Rhodes created distribution arms through 'The Diamond Syndicate,' including 'The Diamond Trading Company' in London and 'The Syndicate' in Israel.
Diamond claim holders and distributors joined up with De Beers because their interests were the same: create a scarcity of diamonds and high prices will follow. And while other commodities have seen price fluctuations over the years, diamonds prices have climbed since the Great Depression.
By the time Rhodes died in 1902, De Beers controlled 90% of the world's rough-diamond production and distribution, but it was Ernest Oppenheimer who made the company an empire
Oppenheimer, a rival diamond producer with his own production company (Anglo American Corporation, which will reappear later in the story) essentially bought his way onto the board of directors over the years. By 1927, he was chairman of the board.
Under Oppenheimer, De Beers and its Central Selling organisation established exclusive contracts with suppliers and buyers, making it impossible to deal with diamonds outside of De Beers.
The structure of the business remained the same for much of the 20th century: A De Beers subsidiary would buy the diamonds. De Beers would determine the amount of diamonds they wanted to sell, and at what price, for the whole year. Each producer would then get a cut of the total output, and buyers would take their diamonds to be resold in places like Antwerp and New York.
Henry, son of Ernest, traveled to New York in 1938 to meet with advertising agency N. W. Ayer. The United States was seen as the next big market for diamonds, and a very effective game plan was formed to sell diamonds to Americans: convince them that diamonds equated love.
Through advertising, men were convinced that the size of the diamond in an engagement ring showed how much they loved their fiancée. Movie stars were shown wearing diamonds in the relatively new motion pictures. And the most effective piece of advertising came in 1947, with the creation of the tag line 'A diamond is forever.' This later become the company's official motto.
As a result of these campaigns, the number of brides receiving engagement rings, and diamond prices in the U.S., increased dramatically.
De Beers forged new international markets using similar advertising campaigns in places like Japan, Germany and Brazil
Having conquered the United States by the 1960s, De Beers set its sights on new territories.
Japan never had a tradition of romantic marriage, making diamonds a tough sell for brides. And even by 1959, no imported diamonds were allowed into the country by the postwar government. But by using slick advertising, playing up diamonds as a symbol of the modern West, or a way to break from traditional Japanese norm, De Beers was able to build a billion-dollar-a-year industry.
By 1981, almost 60 per cent of Japanese brides wore diamonds, up from 5 per cent in 1967.
When faced with a threat to their diamond monopoly, like one from the Soviet Union, De Beers simply bought up their inventory to maintain complete control
The discovery of diamonds in Siberia in the 1950s was a threat to the control De Beers kept over the diamond supply. Rather than compete with Russian diamonds, De Beers offered to buy almost everything that came out of Siberia -- funelling all the world's diamonds through a 'single channel.'
Even though Russian diamonds were smaller, their use in 'eternity rings' and other miniature jewelry proved very successful, and allowed for a lucrative partnership between De Beers and the USSR.
Diamonds from Botswana were considered valuable enough to give the government of the country a 15 per cent share in De Beers in 1969. All rough-diamond mining and distributing is done by Debswana, making it the biggest non-government employer in the country. The deal is still in place today, and there's even talk of increasing Botswana's share to 25 per cent.
But by the beginning of the 21st century, diamond-producing companies had enough of De Beers' monopoly, forcing a change in structure for the company
Numerous 'revolts' against the De Beers cartel had occurred in places like Zaire and Israel over the years, which were mostly quashed by De Beers releasing stockpiles of diamonds similar to that county's product, driving down demand.
But more recently, countries with enormous stockpiles of their own, like Russia, Canada and Australia, have refused to cooperate with the single channel system.
These problems, along with issues of flat prices, forced De Beers to switch up the company's strategy. In the last decade De Beers has moved away from rough-diamond supplying and controlling the entire industry, instead focusing on promoting its own brand of diamonds and retail stores.
De Beers continued to post profits into this year, as the number of retail stores increased worldwide
Despite its high earnings and a lucrative transformation, in November De Beers ended its 80 year stranglehold on diamonds by selling a majority ownership to Anglo American plc
Anglo American, which previously had a 45 per cent stake in the company, bought the De Beers Groups' 40 per cent share for $5.1 billion in cash. Anglo American, previously started by Oppenheimer, will take over De Beers from that very same family.
As for the reason of the sale: apparently, there is no one in the Oppenheimer family that wants to continue in the diamond business.
And yet, the De Beers empire marches on, opening their third store in mainland China on December 14th
A 55-square meter De Beers Diamond Jewellers store opened at the Times Square Mall in Dalian, China just days ago. According to the company, this opening follows the success of the two other De Beers stores in the country.
Although the people who made De Beers the world's most powerful monopoly are no longer involved, the company itself will continue to be a billion-dollar business.
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