Case Anaylsis De Beers and the global Diamond industry

 

Case Anaylsis  De Beers and the global  Diamond industry

Question 1   De Beers — Strategy

 

Answer all three parts.

 

Part 1 (55%)

Conduct a value chain analysis for De Beers, including the new activities of jewellery making and retailing through its joint venture with LVMH.

 

Part 2 (30%)

How sustainable is the competitive advantage created by their new strategy?

 

Part 3 (15%)

Do you support De Beers’ entry into the retail jewellery business, or do you think they should focus exclusively on diamond mining, grading, sorting, wholesaling, cutting and polishing?

 

Question 2   De Beers — Human Resources 

 

This question has one part.

 

Note:De Beers is clearly a global operation and has staff located in many countries, with several mentioned in the case study, although you need not confine your answers to only those.

 

Describe some of the difficulties that De Beers may find in staffing senior international positions. Your answer should include the following areas: Which HR issues may cause particular difficulties? What might be some of the skills gaps for staff in these positions? How might newly appointed staff be prepared for positions in parts of the world of which they have little experience?

 

Question 3   De Beers — Finance

 

Answer all three parts.

 

A management accounting and control system is part of the information-generating function internal to a firm. It helps management determine if the organization is successfully implementing its chosen strategy.

 

Part 1 (40%)

Using the information provided in the case, analyze the financial performance of De Beers, including an analysis of the sources and uses of cash. Use no more than five financial ratios. Select the ratios that you feel are most relevant to De Beers. Based on the results, describe areas of significant strength or weaknesses. Your analysis should be supported by reference to the De Beers activities and events described in the case.

 

Part 2 (50%)

De Beers is involved in the entire value chain for its industry. List in point form the financial and non-financial information and performance measures that management should consider critical to De Beers’ success prior to the mid-1980s. Then consider its new strategy and identify the factors that are critical to De Beers’ more recent success. Again, list in point form the financial and non-financial information and performance measures that management should consider critical. Be specific. Discuss how and why the critical success factors, performance measures, and related management information needs changed. Consider using tables in your presentation.

 

Part 3 (10%)

Compare the characteristics and uses of the management information you prepared in Part 1 to the management information you identified for Part 2. How are they similar and different? Would one type of information be more valuable than the other? Why or why not?

 

Question 4   De Beers — Marketing

 

Answer both parts.

 

Part 1 (50%)

Is the diamond industry structure unique in the opportunity it offers for collusion and price maintenance? Compare De Beers’ market leadership with that of the Organization of Petroleum Exporting Countries (OPEC). Are there other lessons that businesses can learn from De Beers?

 

Part 2 (50%)

Assume that you are the CEO of a relatively new Canadian-based, well-funded vertically integrated processor and marketer of Canadian-sourced diamonds. Using your knowledge of strategies for entering markets held by incumbent firms (Kotler, Chapter 11), briefly describe which single strategy you would choose to develop to compete against De Beers in export markets outside of Canada. You will need to justify your choice of strategy, and you can assume that your organization will remain independent and not be absorbed nor controlled by De Beers or any other global diamond competitor or trade association for the purpose of responding to this question.

 

Notes

·         It is suggested that, for this question, your responses to the two parts should be balanced and be approximately 500 words each.

·         Your responses must be based only upon information available from the case study or other published and documented secondary sources set at the time this case portrays (Spring 2005). Reasonable assumptions may be made where necessary.

·         Please be explicit and original in your responses to these two questions, and under no circumstances should you “cut and paste” from any other Comprehensive Examination response.

·         Use a narrative style rather than bullets in formulating your responses.

·         Please answer questions in the order presented, and clearly separate and identify your two responses.

·         Please note it is not sufficient to simply cite the Kotler or other AU MBA course textbooks without involving them in proper, in-depth, case-specific analysis. Be original, and feel free to use documented external marketing references in support of your responses.

 

Question 5   De Beers — Operations 

 

Answer both parts.

 

The diamond industry is politically sensitive in a number of ways. One of the problems relates to so-called ‘conflict diamonds’: diamonds mined in war zones are sold in order to finance an insurgency or other form of warlord activity. Clearly this is an issue that concerns corporate social responsibility. One of the proposals that has been made to guarantee that customers are buying conflict-free diamonds is to establish a “fair trade” brand, defined as follows:

Fair Trade is a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers – especially in the South. Fair Trade organisations (backed by consumers) are engaged actively in supporting producers, awareness raising, and in campaigning for changes in the rules and practice of conventional international trade.

Source: Oxfam International. (n.d.). Fair trade: a definition. Retrieved December 17, 2010, from http://www.maketradefair.com/en/index.php?file=21052002111743.htm&cat=4&subcat=1&select=5

 

For this question assume that you have been asked to consider some of the operational implications of establishing this as a new brand.

 

Part 1 (50%)

Using the information in the case study, draw a process map of the process that would be needed to put this “fair trade” operation in place, starting at the mine and ending in the jewellery store. Note any assumptions you have made.

 

Part 2 (50%)

Compare the current De Beers’ operations set up with the “fair trade” alternative using the five basic performance objectives: quality, speed, dependability, flexibility, and cost.

 

Question 6   De Beers — Managerial Economics and Quantitative Analysis

 

Answer both parts.

 

As outlined on page 9 of the case, a decision was made with the advice of Bain and Company Consultants, “to create a new vertical monopoly, extending from the mines to the retail level.” Using the concepts you have learned in Managerial Economics and Quantitative Analysis and the information provided in the case, please respond to the following questions.

 

Part 1 (55%)

Only a conceptual outline is expected in each question for Part 1.

A.  As a monopoly, De Beers controlled price by manipulating supply. With the changes in the world market for diamonds and the proposed emphasis on demand in the new strategy, what factors should De Beers’ management consider that will enable the company to continue to maintain stability of the price of diamonds as it has done historically? (15%)

 

B.  Given the changes in industry market conditions, should De Beers utilize elements of game theory in strategic decision making despite its history as a monopoly? Why or why not? (20%)

 

C.  Given De Beers’ new strategy, list and describe the five highest-priority factors needed to improve the profitability of the organization.  (20%)

 

Part 2 (45%)

Bain Consultants recommended that De Beers should expand its level of advertising. Members of De Beers management projected two possible 2006 profit scenarios, depending on a standard or increased level of advertising expenditures. Projections are shown below. For each of the scenarios there are five possible profit outcomes, with an estimated probability for each of those outcomes.

 

A.  Compute the expected value of profits for each of the two scenarios and identify the potential risks associated with each distribution. (10%)

 

B.  Are there significant differences in the expected values of the two probability distributions of profits? How would you assess the relative risk of each of the two profit distributions? (15%)

 

C.  Given your reading of the facts in the case and this expected profitability analysis, should De Beers management implement the consultant’s recommendations? What are the implications for these decisions in the context of what you wrote in Part 1(B) above?    (20%)

Summary:

The assignment in marketing/management is about De Beers, one of the leading diamond manufacturers from South Africa. For some decades now, De Beers has made sure that it is the market leader by adopting various methods. But, now De Beers strategy are becoming useless and its market share is decreasing. Now what can De Beers do to avoid being overtaken by competitors. Now it is time to change its strategy. The strategies have been discusses in the solution.

 

Total word count is 4781

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