Mmegi Online :: The power behind De Beers' strategic masterstroke
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Thursday 15 November 2018, 14:12 pm.
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The power behind De Beers' strategic masterstroke

De Beers' executives say the group's entry into synthetics is driven by demand, but the diamond giant's shrewd tactics that have helped it dominate the industry for 130 years suggest deeper motives. Staff Writer, MBONGENI MGUNI looks beneath the surface
By Mbongeni Mguni Fri 01 Jun 2018, 13:28 pm (GMT +2)
Mmegi Online :: The power behind De Beers' strategic masterstroke








If you can’t beat them, join them, then crush them. From decades of fighting against synthetics, proclaiming them as the single biggest threat to natural diamonds and the industry, De Beers announced it had changed tact this week and was launching its own synthetic line of diamonds.

Typical of De Beers, the nomenclature around its synthetics is uniquely its own. Rather than “synthetics,” De Beers’ artificial diamonds are called “lab-grown”. In the same vein, De Beers’ monthly sales of diamonds are not called auctions, but “sights,” and the buyers aren’t “bidders” but “sightholders”.

The diamond giant’s 130 years of building up then dominating the industry has taught it the power of naming, how naming leads to ownership, control, domination even invincibility.

This is the power De Beers has carefully built up and curated in the industry, a power dating back to the efforts to construct value around diamonds through intelligent storytelling at a global level, to the billions of dollars spent over the years searching for diamonds in deserts, oceans, under glaciers and everywhere else.

It is the same power De Beers intends to demonstrate as it sets sail in the lab-grown arena.

On Tuesday in Gaborone, executives told local journalists that the idea was to “lead from the front” in the lab-grown arena, but the facts suggest other players in the synthetics game are about to truly appreciate De Beers’ power.

Unknown to many, De Beers is actually the best producer of lab-grown diamonds in the world, having invested heavily in a little-known research lab called Element Six, at least 30 years ago. Element Six has been researching and producing synthetic diamonds for industrial use from its Johannesburg lab since the 1960s. In fact, the De Beers’ entity synthesised its first diamond just five years after a Swedish industrial firm produced the very first one!

If the game is about producing a stone as indistinguishable from the real as possible, no one can get closer than De Beers.

But as De Beers’ executive vice-president, commercial and partnerships, Alessandra Berridge told Mmegi this week, that is exactly the opposite of what the diamond giant is attempting to do.

“Lab-grown diamonds in the industry are being marketed as natural diamonds, which is also reflected in the pricing and our goal is to clear this confusion,” she says.

“It is very important that consumers understand the difference. There will be a fall-out with other producers of lab-grown diamonds on this basis, but these products are different.

“They have been marketing them as real and we are saying this is not the case.”

When its US$94 million Portland, Oregon synthetics laboratory plant opens, De Beers will produce 500,000 carats annually, a move that immediately sets the group up as giant in an industry which produces about 4.2 million synthetic carats annually. Within four years, a minimum of one in every eight synthetic diamonds produced will be from the Oregon factory, branded with a permanent logo that clearly marks the stone as lab-grown.

Besides hitting the market big from the get-go, De Beers’ power game also involves offering its lab-grown diamonds for 75% less than the synthetic industry’s

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prices.

The progression of the power game is evident. Within a few years, De Beers’ cheaper, more abundant lab-grown stones will likely dominate the market, setting standards such as compulsory branding of synthetics as well as prices. A few more years and De Beers’ wealth of research, expertise, vending lines, quality, pricing and branding will do to synthetics what it did to natural diamonds; take over.

Berridge isn’t willing to speak directly to whether De Beers intends to crush the synthetics market. Her colleague speaking to local media via teleconference, says De Beers merely intends to “lead the market”.

“We don’t know how other lab-grown producers will react,” Berridge says after a pause.

“They could re-position their products and change the game.

“We do plan to lead from the front but I don’t know whether we will be the biggest.

“It may be that others follow suit and over time one finds that consumers understand more about these products and the prices reduce, just like what happened with flat screen TVs.”

The deal is a win-win for De Beers, which will enjoy the comfort of producing more than 30 million carats of natural diamonds each year, and the production flexibility that comes with the lab-grown stones. The two types of diamonds are being marketed differently to distinguishable markets and De Beers does not anticipate its products competing for the same consumer dollar.

It’s a win-win for the Government of Botswana too, De Beers’ executives stress, despite the natural concern the rise of a competitor to natural diamonds might trigger. Several commentators this week even expressed fear that De Beers’ move was a powerplay on Botswana, the timing coinciding with the start of difficult negotiations for a new sales deal around Debswana.

Could De Beers possibly be signalling to government that there are alternatives to Debswana?

Not so, says De Beers’ executive vice president, corporate affairs, David Prager.

“We have been engaged with government on this project, at the highest level and government has been very supportive of the work done, and even helpful,” he stresses. “This project is good news for Botswana. De Beers will always be a natural diamond company and we are not moving away from what is at our core.”

On Wednesday, new Minerals minister, Eric Molale confirmed government’s position.

“As a shareholder in De Beers, we have been part of the processes of coming up with these lab-grown diamonds. “This development will help balance the industry because there are many others into lab-grown diamonds and we are doing this to stabilise the market.

“People are over-pricing these synthetics and we need to leave the space for natural diamonds to be where they need to be price-wise.”

Molale’s comments, representing the world’s leader in natural diamonds, coupled with the De Beers’ executives remarks on “leading from the front” suggest that far from being a powerplay within the two, the synthetics’ move is a powerplay by the two.

After all, should the diamond giant’s lab-grown diamonds succeed in creating the “space” natural diamonds need to continue being sold at a premium, that can only be a win-win for Botswana and De Beers.

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