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The Apple Effect

Feb 17, 2012 2:32 AM   By Avi Krawitz
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RAPAPORT... The recent protests against the labor conditions at tech giant Apple’s manufacturing facilities in China should serve as a wake-up call for the diamond industry. At the end of the day, ill-advised corporate social responsibility and ethics policies are noticed by consumers.
Whether or not the protests will impact Apple’s sales remains to be seen. But even the most apathetic consumer would have been affected by the descriptions in The New York Times article that broke the story in late January and perhaps think twice before buying their next iPad. The exposé highlighted cramped working conditions, explosions, and workers’ physical and emotional scars at factories that supply Apple, and other tech companies.

Since then, demonstrations have taken place outside Apple stores around the world and hundreds of thousands have signed online petitions against the company. While other computer makers use many of the same questionable suppliers, campaigners targeted Apple for its iconic status and leading brand position.

De Beers has had similar exposure in the past for its own iconic status in the diamond industry. Activists were still camping outside De Beers stores to protest the development of the Gope mine in Botswana long after the company sold the project. Campaigners said the prospective mine infringed on the Kalahari Bushman tribe’s rights to land and water.

With that issue seemingly resolved, today the diamond industry faces a potentially further reaching campaign regarding Zimbabwe’s Marange diamonds, which has not yet grabbed consumer attention on a massive scale, but is bound to do so.

Global Witness, the non-government organization (NGO) that in November 2011 resigned from the Kimberley Process (KP) which it co-founded, published a report this week outlining that several directors of the two largest companies operating in the Marange fields, Anjin and Mbada Diamonds, are drawn from the Zimbabwean military and police. Global Witness therefore warned that if the next election is accompanied by violence, as previous elections have been, it would be funded by diamond revenues.

In 2008, Zimbabwe's army took control of the Marange diamond fields using troops and helicopter gunships, killing and wounding many small-scale miners in the process. Since then, violence has subsided and diamond concessions have been allocated to several companies under questionable circumstances, Global Witness explained.

The report fell short of rallying consumers against buying diamonds and was focused on recommendations to the Zimbabwe government that would ease the NGO’s concerns. But the report’s release date on February 14, and title, “Don’t Let Mugabe Be Your Valentine” certainly hinted at a more direct consumer target.

The group’s underlying message to the diamond industry, as it has been in the past, was therefore that it can no longer hide behind the KP when advocating its ethical standard, as consumers will not be fooled.

“Given the failures of the KP, the diamond industry urgently needs to implement a system of supply chain due diligence in order to give consumers the confidence to buy diamonds without any risk that they fund human rights abuses,” said Nick Donovan, a senior campaigner at Global Witness.

While initiatives such as the Responsible Jewellery Council (RJC) are encouraging, unfortunately, the industry has not taken note. For all its ambitions and optimism for reforms under the current U.S. chairmanship of the KP, industry groups such as the World Diamond Council (WDC) and others still need to do more to address human rights issues affecting the trade. As Global Witness and others, including the Rapaport Group, continue to stress, the KP has failed to address state-sponsored violence in the Marange fields and resists calls for reform.

It appears that many of the major players along the diamond pipeline fail to recognize this, and worst of all, they fail to acknowledge the potential consumer backlash that they are exposed to - least of all De Beers.

In its recent earnings conference call, management stressed the company’s commitment to the KP and averted the question of Zimbabwe’s human rights abuses. “It’s very important that we have a strong KP both for us and for the consumer,” De Beers chief executive officer (CEO) Philippe Mellier told Rapaport News in a separate interview. “As long as Zimbabwe is part of the KP and adheres to its principles, I don’t have to comment.” Mellier added that De Beers cannot control where its sightholders are buying from.

Fair enough. No one expects De Beers to police the industry or control the supply chain. But even if its best practice principle (BPP) guidelines addresses ethical and human rights issues, the company will be the first to be targeted should a consumer backlash occur.

It therefore cannot afford to skirt these issues and ought to be better prepared to answer questions relating to diamonds that come from other, more dubious sources. The company needs to move beyond the scope of the KP script when asked about such topics at future press conferences.

Others need to as well, including industry representative bodies, and mining, manufacturing and retail businesses. But De Beers matters more and has more at stake, especially as it aims to strengthen its brand.

If one message evolved from the earnings call, it was that under Mellier, De Beers will be looking to build its brand and retail reach, rather than focus on its rough diamond supply. In his own words, Mellier is clearly not a miner. And De Beers ambition is not to be just another mining company that it often appears to be.

With the era of generic advertising well behind us, Mellier’s task will be to compete in the world of branding as a means to enhance De Beers position in the market. The company is well positioned to do so as it has a secure and stable mining portfolio, a reliable partner in Botswana, and a strong corporate backer in Anglo American. Furthermore, it recognizes that intense competition with other diamond brands will also serve a generic purpose by raising consumer awareness about diamonds. Today, being the biggest is far less important than the desire to be the best. One would therefore expect further investments in the Forevermark and De Beers Diamond Jewellery brands and their respective global expansions.

But while these plans may well drive growth in the future and raise De Beers profile, they will also maintain De Beers role as industry spokesperson – whether it likes it or not. When campaigners want to protest against the influx of dirty diamonds to the market, they will first turn to De Beers.

For De Beers is to diamonds what Apple is to tablets - and possible more so given its past iconic marketing prowess. The company may have even forgotten what Apple has yet to learn. But it may have to re-learn some things.

De Beers would do well to acknowledge the Apple experience of the past few weeks. It ought to take a clearer stance on Zimbabwe’s human rights record and gain a better understanding of how practices in the industry beyond its own portfolio will impact its business. This may prove essential to build the De Beers brand and ensure consumer confidence for diamonds in general. And in the new world of competitive branding, the rest of the industry should take note too.

The writer can be contacted at avi@diamonds.net.

This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to
www.rapnet.com or contact your local Rapaport office.

Copyright © 2012 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1.702.893.9400.

Disclaimer: This Editorial is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights

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Tags: apple, Avi Krawitz, De Beers, diamonds, Global Witness, Marange, Rapaport, Zimbabwe
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