Alrosa Diamonds, business strategy explained

Strategy by its nature is long term affair while operations often use tactics in order to adjust to the terrain situation. This is valid in military affairs and commercial business too. Alrosa diamonds of Russia in not an exception.

The eye opener for the largest diamonds mine-holder of the world came when the West sanctioned Alrosa diamonds by name and pulled its CEO Pavel Marinychev into the sanctions net in January 2024. Already Alrosa has incorporated the policy of stabilizing balance between supply and demand into the strategy table. Sanctions only expedited the execution of this part of business strategy. Alrosa foresaw two developments.

a) Overall decline in the price of diamond roughs that besets the industry since beginning of the 2020 decade would continue for quite sometime

b) Direct export to major buyers need to be curtailed to save them from the effect of western sanctions

Alrosa’s financial muscle is legendary. Being the largest roughs manufacturer in the world she exported a top volume of 46 million carats. Her source of roughs from Siberian mines ensure that Alrosa has nearly 95% of steady supply translating into approximately 27.5% of the global supply.

Although there is no question of supply, the day to day demand spectrum changes require balancing. Monitoring the demand scale on the one side and listening to the major buyers in India need to go hand in hand. Yet, Pavel Marinychev succeeded in this challenging job because most of the diamond processors are located within the city of Surat, India. Besides Alrosa had years of exposure in dealing with them.

Adjusting to the concern of buyers is part of Alrosa business strategy. In late 2023 when India’s Gem & Jewellery Export Promotion Council (GJEPC) requested a temporary stoppage of roughs export from Russia to India Paul acceded and sliced the export quantity in September & October of 2023 in order to prevent oversupply of roughs leading towards price dips.  An excellent example of miners - processors coordination. By the way, Indian diamantaires process nine tenth of the global cut & polishing of roughs.

Yet another feature of Alrosa business strategy is to opting for indirect exports. By using third parties and dummies Alrosa continues to keep up her export volume under the nose of western nations whose tracking mechanism of original source of roughs is yet to take off the ground.

A notable hallmark in Alrosa business strategy is to harness the un-exported volume of roughs. Quietly the company began to cut & polish diamonds within Russia to cater to the demand of domestic gem & jewellery for turning out fashionable jewellery pieces using the splendour & sparkle of the famous ‘Russian cut”.

 

Cheers!

 

Muthu Ashraff

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist

Sanctioning Russian diamonds, a critique

Recently G7 countries imposed trading sanctions on Russian diamonds processed in third countries, over and above restrictions placed by USA &UK in the wake of Ukraine war. Is this business strategy effective?

My critique is based on facts & figures than driven by impulsion or compulsion felt & exhibited by the West. When you craft your business strategy of bringing pressures upon your opponent you must consider not only the position of the opponent but the circumstances under which he operates.

Ostensibly, Russia is the largest producer of diamond roughs globally. More than one third of diamonds mined globally comes out of Russian mines say around 46 million carat. Alrosa the state owned Diamond Company alone accounts for 90% of the mined output. Equally important is the sales volume. Russia accounts for about 42 million carats of roughs that stand above Botswana the treasure trove of diamonds in Africa.

While Russia sells cut & polished diamonds with the fabulous Russian cut eulogised globally the main concentration is on the roughs. Most of these roughs go to India which is the world’s largest diamond processor employing millions of people doing this delicate jobs. Therefore, G7 sanctions on third party processed diamonds would be in the crosshairs of India whose support is vital for the West in international relations.

The second largest importer of Russian roughs is Belgium, where Antwerp functions as the global diamond trading & supply centre. Diamond traders in Antwerp are not going to take this type of sanctions head down. Not only they would oppose it tooth and nail but would not hesitate to use their leverage in the EU nerve centre in Brussels.

There again yet another operational glitch barges in. This sanction is applicable only to imports by the G7 countries which accounts for 40% of global trade only.

Diamond industry works in a circuitous manner, whose labyrinthine structure cannot be intelligible to administrators of the G7. Hence any tracking system to detect & eliminate Russian roughs is not going to be easy.

More important aspect is the transparency factor which is totally lacking in the diamond world. Even an accomplished trader like De Beers would not venture into signing on to any tracking system. One, they themselves have got entangled in ‘blood diamonds’ saga. Secondly, De Beers are not keen to outpace a worthy competitor like Russia with whom they can do business as supplier once the African mines they own and operate are fully exploited.

Here comes the bombshell for the business strategy! Even if G7 succeed in imposing sanctions in the final analysis it is of no use because Russian diamond exports net only a revenue of US$ 4.5 Billion whereas oil & gas brings in US$ 384 Billion. Why fret for a minuscule of just over one percent?

 

Cheers!

 

Muthu Ashraff

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist

 

 

 

Forever war, domestic economy to geoeconomics

Forever war has to be initially financed by domestic economics but in the long run you have to resort to geoeconomics manoeuvres. Here is how America juggles domestic and global economics to get through in her forever war:

Domestically the first step is to increase public expenditure where allocation of funds are funnelled into. There is no consideration given to the aspect of productivity in terms internal relevance. To wit, build domestic infra-structure in terms of roads & transport, health & education facilities, health& safety are priorities abandoned. Instead more of the allocation goes for increasing non-productive sectors such as arms & ammunitions manufacture.

Finance is raised by way of debt and taxation. As regards to debt short term ones are preferred and in the case of taxation indirect taxes such as VAT bands are elevated. Additionally money printing is accelerated. Here the checks and balances are still maintained. One way to do is to allow inflation to rise and thereafter be stabilised at an optimum level such that money earned through increased wages and profits does not necessarily make real wages or profits rise up in proportion.

Once the domestic economy is manoeuvred attention turns towards geoeconomics. An export drive is undertaken where arms & ammunition, rockets & missiles, tanks & vehicles and planes & ships are rolled out to be exported to allies insisting that they use these for their own benefit in defence posture.  These are priced with premium so that the recipients pay for the forever war of America more than what Americans themselves cough out for it. True enough, part of the armoury is used to persecute forever war by America herself.

This way American power in the geoeconomics clout is not only maintained but enhanced. For example after the Shock & Awe operation in Iraq, the military industrial complex became a major export earner. This also helped the Americans to shut out other global competitions in the arms trade.

The crux of the matter is American military industrial complex can call the shots in politics & economics within United States and elsewhere in geoeconomics globally.

 

Cheers!

 

Muthu Ashraff

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist