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Future Business Scenario of Harry Winston Diamond Corporation

Future Business Scenario of Harry Winston Diamond Corporation

Introduction

Harry Winston Diamond Corporation is a diamond dealership company. The corporation has premium assets in the retailing and mining sectors of the diamond industry. Harry Winston Diamond Corporation is a chief supplier of rough diamonds to the global diamond market. The company has a forty percent interest in ownership at the Diavik Diamond Mine that is located in the Northwest Territories, which is a part of Canada. Harry Winston has a luxury brand sector, which specializes in luxury timepiece and diamond jewellery. The company’s luxury brand sector has salons that are strategically located all over the world. Some of the salon locations include Beverly Hills, Shanghai, New York, London, and Paris among others.

Harry Winston Diamond Corporation focuses on mining and retailing as these are the most profitable segments of the diamond industry. The company’s expertise in the two segments creates value for its shareholders. Harry Winston Diamond Corporation has a competitive advantage over its key rivals due to its unique business model. The sale of rough diamonds and purchase of these polished gemstones provide the company with useful market intelligence that, in the long run, enhances the overall performance of the corporation. Further, it can use the strong relationship it has developed to get the best quality polished diamonds for its luxury segment. The corporation benefits massively from conducting both production and retailing of diamonds concurrently. Harry Winston Diamond Corporation benefits from the market interaction between the producer of rough diamonds, buyer of polished diamonds, and seller of diamond jewellery. The market interaction increases the corporation’s understanding of the diamond market and enables the management to predict the future business scenario of the company and the diamond industry as a whole.

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Future Business Scenario

PwC’s prediction for Vision 2050

Several organization’s such as the UN and EU have already established trends, predictions and guidelines for future business scenarios by coming up with their vision 2050. Analysis of the visions of these organization can help us to formulate the future business scenarios for Harry Winston Diamond Corporation. The key findings of PwC’s report of 2013 reveals the economy of the world is estimated to grow at an average rate of over three percent annually from 2011-2050 (PwC Economics, 2013). By 2032, it is estimated to double and further double again by 2050. By 2017, it is anticipated that China will overtake U.S. as the largest economy in terms of purchasing power parity. In 2027, it will surpass U.S. in terms of market exchange rates. By 2050, it is projected that India will become an economic giant in the world. It will be far much ahead of Brazil that is expected to be ahead of Japan at position four. It is also projected that growing economies like Indonesia and Mexico will be larger than France and UK and economies outside the G20 such as Vietnam, Nigeria and Malaysia will undergo massive growth.

PwC bases its economic growth projections in the trends in education levels, technological progresses, demographics and capital investment. Its projections reveal that growing economies grow at four percent per year while developed economies grow at approximately two percent annually. The projections claim that average per capita income will remain high in developed economies that in developing economies since current gap in income is large that it is cannot be bridged over this period (PwC Economics, 2013). PwC’s report reveals that developing economies will not only become locations for lower cost productions but their consumer markets will increasing become large. Companies aiming to grow will shift their attentions to these developing markets. However, these markets will equally present challenges like compliance to local regulations and customs. There will also be challenges for governments with regard to constraints in natural resources, use of energy and changes in climate. The analysis reveals global warming rates not less than 60C. On the other hand, UN has an objective of lowering this global warming to about 20C. The analysis opines that this will be impossible given lack of improvement in decarbonisation efforts since 2000.

Key Trends in the Diamond Industry

Different developments significantly shape the diamond industry presently, and are expected to continue its enhancement in the future (Goodman et al., 2014). This trend is certain and will remain constant. In addition, the trend affects all players in the diamond industry. The first trend is the plateauing production levels for the next decade. The production of rough diamonds in 2013 totalled more than one hundred and thirty-six million karats. It is estimated that the production of rough diamonds is likely to stagnate over the next decade as a result of economically viable discoveries. However, after 2025, most mines will be out of production. Consequently, there will be a decline in production henceforth until 2050.

Similarly, there is a trend of increasing pressure among diamond producing nations to retrieve more value. All over the world, resource-driven countries seek to gain increased value from their natural resources. These trends are expected to continue, especially in nations that produce diamonds in large quantities, such as South Africa and Namibia, due to low economic diversification levels in these countries. The increasing cost of mining is equally a trend that will influence future business scenario of Harry Winston. Extraction of diamonds is becoming more complex and expensive given that new deposits of diamonds are not easily accessible. Therefore, future diamond mining costs are expected to rise. In addition, input costs are equally expected to rise beyond inflation in the future, resulting in high costs per karat.

The emergence of a new middle class in developing economies due to economic growth in lower developed countries is expected to shift demand to emerging markets. As a result, there will be increased diamond demand in the future. The major future diamond demand drivers are Asia’s middle class, particularly China and India. The increasing preference for diamond that is branded among consumers is also a trend that will certainly influence business scenario in the future. Presently, only twenty percent of the jewellery market is brand driven. However, it is estimated that by 2020, brand is likely to claim a high market share.

Future Business Scenarios of Harry Winston

It is critical to establish possible scenarios of the corporation’s future business due to the large amount of uncertainties that surround the diamond industry (Wade, 2012). A combination of the key trends and uncertainties in the diamond industry leads to the creation of four scenarios for Harry Winston Diamond Corporation. These scenarios provide a clearer view on most of the opportunities and risks that the corporation might face in the next 40 years (Millett, 2013). The first scenario is that diamonds are forever. The scenario bases its arguments on one of the case scenarios of McKinsey Global Institute’s, the “Chimerican Decade”. The case scenario predicts that the rate of annual global growth will remain at 3.2 per cent until 2025. It opines that strong diamond demand will be driven by U.S. and China while Europe and Japan will have limited growth. There will be an increase in supply since a buoyant market will make mines that are not active to become economically profitable. Further, there will be the maintenance of natural diamonds’ emotional equity, which is distinct from other gems. Finally, the scenario reveals that retail consolidation will evolve due to growth in the market, margins will equally be high, and brand importance will continue to grow.

The second scenario is also based on McKinsey Global Institute’s case scenario “Leveling Decade”. It states that there will be an annual global growth of 3.2 per cent until 2025. Despite the significance of global growth, the scenario predicts that the demand for diamonds will be affected by it since the key diamond market will struggle to keep step with requirements. The U.S., which is the chief diamond market, will be derailed by the long-term debt and China will not be able to drive its local demand. Retail will remain slightly fragmented as a result of slow growth in chief markets, but it will have consolidation due to financial distress. Diamonds will equally lose some appeal since corporations will reduce their investments in brands and consumers will shift from conspicuous consumptions. In this scenario, the market of recycling will pick up from its current stress level, making the production constant.

The third scenario is also based on the McKinsey Global Institute’s case scenario “Global Growth Renewed”. In this scenario, annual global growth will be 4 percent until 2050. This progress will be driven by emerging markets, particularly in India and China. Established market, similar to that of U.S., will enjoy moderate growth, and the remaining developed nations will be stagnant. The base of consumers will widen due to growth of the wealthy middle class, and these customers will value brands (Wilkinson et al., 2011). China will continue to consolidate. Financial stress will lead to the acceleration of recycling in developed markets, and the magic of diamond will be lost. There will be a massive increase in demand in the East that will strain supply’s ability to meet it. Governments will increase their taxation, lowering the amount of capacity brought online.

The fourth scenario is also based on the case scenario of MGI “Emerging Economies Lead”. The scenario opines that the annual global growth rate will be 3.3 per cent until 2050. It suggests that the economy will witness increased volatility levels, and cyclical diamond industry will have a scattered supply expansion. There will be strong price variations between mining companies striving to diversify their assets to evade cyclicality. Consumers will prefer other luxury goods instead of diamonds. The consolidation of retail will increase since players will be out of business.

Major Environmental Risks and Socio-political Issues

Harry Winston faces a number of challenges not experienced by other world diamond corporations. The remote location of its Diavik Mine proves a major challenge faced by the corporation (Harry Winston Diamond Corporation, 2010). The company is forced to provide housing and facilities for its workers since these mines are located far from towns and human settlement areas. It increases the corporation’s logistic and economic expenses resulting in increased costs. There are increased labour costs in Canada compared to Africa and India since wages paid to manufacturing and mining employees in Africa are low compared to those paid in Canada. The company also faces challenges of open pit mines depletion. Hence, in order to continue working on the ore body, underground mining, which costs fifty percent more, is needed. The use of hydrocarbons and electricity in exploration and mining also proves to be a challenge to the company. Release of carbon dioxide into the air as a by-product of both energy sources is a major cause of global warming (UNEP, 2012). The increase of the average temperature of the Earth's surface affects the environment, leading to intensive climate change that influences the lives of people and all other living organisms.

In addition, Harry Winston faces the challenge of uncertainty in determining the source of the diamond that it purchases (Harry Winston Diamond Corporation, 2012). The purchase of diamond presents the challenge of acquiring conflict diamond. It is a diamond that has been acquired from illegal sources, such as war zones. It is especially common in Africa where some rebel groups acquire diamonds and sell them to finance their operations. The corporation is faced with the socio-political risk of gambling and ascertaining the authenticity of the diamond it acquires from its buyer. It presents challenges given the increased international regulations of Diamond Trade. International corporations aim at reducing the trade of blood diamond that is rampant in Africa.

Adaptation to Environmental and Socio-political Limitations

Harry Winston will adapt to environmental limitations by adoption of efficient energy use and renewable energy programs. The company would use a carbon monitor that would supervise its emission levels by assessing the releases of carbon dioxide and energy. The corporation would reduce its mines energy use, coming up with a number of schemes, fixing timers on their boilers, putting off fans that are pressurized during the weekends, and devising battery-powered vehicles, which would not emit harmful gases. The company would conserve water through reuse, reduction or recycling. Harry Winston Corporation also aims to implement stringent usage targets that will be carefully monitored.

In addition, the company would commence the investigation of alternative water sources to enable it adapt to environmental limitations. Equally, Harry Winston will take part in community development projects, which will help it adjust to its social limitations. By interacting with the local community, the diamond industry would be able to benefit from the shared knowledge, improving relationship with the community. In an effort to avoid engagement in the blood diamond business, the corporation would come up with a custody chain system aimed at providing detailed records on the source of diamond it purchases (The Confederation Board of Canada, 2013).

Strategy for Sustainable Innovation

Due to the increasing competition in the diamond industry, Harry Winston Diamond Corporation has to invent strategies that would guarantee sustainability and survival. Sustainability is a corporation’s right to exist. Harry Winston can achieve this by being ready to compete in the market that is saturated with flexible and dynamic business plans. The company should equally invest in diversification and technology. It should also invest in innovative manufacturing and strategies aimed at ensuring fruitful diamond production and development of unique products.

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Existing Industry Standards and Government Laws

Presently, most diamond industry players, including Harry Winston, are managed by the ISO 14001 environmental management standards (Mining Association of Canada, 2009). Harry Winston Diamond Corporation has a policy of publishing reports on their environmental performance on a regular basis. In addition to the ISO 14001 standards, the corporation makes use of the Social and Environmental Impact Assessments to determine the social and environmental implications of its mines and also Iran - Pro League to identify gaps that are present in their operations. Carrying out this assessment is a requirement of the government and the local authorities prior to being awarded permission to engage in mining. Finally, the Northwest Territories Government has initiated a Program for Diamond Certification with rights to voluntary participation.

Business Leader’s Plan for Vision 2050

Global corporations, have plans for vision 2050. This vision is the outcome of an effort of collaboration. Contents of business 2050 were developed by twenty-nine companies through collaborative work. Business companies are planning for a foundation of interaction between civil societies, governments and enterprises on the realization of a sustainable future (WBCSD, 2010). Vision 2050 plans for the realization of a planet of approximately nine billion people living properly with sufficient food, shelter, mobility, basic education, clean water, health, and sanitation. The vision’s pathway is a demonstration that changes in behaviour and social innovation are just as significant as improved technological innovation. The pathway for attaining this vision entails nine key elements.

The key pathway entails handling the need for development of several people, enabling the attainment of basic education, and empowering women economically. The vision also entails the incorporation of externalities costs beginning with ecosystem service, carbon and water (WBCSD, 2010). In addition it aims at doubling output of agriculture without land size increase and increasing water used. It also aims at stopping deforestation and swelling yields from man-made forests. Finally, the vision aims at halving global carbon emissions by 2050 through a change to energy systems with low carbon levels and side energy systems that are highly improved

There are a number of trends, predictions and guidelines that have been predicted to influence the future business environment of organizations. For a company to be successful in future, it is necessary for it to analyse these economic trends and come up with potential future business scenarios that will guarantee its continued survival and success. Projections reveal that emerging economies present good market in the future thus it is necessary for Harry Winston Diamond Corporation to come up with strategies that will make its presence to be felt in these emerging economies.

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