Parenthood Troubles in the Global Generic Marketing Initiative

Earlier this year, we wrote an editorial titled “The Mother of All Umbrellas: The International Diamond Board” With great enthusiasm, we applauded the ~40 diamond producers and select influential industry players who convened the so-called “St. Petersburg Working Group,” where they announced the creation of an International Diamond Board (IDB), a body that was incorporated in London. Alrosa became the engine behind the first St. Petersburg meeting.

The whole concept was conceived out of a growing industry need for continued global generic diamond promotion, in the aftermath of the De Beers decision to promote mostly its own proprietary brands. The necessity for generic diamond marketing is still with us, probably more so today than ever before, when there is considerable competition in the fight for becoming the luxury product consumers choose.

But sadly, this infant organization has become like a little baby that has spent the last half year trying to get her father to admit that he was present at her inception, and responsible for some of its financial needs. The “father,” Moscow-based Alrosa, has never denied his role in IDB’s creation but has ignored all requests for “child support.” These financial obligations are due to a plethora of lawyers and consultants who worked out the legal and financial structure of this new Mother of All Umbrellas. Other producers (De Beers, Rio Tinto, BHP Billiton and others) may just have to pay Alrosa’s share.

The Russians are in a very peculiar situation now. History will grant them all (or most of) the credit for initiating the secretive and by-invitation-only St. Petersburg conclave, which set in motion activities ranging from financial planning, creation of articles of association and by-laws, the formulation of strategies, to a worldwide search for the right CEO. A handful of people labored tirelessly to get this body on its feet.

But after all the effort, problems arose in Moscow about the organization’s parenthood. Former Alrosa president Sergei Vybornov was ousted and replaced by Fyodor Andreyev. Andreyev had other priorities in mind, and during an October visit in London, he apparently said that he was “unaware of the IDB initiative” and that he promised “to look into it.” An answer was promised no later than mid-November. It has yet to come.

CEO Candidates-in-Waiting

The two final candidates for the CEO position had been kept waiting since July because De Beers, Rio Tinto,  BHP Billiton and others in the selection committee wanted to afford the Russians the opportunity to have a say in who would be running the new body. Repeated promises were made by Alrosa that it would announce whether it intended to participate in the very organization it founded.

This represented a giant step backwards: Suddenly the real issue became whether Alrosa was still interested in the initiative altogether. That should never have become something that is not self-evident. After all, it was Alrosa’s own idea.

Spokesmen for Alrosa have repeatedly announced that a decision to participate in a global, generic marketing program must be made at the board of directors’ level. So why wasn’t that discussion made before the organization was established? While several board meetings have taken place since President Andreyev took over, the decision has always been postponed. The Russians have never said “no,” but, somehow, they are neither capable nor willing to say “Yes” either. Moreover, the agreement that they would share in the organization’s costs has not yet been honored.

Alrosa is believed to have one more board meeting in 2009 (I think on December 29), where the directors will probably toast the New Year. They might even toast their belated acceptance of the IDB – but don’t hold your breath.

IDB Won’t Exist without Alrosa’s Participation

There is a temptation to write an obituary for the IDB and to eulogize its short-lived intention, but that would be both irresponsible and premature. As we said before, our industry needs generic advertising. However, a global initiative of this kind will not happen without Alrosa’s participation. There is no way that De Beers and a few other producers will assume the total financial responsibility of the IDB. Alrosa is probably very much aware of this, which may be the reason it is reluctant to say “No!”

In all other comparable commodities – gold, platinum, silver, etc. – the generic promotions are driven and financed by the producers. They recover their investment through the better prices they get for their commodities when consumer demand grows. Other downstream pipeline players may participate – but they are not the engine for the initiatives. At the recent Antwerp Diamond Symposium, one of the consultants designing the organization promised that the diamantaires will be able to quantify (i.e. see) the return on their investment.

The diamond industry is basically an oligopoly, with a handful of corporate players on the upstream side. If the second largest player opts out, there will not be a generic diamond marketing body to step into the historical shoes of De Beers. Let’s hope hat Alrosa will understand that opting out is no option – even though it seems that this is just what they are doing. In that scenario, IDB will lose all its parents – and become an orphan. A very young one at that.

Have a nice weekend.