The impact of external forces on cartel network dynamics: Direct research in the diamond industry

Abstract

This paper describes the impact of external environmental forces on cartel networks. Using a case research approach, this report examines two leading business networks within one industry, over time. The results suggest that (a) bargaining power of intermediaries increases with the advent of new and powerful actors, (b) process activities that cartels previously controlled are being outsourced to new actors sometimes based in developing countries, (c) other actors are acquiring resources once dominated by a cartel, (d) external forces triggered by the illegal diamond trade, such as international regulatory constraints, no longer favour cartels like De Beers, and (e) over time, these and additional environment factors are forcing actors like De Beers who perform rigid process activities to become more flexible. For example, forces are moving cartels which relied previously on hand-picked intermediaries in highly controlled networks to market their products to adopt a flexible market-focused expansion of operations in retail contexts.