1) The pre-quartz era.
The flourishing of the Swiss watch industry has not always been constant.
In recent times trouble brewed when there was worldwide gloom. Switzerland was vastly affected by the Great Depression of 1929-1931 (to 1938). The Country suffered a double blow: while their exports declined their much needed imported raw materials became more expensive.
During this time, in the early 1930s, the Federation of the Swiss Watch industry (FHS) was created as part of joint efforts to re-organise the Swiss watch business and to find a way to survive the Great Depression. For the same purpose SSIH was created from the initiative of companies like Omega and Tissot with the view to craft “important” movements. They were joined by other companies like Lemania Watch Co & A. Lugrin Co. In 1931 (similar to SSIH) ASUAG was born with the assistance of the Swiss Government and Swiss Banks; their aim was to combat the severe economic crisis and ensure employment by means of refinancing.
[On a side note: in 1934 a banking group named WIR was founded as a result of currency shortages after the stock market crash of 1929. WIR is an independent complementary currency system in Switzerland that serves small and medium-sized businesses. Although WIR started with only 16 members, today it has grown to include 62,000 — among whom is traded approximately CHF 1.65 billion annually (data from 2004). The available money supply (currency code CHW) as of 2005 was the equivalent of 839 million Swiss francs. The WIR bank is a not for profit bank. It serves the interest of its clients, not the bank itself.]
Of course there were times of prosperity too. Since the First World War Switzerland has maintained a policy of neutrality and non belligerence and for this reason the Second World War was of somewhat economic benefit to the Swiss Industries. During WWII most Countries were obliged to shift timing apparatus production to timing devices for military ordnance, like fuses, instrumentation, timers, etc. The Swiss Watch Industry was, meanwhile, able to continue producing watches and once the war was over, enjoyed a market advantage that allowed it to command up to 90% of the world’s consumer watch industry. They were thus able to satisfy the pent-up demand for consumer goods that occurred in the late 1940’s and early 1950’s.
2) A whole Swiss Pearl Harbour.
But just when nobody expected it and to prove that you cannot settle on laurels in commerce the 1960s brought what I consider the “Pearl Harbour” of the Swiss watch industry: the quartz movement. The Swiss had poured millions into researching and inventing it but the Japanese were able to come into the market with a bang. Within a few years, many famous Swiss watch brands went out of business.
The Swiss watch industry, with its tradition of small, often family-owned firms, and its continued focus on more expensive, labour-intensive mechanical movements, was caught by surprise by the mass produced watches that the introduction of quartz movements allowed. Brands such as Seiko and Citizen made very quickly massive sales. Almost a decade later, with the view to adapt, famous brands like Vacheron Constantin, Patek Philippe and Rolex also proposed models with quartz movement.
In the 1960s, both ASUAG and SSIH were among the world’s largest watch-making firms but by the mid-1970s, the market had become glutted, prices plunged, and the entire industry underwent a crisis, even as demand for digital watches and their LED or LCD faces vanished.
In the late 1970s, ASUAG and SSIH, joined by the Swiss industry as a whole, attempted to reverse their fortunes, investing massively in quartz module production facilities. By the end of the decade, the industry had succeeded in bringing all quartz component manufacture needs within the country’s borders. Yet the move proved too late. In addition to the glut of cheap watches, ASUAG and SSIH suffered from important economic factors: the devaluation of the U.S. dollar in the mid-1970s that vastly increased the cost of importing Swiss watches into what had been one of the industry’s chief marketplaces. At the same time, Switzerland could not hope to compete with the low wage and production costs available in the Far East and America’s cheap Timex was also taking market share.
SSIH, which had become Switzerland’s largest watchmaker, was bleeding: after suffering large losses in 1980, it received a US$150 million bailout from its banks. Nevertheless, its losses continued and both ASUAG and SSIH were facing bankruptcy proceedings. As the decade closed, more than half of the 1,600 Swiss watchmakers present at the start of the decade had gone out of business due to the recession, due to the Asian quartz watch production and poor management too. SSIH (including Omega, Blancpain, F. Piguet, and Tissot) became insolvent. ASUAG (including ETA, Oris, Longines and Rado) who had been the world’s largest producer of watch movements, also failed in 1982 with ownership being assumed by creditor banks. In 1982 alone overall sales of Swiss watches dropped 25%.
By that year ASUAG and SSIH were facing liquidation procedures and foreign competitors hovered around the two companies, eager to buy up such famous brands as Longines, Hamilton, Tissot, Rado, and Omega. One Japanese company readily offered 400 million SFr to buy Omega.
Observers of the Swiss watch industry seemed resigned to see watchmaking fade away from Swiss history. Blancpain and Frederic Piguet were purchased by Jean-Claude Biver (with assistance from Jacques Piguet, grandson of the famous Louis-Elysée Piguet) for the humble price of 20,000 SFr (about $12,000).
3) Nicholas Hayek saved Switzerland.
A reverse of fortune was round the corner. ASUAG and SSIH’s creditors hired Nicholas Hayek to investigate the Swiss watchmaking industry. Despite the banks’ desire to shut down the companies and sell off its jewels to recoup some of their losses, the so-called Hayek Study would lead the Swiss industry into a new era.
The banks agreed on the merger of the ASUAG/SSIH entity in 1983 but at the same time refused Hayek’s idea of marketing a new type of watch, low-cost, under US$50. Instead, they offered to sell 51 percent of the merged company to Hayek for SFr 151 million. Hayek accepted the gamble, renamed the company as Société Suisse de Microelectronique & d’Horlogerie, or SMH.
Hayek counted on an innovation made by the company’s ETA watch movement subsidiary, led then by Ernst Thomke and Thomke’s attention had been turned toward rescuing not only parent company ASUAG but also SSIH, as a means of rescuing ETA itself; the failure of these two watchmaking powerhouses would have meant the failure of ETA as well. Thomke devised a radically new watch concept to be manufactured entirely by automated production methods. It was this concept that Hayek brought to SMH’s creditors as the means to rescue the newly merged company.
In 1998 SMH became The Swatch Group, comprising ETA (Switzerland number one producer of watch movements), Swatch, Omega, Tissot, Breguet, Longines, Rado, Certina and some twenty others brands.
Someone else, that had become interested in a slice of the new Swiss watch era, was the Rembrandt Group Limited of South Africa (now known as Remgro Limited), established by Dr Anton Rupert in the 1940s. They owned significant interests in the tobacco, financial services, wines and spirits, gold and diamond mining along with the investment in Rothmans International and the Richemont Group (Compagnie Financière Richemont S.A) that was created in 1988.
At that time Richemont owned minority holdings in Cartier Monde SA and Rothmans International, which also held investments in Cartier Monde, Alfred Dunhill and, through Alfred Dunhill, Montblanc and Chloé.
By the mid 90s Richemont created the Vendôme Luxury Group and soon after and in years to come, proceeded to acquire brands like: Vacheron Constantin, Officine Panerai, Van Cleef & Arpels, A. Lange & Söhne etc… To-date Richemont controls around 20 International brands including Jaeger LeCoultre and Net-a-Porter.
4) Learning from past mistakes
From mid 1980s to mid 2000 we saw the birth of many new watch brands and we saw also the revival of some of those 800+ Swiss brands that had gone out of business up to the late 80s. In the mind of the consumers Swiss made, once again, embodied the concept of quality.
To emphasise this fact we have companies from USA, Ireland, Spain and the UK, to name a few, that, despite on occasion holding a time honoured conspicuous watch making tradition in their own countries, are now labelling their watches as Swiss made.
As Hayek saved the Swiss watch industry in general, he also created the “jump on the wagon” trend. Thomke new watch concept by automated production methods made it easier to produce and assemble watches but it also made them much cheaper to produce.
The FHS states that a Swiss watch to be marked as ‘Swiss made’ must be
• its movement is Swiss and,
• its movement is cased up in Switzerland and;
• the manufacturer carries out the final inspection in Switzerland
The Swiss watch movement is considered Swiss if:
• the movement has been assembled in Switzerland and,
• the movement has been inspected by the manufacturer in Switzerland and;
• the components of Swiss manufacture account for at least 50 percent of the total value, without taking into account the cost of assembly.
Switzerland’s main trading partner is the EU. Trade figures in 2008 show €80 billion in imports and €97.6 billion in exports. The 1972 and 1992 trade agreements with the EU allowed Switzerland to be more flexible with their trading EU partners.
Switzerland established trade relations within the colonial trading system of major European powers operating in China in the late 1800. But only in the mid-1990s, Swiss-Chinese economic relations entered a period of mutual cooperation without precedent. China’s advancing industrialization accelerated bilateral trade considerably that was predominantly beneficial to the Swiss machinery and watch industry. The industrial cooperation began to increase, as more and more Swiss-based companies started to establish representative offices in China’s coastal area and to found joint ventures with Chinese partners.
5) All to do with profits and not quality.
Better machinery can produce more watch parts at an accelerated rate and their assembly would also be cheaper and faster. New trading agreements with EU partners and imports from China are allowing Swiss “manufacturers” to import and pay less for many of its watch components. The 50% or 51% rule on Swiss made is far from being perfect.
From a declining industry that almost went out of business completely just over two decades ago, we are now having brands popping up all over the place and all of them are making good profits.
The main issue is that the “cottage-industry” within the watch industry, does not exist any longer. Watch production has been standardized to spit out watches as if they were sweets. We are often led to believe that special care and engineering is taking place at the point of construction and assembly of the movement and the watch.
Almost some 20 years ago, a watchmaker, named Walt Odets, talking about the Rolex Explorer 14270, stated “The caliber 3000 is obviously engineered for minimum parts count, easy assembly, and economy of manufacture and service”.
He carried on stating: “..friction-set click wheel jewels in the automatic winding bridge are inserted in holes with completely unfinished edges. Not only are the holes unhampered, but machining debris remained attached to the edge of hole. As a result, when the jewels were inserted in the holes, they pushed debris in front of them, some of which later fell onto the train wheel bridge below, and the wheel pivots located there; some debris also remained on top of the winding jewels… purely pragmatic and unadorned finish around the jewel hole of an IWC calibre 884, suggests how minimum standards of workmanship in such matters should look. Such machining residue acts as an abrasive in a watch movement and is unacceptable in a watch of any cost. Unfortunately, contamination with brass shavings and dust was found in several locations in the watch”.
Needless to say that Mr Odets received a frying from many within the watch community.
Such low quality components were introduced into watches that were selling for $3000 and above. However we can say that, with the view to even further save money on production and increase profits, the making of movements and the assembly have been smoother in recent years.
Quality is far from being optimum but the watches selling formula is much different from what we had prior to the 90s.
While all production costs are down, manufacturing profits are up helped by the 80s Hayek’s formula of the new type of watch (low-cost under US$50 – Swatch watch).
In bringing the attention of the reader to the sum of $50, I would like to ask you to investigate the actual costs of materials used even on the most expensive of timepieces. The general watch connoisseur will insist, quite patronising, that the cost of an important watch is, actually, in the movement (hardly the case for the majority, I would comfortably state 96%, of the watches out there).
6) Global marketing and the Internet
The Internet has had a number of hic-ups with the biggest in 2000 when the big bubble created burst. The Swiss don’t believe much in the Internet and it has taken many major companies a very long time to decide to come on line. Even with a good Whois search it is often difficult to find out when a domain name was created in Switzerland. As recently as during the 2005 Basel Watch Fair many brands were discussing the Internet as something not to be reckoned with.
However, by searching for correct and precise key-words, the Internet now provides information about anything. I am not saying that it is unbiased information; in most case, in fact, it is just the opposite, but a good researcher and someone with some knowledge will be able to establish facts and refuse deceitful information.
What Hayek created with the Swatch watch was a new marketing concept for the Swiss watch industry; Hayek changed the perception of the watch from a timeless time machine to a fashion item/icon.
Very little effort is now needed to make new watches thanks to useful business partnerships with the EU and China and with faster and better tooling.
Famous brands and large corporations (Richemont, LVMH, Swatch Group) are now steering their efforts into marketing to create the desired status symbol. The old style home-based/cottage-industry with a lot of care and attention to mechanical detail and style is now completely forgotten. What now sells watches is based on “simple” marketing by paying $20 million to someone like Tiger-Woods for sponsorship (or by “adding” the brand to celebrities like Brad Pitt, George Clooney, David Beckham and Sharon Stone, just to name a few).
Fashion does not require substantiating a price label. In fact because of its volatile nature prices on fashionable items should be contained.
7) Status symbol lies in the name.
Often this is not so. In fact the “fashionable” tag will make you more easily part with your money. A Rolex Submariner will not cost over $300 to make but still retails for over $5000. The same can be said for many other watch brands.
For how long can the Swiss watch industry (Swiss made) keep a lead on false statements like “hand-made”, special movements (which are not), cleverly named materials which, in fact, don’t mean much?
The internet has given us a new way to communicate. There are Forums on watches even if unfortunately they are often very much one sided, there are Twitter, Facebook and search engines. Consumers are becoming more and more aware of quality, costs and value for money.
There are several Swiss brands that sell value for money timepieces and a Japanese watch, all singing and dancing with not only an automatic movement but one that will also ‘reset’ time and date when it stops and will sell for around £250 or a 1/10th of the cost of a Swiss equivalent.
The next few years will tell us if this abundance of cheap produce sold at high prices will continue to be in fashion. Chinese firms and businessmen from China are buying Swiss brands/firms and, to date, Chinese technology has become as good as the Swiss. Sea-Gull, for example, is making Tourbillion movements at 1/5th of the cost of its Swiss counterpart. Like the automobile industry which is now controlled by a handful of giant corporations, some of the current 5000 watch brands will probably be assimilated by a dozen or so big distributors.
Groups are already controlling around 300 world famous brands. Out of the other 4700 brands names are popping up and going out of business on a regular basis (very much, here today – gone tomorrow). Since 1990, many Swiss brands have gone out of business, completely, or have been taken over and/or absorbed by other companies or foreign investors.
As the choice of products is so vast, there is a huge surplus of watches out there. When there is abundance of any commodity, the value of that commodity plummets. For this reason some big names can afford to make a few of their models rare by lowering their production and output so that interest in the product and its price will stay high. In most cases there is little correlation between quality and price. Otherwise why for a very similar product some brands can sell for below £100 while others command sums of thousands?
With so much information on the Web, which is FREE and plentiful, time will come that punters will move away from the perceived visible, external denotation of one’s social position and might use a wiser assessment before purchasing their next watch.
Internet equals information and information is knowledge.