Swiss made watch for centuries was an equivalent of high quality and reliable product. The history of development of the watch producing industry accounts for over five centuries. However the most rapid development of wrist watch took place during the twentieth century. The case that was presented for study described the difficulties, which Swiss watch industry had to go through during the period and presents the problem, which the most powerful Swiss producer, Swatch group is presently facing.
The essence of the problem is that during the last several years the sales of the company began to fall. The reasons for this problem can be very diverse, as stated in the case. First of all, it seems that in spite of the fact, that Swatch group watches are present in every segment of market, there is a problem with the portfolio diversification. The performance mainly depended on four brand names: Swatch, Tissot, Rado and Omega. They constituted for 82 percent of sales, and represented 88 percent of 1998 operating profit.
Besides, the costs of production for the Swatch group remain relatively high, comparing to the other producers who used labor from abroad (China, Hong-Kong, India, etc.). At the same time, Swatch group was not eager to move its production to these “third world” countries, since it felt that there is a necessity to keep Swiss made brand. The other problem, that occurred for the Swatch group was the fact that the consumers who were buying their products ten years ago now wanted for a more expensive and prestigious products, while Swatch group’s suggestions did not seem as attractive to them.
Besides all that, the problems occurred in the top management of the company. Key figures of the company left the board of directors in the middle of 90’s and later criticized Hayek’s (chief of Swatch group) management skills and strategies.
Nicolas Hayek, however, is a bright figure of the Swiss watch production. In 1983, he basically gave a new life to Swiss watch industry. The problem that were faced by Swiss producers were facing during those time appeared due to the rapid development of LCD and digital watches in USA, Hong-Kong, Japan, etc. Swiss made watches historically were luxury products, which could be afforded by exclusive buyers.
The watches were mainly produced by specifically trained jewelers, using precious stones and metals. When the development of cheap watches just started in the beginning of the twentieth century and the first cheap watches were introduced in the United Stated for less then ten dollars, Swiss producers did not have a lot of worries, due to the fact that these watches were unreliable, and of poor quality, and therefore everyone, who wanted a “real watch” still were looking for possibility to afford Swiss made watch.
However in the second half of the twentieth century producers from Japan and Hong-Kong began to win the market with their relatively cheap digital LCD watch, which had a nice and fashionable design, while the producers sold them at affordable prices. The affordability of these watch was a result of using new technologies, cheap, but skillful Asian labor, especially in Hong Kong, where the major part of the digital and quartz watches were produced. The quality of the products was rather reliable, and therefore the markets of the world were now flooded with the Asian made wrist watches, leaving Swiss made competitors behind.
In the beginning of 80’s Swiss watch industry was nearly dead. Swiss creditor banks were ready to sell Swiss brand names, like Longines, Omega and Tissot to Japanese. However Nicolas Hayek, who at those times was a CEO of the Hayek Engineering, a consulting firm, felt that he could revive the Swiss watch industry and regain the market share with the help of new approach to management and marketing of the products. He invested $102 million, which mostly was his own money and led a group of 16 investors, with the purpose of buying back two groups before announcing their merger in 1983.
Hayek’s innovative marketing and charismatic personality really gave the new life to Swiss industry and it began regain their market share all over the world rapidly. However, as it was mentioned earlier during the past several years, many problems were arising due to the falling market share of the Swatch Group.
One of the issues, which were described, is the fact that Swatch Group always managed to keep its Swiss made brand, and never allowed alliance with China, or India. This was rather reasonable decision, since these countries had a bad reputation, as far as the quality of their exports, and therefore there could be no doubt about the fact that from the point of view, of ethics, it would not be a right decision to move production of Swatch group, say to India.
First of all, this could seriously hit on the reputation of the company. It is hard to believe that anyone would like to buy a Tissot or Rado brands, made in China, or in India. Therefore, if Swatch group decided to solve the problem of falling market share through moving it production with the purpose of reducing the costs, it would have to change the whole portfolio, market orientation, and target market. Another way was to make every possible effort to hide the fact that their watches are produced in India, from actual and potential consumers. However this is totally wrong from the point of business ethics.
Another issue, that could be viewed as a problem is the fact that the main profit was derived from just four brands of the company: Swatch, Tissot, Rado and Omega. This fact signifies the necessity for restructuring product portfolio of the company. Introduction of new brands could be a solution. These brands could be oriented at new target markets, where the market share was declining over the past several years.
New fashionable designs, appeals to styles, innovative marketing techniques, could result in increase of the market share of the company. In this case, the company will ensure, that they will keep the high quality Swiss made brand, which till present time attracts a lot of buyers. However, the necessity to differentiate and reorganize the product portfolio is obvious. Besides it is necessary to make new brands of Swatch group known and popular among buyers.
The complaints, which were expressed by those people, who left the board of directors, could be explained as follows further. First of all, many of them obviously were not agree with Hayek, who was not eager to move the production abroad. At the same time this practice is becoming more and more popular among the world’s watch producers.
For example the fact that US largest producer, Timex, moved its production to India certainly allowed them to produce at lesser cost, and therefore introduce the watches to the customers at the more attractive prices. Besides, this fact allowed increasing profits. At the same time the strategy of the US company, from my point of view, cannot be viewed as identical, when speaking about Swiss. First of all, the brand “Swiss made” remains valid only until the product really is made IN Swiss, not simply uses the rand name of a Swiss firm.
Therefore in this situation, I regard the refuse to move the production lines to the “third world” counties with the cheap labor, not only convenient, but ethically correct. The dispute could arise, when speaking about the brands which are oriented on regular, non-luxury buyer, who cares more about relative reliability of the product, rather then its brand or the fact that it is prestigious. In this case, the review of the policy could be made.
At the same time, even if Swatch group decided to move the production, it could have been only the countries with relatively reliable qualities of watches exports. This could reduce the cost of production. If the company moved the production to East Asia (Japan for example of Hong Kong), the advantage could be taken over the use of technologies, and the number of workers could be reduced. At the same time, in order to keep the Swiss made brand Swatch could simply buy the technologies, which could allow reduction of employees and therefore cut the cost of production.
In the conclusion, I could summarize the following: it is convenient to look for new approaches in the watch industry, since the technologies develop rapidly and the competition is growing constantly. At the same time, Swatch has unquestionable privilege due to the fact that Swiss made brand till present remains the synonym of quality and reliability. Therefore, the consumers will for a while justify high prices with regard on this fact. At the same time, the company needs to develop innovative approaches to management and marketing, as well as production process, which would allow keeping the maximum possible benefits.
Glamsmeier, Amy K.; Manufacturing Time: Global Competition in the Watch Industry, 1795-2000. 2nd ed. (2000). The Guilford Press.
Ingridient Watch (Industry Overview). Stagnito’s New Products Magazine. 2.11. pg. 10. November 1, 2002. Stagnito Communications.
Report: world surface-mount placement equipment market. Circuits Assembly. 14.2. Pg 14. February 1, 2003. UP Media Group. Inc.
Harrold, Michael. American watchmaking: A technical history of the American watch industry, 1850-1930. (1984). National Association of Watch and Clock Collectors.
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