I wrote a blog post a while back about The Swatch Group and their future plans with respect to outsourcing watch movements. Swatch Group CEO, Nicolas Hayek, is still planning on reducing the amount of movements his company produces starting in 2012. Meanwhile, Swatch currently makes approximately 80% of all of the Swiss-made watch parts in the world.
I now just read an article in last week’s Wall Street Journal that sheds some light on a potential predicament that could be facing the watch industry if Swatch decides to cut movement production too drastically. It has really got me thinking…
Let’s say Hayek’s frustration elevates with respect to some brands being able to put their focus on spending money towards marketing and opening new stores instead of movement production. He now wants to completely stop supplying them with movements, since he believes they are somewhat taking the art of watchmaking for granted. All of a sudden, some watch manufacturers are not able to completely absorb the costs of making all of their own movement parts. Consequently, they start opening factories in countries where labor costs are much lower.
Eventually, some “Swiss-made” watches will really be teetering on the edge of the definition; they would not truly be made in Switzerland. Would some collectors and watch enthusiasts be turned off by this? Switzerland has been the heart of watch making for centuries. Now some “Swiss-made” watches will have hairsprings, rotors or key movement components that are made in other countries. Is it a turn off or really not that big of a deal?
According to Swiss law, a watch is “Swiss made” if its movement is Swiss, its movement is cased up in Switzerland and the manufacturer carries out the final inspection of the movement in Switzerland. A watch movement is Swiss if it is assembled in Switzerland, it is inspected in Switzerland and the Swiss manufacturer’s componenets account for 50 percent of the total value. This 50% rule for “Swiss-made” watches has been criticized for many years. A lot of people do not think it is tough enough and believe it is way too vague. The WSJ article mentions how the Mercedes Benz C-Class is manufactured in South Africa, but people still consider it a “German-made” automobile.
The Switzerland Competition Commission does see Swatch’s dominance in the world of movement production as somewhat of a monopoly and will consider whether a reduction is an abuse of power. They did agree in June, however, for Swatch to reduce their production by 15%. The brands that put forth extensive efforts to start producing completely in-house movements over the last several years sure look smart now.