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This article was in today's New York Times; I printed so those who do not have access to the link may read it.

Swatch, Supplier to Rivals, Now Aims to Cut Them Off

By RAPHAEL MINDER

Published: December 9, 2011

Swatch is probably best known for its colorful, inexpensive watches, but it owns higher-end brands that compete against companies that buy its movements.
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Mathias Depardon for The International Herald Tribune
Workers at Edox, whose managing director fears it will close if Swatch ends its role as a supplier.
Starting Jan. 1, though, the company will begin to cut back, and possibly eventually end, its sales of the inner workings to competitors to concentrate on producing watches with higher profit margins and to make sure it has enough supplies on hand for its own brands, including Longines, Omega, Tissot and Breguet.

Swatch’s move, which was approved by Switzerland’s competition authority, is being challenged in court by nine watch companies, many of them small and without the financial wherewithal to produce their own movements.

The plaintiffs predict that several companies will disappear because they have few other options for the parts, which must come from Switzerland to keep the lucrative “Swiss made” label. They also argue that if Swatch goes through with its withdrawal, the result could be as wrenching to the Swiss watch industry as the arrival of Japanese digital watches, which almost led to the industry’s collapse in the 1970s.

The dispute is fanning resentment of Swatch’s clout and size in an industry that is showing exceptional strength, as demand from Asians who want to communicate their wealth and taste overcomes the worldwide economic downturn and the strong franc.

“A lot of companies will cease to exist while Swatch, the monopoly operator, will simply get stronger,” said Peter Stas, the Dutch co-owner of Frédérique Constant, an independent watch company in Geneva that is one of the plaintiffs.

Mr. Stas acknowledged that it would have been nearly impossible for him to start out in watchmaking 23 years ago without access to Swatch’s production platform.

Swatch’s revenue last year of 6.44 billion Swiss francs, or about $6.95 billion, makes it by far the world’s largest watchmaker. The company insists that its goal is not to strangle competitors. And it argues that its withdrawal will require rivals to raise their spending on manufacturing, thereby strengthening the quality and competitiveness of the Swiss watch sector as a whole.

“In no other industry do you have one company supply all the critical parts to the people who then compete directly with it,” Nick Hayek, Swatch’s chief executive, said in an interview this year. Swatch said it had no further comment on the issue.

The Swiss watch industry is on course to easily surpass the record 17 billion francs’ worth of watches exported in 2008, according to Jean-Daniel Pasche, president of the Federation of the Swiss Watch Industry. The group includes about 500 companies, ranging from the behemoth Swatch to boutique companies that make about 100 timepieces a year but sell them for more than $300,000 each.

“We are thankfully in a situation where demand, particularly from Asia, is growing faster than supply,” Mr. Pasche said.

Swatch’s dominance of watch manufacturing dates to the early 1980s, when Nicolas G. Hayek, father of the current chief executive, was entrusted by banks to take over two indebted watch companies. He merged them and turned the combined business into a mass-volume production platform for what the company’s Web site describes as “a low-cost, high-tech, artistic and emotional ‘second watch’ — the Swatch,” as well as for other brands.

The merger received the blessing of the competition authorities and was seen as a last-ditch attempt to save a sector whose work force had shrunk almost two-thirds in 15 years, to 33,000 employees in 1984.

Employment has since climbed back to 49,000, and watch companies now face the problem of recruiting enough qualified staff to meet their orders.

In June, the Swiss competition authority ruled that Swatch would be allowed to lower its deliveries of mechanical movements to third parties next year to 85 percent of the 2010 levels, pending an antitrust investigation and a final ruling on whether Swatch could stop supplies altogether. That ruling is expected in the second half of next year.

Mr. Hayek’s arguments are even endorsed by some former executives turned competitors.

Thanks to Swatch, “there is no other industry with such cheap entry costs,” said Jean-Claude Biver, who spent 12 years on Swatch’s executive committee before becoming chairman of Hublot, which is now part of LVMH Moët Hennessy Louis Vuitton, the world’s largest luxury goods company and one of Swatch’s main rivals.

Hublot has been using Swatch components, but since 2007 it has invested 40 million francs to develop its own manufacturing capacity. It is on track to ensure that 75 percent of its revenue will come from watches made entirely in-house within three years, compared with 37 percent now.

But, Mr. Biver acknowledged, “the example of Hublot isn’t valid for everybody because you have to have a certain critical mass to justify such a heavy and long-term investment.” Hublot makes 29,000 watches a year, sold at an average of $27,000 each.

Companies with neither the margins nor the deep pockets of LVMH fear the worst. “We might as well close now if the only alternative is for us to have to invest in our own production,” said Alexandre Strambini, managing director of Edox, another plaintiff. The company produces 70,000 to 90,000 watches a year, with an average price of $1,600 to $2,200.

Even if Edox worked with other watchmakers to invest jointly in production, “I’m really not sure that we would reach sufficient volumes to make such a venture profitable,” Mr. Strambini said. Furthermore, he said, “this is a closed industry, with very little sharing among competitors.”

Outside the big watch fair events, “I have never met a director from another company,” he added with a wry smile. “We all somehow seem to believe that we are better than the others.”

In fact, the plaintiffs against Swatch filed their lawsuits separately. The largest among them, TAG Heuer, also owned by LVMH, recently withdrew its complaint. It declined to comment on its decision.

“So many companies are somehow reliant on Swatch that there should have been 100 plaintiffs,” said Miguel Garcia, owner of Sellita, the second-largest maker of movements in Switzerland.

Sellita joined the plaintiffs because it, too, is dependent on Swatch: it currently buys 50 percent of its movements from ETA, a Swatch subsidiary, which it then resells to watch companies.

Sellita is building a new factory, but production is not expected to start until 2015, which would leave some of Sellita’s 200 clients short of deliveries because of the cuts imposed by Swatch, Mr. Garcia said.

“We’ve accelerated our investment and production plans, but it’s like asking somebody to find overnight the secret formula to make Coca-Cola,” he said.

Olivier Müller, an independent watch consultant who also runs Laurent Ferrier, a boutique watch firm, said he expected Swatch’s arguments to prevail.

“This whole battle is the result of people completely underestimating the risk that at some stage Swatch could cut off rivals, which is a legitimate decision to make in a free market,” said Mr. Müller, who was a Swatch executive until 2001.

Swatch, he added, established “a quasi-monopoly not because of any ambition to control the market,” but because “everybody else was perfectly happy to spend everything on marketing rather than building up their own production.”


http://www.nytimes.com/2011/12/10/b...-parts-to-rivals.html?_r=1&hp=&pagewanted=all
 

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Interesting article, Sideman; thanks for posting it.

I think that one of the most revealing sentences was this one: “A lot of companies will cease to exist while Swatch, the monopoly operator, will simply get stronger,” said Peter Stas, the Dutch co-owner of Frédérique Constant, an independent watch company in Geneva that is one of the plaintiffs."

I am personally happy that "The Swiss Competition Authority" disagreed.

I would be angry if Swatch were preventing somebody from producing a competitive movement on their own or seriously damaging a competitor's opportunity to compete. In the early 1900's John D. Rockefeller's gasoline and kerosene business (Standard Oil Company) would establish a store across from your street corner and sell his gasoline, for free, until you went out of business. Now, that's anti-competitive.

The way I look at it, Swatch Group has helped many independent watch makers establish their brands, and now they can sink or swim on their own. Meanwhile, there will be demand for new, competitively priced, high-quality movements manufactured elsewhere in the world, and that's good for everybody involved. The higher the price of ETA ("Swiss Made") movements soar, the more room there will be for competitors to compete with movements of equal quality or perhaps surpassing quality.

Does ETA manufacture anything that competes with Seiko's spring-drive engineering? I don't think so.

I'm a guy who loves his pickup truck, but if I had to choose between a Mercedes and a Lexus, I'd opt for the Lexus.

Competition ALWAYS produces a better product, given time. It will be interesting to see if Swatch's strategy was a sound one, long term, or if its decision contains within it the seeds of its own undoing. Remember the quote of Admiral Isoroku Yamamoto in the aftermath of the Pearl Harbor attack, "I fear we have awakened a sleeping giant and filled him with a terrible resolve."

Swatch should look eastward with similar trepidation.
 

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Thanks sidecross! It is clear that when Swatch aquired ETA they would eventually want to cut off the competition! Seems logical for business and aweful for us. Swiss movements are still very desireable to me. I have managed to justify Infiniti cars over the German brands but this seems much harder!

Sent from my Droid using Tapatalk
 

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That is an interesting ariticle, thanks for sharing.

As the Gordon Gekko charater, in the movie "Wall Street", said..... "it is all about bucks, the rest is just conversation". In short, all about greed! Cheers, Bill P.
 

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That is an interesting ariticle, thanks for sharing.

As the Gordon Gekko charater, in the movie "Wall Street", said..... "it is all about bucks, the rest is just conversation". In short, all about greed! Cheers, Bill P.
One man's greed is another man's enlightened self-interest. Without self interest nobody would ever get out of bed and go to work in the morning.

All we'd have is envy, and envy never built any beautiful watch movements.

(I do fortune cookies upon request)
 

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I think what Swatch is doing is great! I am sick of seeing another Swiss company just make another watch with off the shelf movements and market it like it is gold. Fact is most of these brands do nothing for the Swiss market in the end, they just create a easy way for the copy and replica makers to kill the swiss industry. It is easy to clone one or two movements and put them in clones from 20 different brands then to copy 20 different movements from the brands themselves. Take Rolex for example, there is only one true way to know a Rolex is really a Rolex..open up and look at the movement. If Rolex used an ETA movement it would be harder to tell.

Another thing these brands are doing by upselling themselves is screwing the real brands who make their own movement. But the biggest loser is the buyer of these brands, the person thinking theyre wearing something theyre not.
 

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One man's greed is another man's enlightened self-interest. Without self interest nobody would ever get out of bed and go to work in the morning.

All we'd have is envy, and envy never built any beautiful watch movements.

(I do fortune cookies upon request)
I respectfully suggest that "enlightened self-interest" is a far different thing than greed. Cheers, Bill P.
 

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Not sure if I'm even qualified to respond to this but since I do window shop in Geneva, I might be.
Monopolies eventually shoot themselves in the foot. I'll bet 10 years from now, Swatch Group will regret all this nastiness. It's already garnering a huge negative reputation amongst retailers, distributors and the like.
It would serve Swatch Group right if an outside (non Swiss) movement maker started offering their roadkill, movements to fill the gaps that are about to be created. Seiko, sure. But in short order, China will be able to produce their own competing movements and Europe is China's largest trading partner.
The irony is it doesn't really answer the question "Why is Swatch Group pulling the rug from beneath it's small customers?".
I think the real answer is that there's a global glut in production wristwatches and the demand is actually NOT able to keep up with the supply.
I stress that I am speaking of mass production watches, not the limited edition or high end stuff.
With fewer and fewer people actually wearing fine watches, they read the writing on the walls.
I had a meeting with my investment banker in Geneva a month ago– he was wearing one of those ipod nano watches! Imagine!
If I were Edox, I'd just move the plant to China and screw Swatch Group.:cursing:
 

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I respectfully suggest that "enlightened self-interest" is a far different thing than greed. Cheers, Bill P.
I hear you, Bill.

I think all the election rhetoric -- "class warfare" -- is starting to get to me. "Greed" is kind of a one-size-fits all hand grenade. No harm intended.
 

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One man's greed is another man's enlightened self-interest. Without self interest nobody would ever get out of bed and go to work in the morning.

All we'd have is envy, and envy never built any beautiful watch movements.

(I do fortune cookies upon request)
You can carve that one into stone and leave it for generations to read. It'll still be true in 10000 years (as long as the roaches haven't taken control by then).
 

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"Why is Swatch Group pulling the rug from beneath it's small customers?".
I think Swatch sees itself essentially in conrtol of the Swiss watch business worldwide. That is not a small thing. Quality association with "Swiss Made", perceived or real, is not going away and will continue to drive the high end watch trade, Chinese or Japanese movements notwithstanding.

It was a wise move for Swatch, however places the small independent watch producers in a tough position. Many of these independent producers were competing with Swatch brands. No longer able to ride on the "Swiss Made" bus using the ETA ticket, they find themselves scrambling for movements. Most are now in serious trouble.

And I don't care what anyone thinks, I firmly believe "Swiss Made" is going to outsell "Made in China" or "Made in Japan" or many, many decades to come. At the lower end, certainly some nice watches will come out with Chinese or Japanese movements, but it is going to take quite a while before I spend $2k on a Chinese watch movement and if I was going to spend a big wad of my money on a high end watch with a Japanese movement, it's already out there - the Spring Drive.

The almost perfect coup d'etat, that's what Swatch has done, and like most such moves, the victims opened the door and financed Swatch's growth into the behemoth which in the end has eaten them.

**** Swatch...
 

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I think Swatch sees itself essentially in conrtol of the Swiss watch business worldwide. That is not a small thing. Quality association with "Swiss Made", perceived or real, is not going away and will continue to drive the high end watch trade, Chinese or Japanese movements notwithstanding.

It was a wise move for Swatch, however places the small independent watch producers in a tough position. Many of these independent producers were competing with Swatch brands. No longer able to ride on the "Swiss Made" bus using the ETA ticket, they find themselves scrambling for movements. Most are now in serious trouble.

And I don't care what anyone thinks, I firmly believe "Swiss Made" is going to outsell "Made in China" or "Made in Japan" or many, many decades to come. At the lower end, certainly some nice watches will come out with Chinese or Japanese movements, but it is going to take quite a while before I spend $2k on a Chinese watch movement and if I was going to spend a big wad of my money on a high end watch with a Japanese movement, it's already out there - the Spring Drive.

The almost perfect coup d'etat, that's what Swatch has done, and like most such moves, the victims opened the door and financed Swatch's growth into the behemoth which in the end has eaten them.

**** Swatch...
I'm no fan of Swatch, Laz, but I remember thinking the same thing about Mercedes Benz and its seeming unshakeable reputation atop the heap of European imports into the American market. Susie's dad owned the first Mercedes franchise store in Atlanta, RBM on Pharr Rd., and we used to think that there'd never be a threat to the open-ended gravy train.

Then along came Lexus and an unfortunate stint during the early '90s when Mercedes had a spate of engineering and customer-service related problems at the same time they tried to implement a lot of price increases. I heard the horror stories about the arrogance of Stuttgart and their unyielding refusal to implement suggestions from their dealerships, stateside.

Lexus made HUGE inroads around Y2K, and now has very good brand recognition -- on a par with or even surpassing Mercedes in many American markets. So, "never say never," seems like a slogan worth keeping in mind, vis a vis the Japanese.
 

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All empires rise and fall :mellow:
I remember, as a kid in the early '50s, living large and thinking, whenever I saw, "MADE IN JAPAN," -- "Jap crap," 'cause that's what I heard around our house. Oh how times have changed. Now, China has supplanted Japan in the American consumer's mind -- the country that produces kids' toys painted with lead pigments and clothing, kitchen items that are likely to fail import inspections (asbestos, etc.). Now it's "Nikon" not "Leica" that professional photographers shoot with -- Nikon or Canon, both leaders in worldwide optics and photo-imaging. What happened to Kodak, Bell & Howell, Polaroid -- American dominance, or European? D'oh!

And -- like Laz suggested -- the Seiko springdrive movement. What's next out of Japan, I wonder? I look at the decline curve in Europe -- the struggling EU banking network and crumbling euro-socialist model -- and I think Japan looks pretty darned good, longterm, if it can avoid tsunamis and meltdowns.
 

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I remember, as a kid in the early '50s, living large and thinking, whenever I saw, "MADE IN JAPAN," -- "Jap crap," 'cause that's what I heard around our house. Oh how times have changed. Now, China has supplanted Japan in the American consumer's mind -- the country that produces kids' toys painted with lead pigments and clothing, kitchen items that are likely to fail import inspections (asbestos, etc.). Now it's "Nikon" not "Leica" that professional photographers shoot with -- Nikon or Canon, both leaders in worldwide optics and photo-imaging. What happened to Kodak, Bell & Howell, Polaroid -- American dominance, or European? D'oh!

And -- like Laz suggested -- the Seiko springdrive movement. What's next out of Japan, I wonder? I look at the decline curve in Europe -- the struggling EU banking network and crumbling euro-socialist model -- and I think Japan looks pretty darned good, longterm, if it can avoid tsunamis and meltdowns.
and a shrinking population... Eventually China will suffer from its 1 child policy ... and the worm will turn yet again...

but to the subject of the thread I think Swatch is doing what Swatch should do..
 

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I understand them cutting off their competitors like Breitling, Tag etc,but I think it's a shame to cut off the little guys. Everyone will find other alternatives like Miyota and Selita but I like the ETA movements the best.
 

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I understand them cutting off their competitors like Breitling, Tag etc,but I think it's a shame to cut off the little guys. Everyone will find other alternatives like Miyota and Selita but I like the ETA movements the best.
I agree with you, 100%. Love my ETA movements.

But, I'm hoping that competition will reinvigorate the marketplace, and we'll see a worthy successor.
 
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