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The Swiss Watch Industries

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This presentation was delivered on Swiss Watch industry. It doesn't have analysis of changes in porter's 5 forces.

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The Swiss Watch Industries

  1. 1. The Watch Industries In Switzerland Japan and The USA 1970s By Anindita, Abhishek, Ashish Sinha, Rajul, Suket & Anshuman
  2. 2. We’ll Discuss.. Overview of watch industry during 1970 How did Swiss watch industry evolve How did Japan compete? How did USA compete? What were the disruptive events? A comprehensive analysis 2
  3. 3. By Anindita The Watch Industry in 1970 Overview 3
  4. 4. Pin vs. Jewelled Lever Watch Pin lever watch has two major parts Movement block (Ebauche) like the chassis and engine Framework, gear train, winding & setting machine Regulating components like the transmission Escapement, Balance wheel and hairspring Simple in design Jewelled lever Complex in design Not much correlation found with cost or performance Sold like jewellery 4
  5. 5. A Quick Look at Pin Lever 5
  6. 6. 1970 Watch Industry Looked Like.. 80 70 Switz exports its 97% production. 42% of world production 60 Japan exports its 58% production. Rest consumed locally Value in Million USD 50 17% global production from USSR, China & East Germany 40 30 USA consumes its 99.8% production. Rest imports. 20 10 Production Exports 0 Switz. Japan USSR USA France West UK Italy Ger. Countries 6
  7. 7. Swiss Were Key Exporter in 1970 Produced 42% of world output – 3% of Swiss GNP – Employed 8% Swiss labour 97% of production exported – 610 M USD value – 12% of total Swiss exports Created the brand image for all Swiss products BUT in 1940 – Produced 80% of world share! Share declined. 7
  8. 8. By Abhishek Swiss Watch Industry Struggles in 1970 8
  9. 9. Swiss Exported Mainly Finished Watches Switch Watch Exports - In Value 90% 80% % in Value 70% 60% 50% 40% 30% 20% 10% 0% Finished Watch Mis. Watch Watches Movements Components 9
  10. 10. Swiss Exported Mainly Finished Watches Swith Watch Exports - By Watch Type 500 400 300 200 Units (Millions) Value (M USD) 100 0 Jewelled Pin Lever Electric - lever Electronic 10
  11. 11. % Export To USA Declined Exports in Unit & Value % to Major Markets - 1970 30.00% % of total units 25.00% % of total value 20.00% Components 15.00% % 10.00% 5.00% 0.00% USA Hong UK Arabia West Italy Spain Japan Kong Germany 11
  12. 12. % Export To USA Declined Jewelled Lever Exports in Unit % - 1960-70 35 In Percentage Of Total Exports 30 25 Components 20 15 Jewelled Lever 1960 Jewelled Lever 1970 10 5 0 Europe Africa Asia USA - Latin Canada America 12
  13. 13. % Export To USA Declined Pin Lever Exports in Unit % : 1960-70 50 45 Components In % of Total PinLever Exports 40 35 30 25 1960 20 1970 15 10 5 0 Europe Africa Middle Asia USA - Latin East Canada America 13
  14. 14. How Swiss Watch Ind. Developed More like cottage industry – Watch making a craft – Depended upon skills acquired over years Two tier due to Renaissance (1800) – Component manufacturing AND Assembling Govt intervention due to 1920-30 recession – Cartel: FH (assembler), Ebauches SA & UBAH (comp) Govt invested in ASUAC. Imposed restrictions on – selling & buying components – fixing selling price, production, operational changes – expansion, acquisition, technology transfer abroad Cartel ends in 1966 – FH resisted due to poor quality supplied by protected EBA / UBAH 14
  15. 15. Development after 1966 Consolidation – 20% export shared by SSIH – General Watch Holding Company formed – Ebauche SA partnered with Holdings L SA – 75% of exports controlled by 8 companies But many problems persisted – Duplicate product lines – Disjoint production facilities – Management out of sync 15
  16. 16. Swiss Also Took Aggressive Steps Investment and acquisition in USA – Waltham Watch Company, Elgin, Gruen – Hamilton, first marketer of digital watch in USA – Benefitted in USA from the USA based brands Promotional practices – World wide trainings on sales service and management Research and Development – Centre Electronique Horliger (CEH) to develop tuning fork mechanism to counter Bulova of USA – FASEC with Brown Baveri & Landis (Swiss) and Phillips (Dutch) 16
  17. 17. But Gaps Were Plenty Fragmentation continued – At low level. Lack of integration. – Leading to poor strategy development Research and Development not enough – .8% of industry sales Threat of disruptive technology – Plans inadequate for quartz watches Diversification nonexistent – Resulting in high risk 17
  18. 18. By Suket Japan Watch Industry Picking up in 1970 18
  19. 19. Concentrated Industry in Japan 9% 3% 28% 60% K. Hattori & Co. Citizen Watch Orient Watch Ricoh Watch 4 major firms 24 million units 14% of the world market 19
  20. 20. Japanese Watch Industry Evolves Started in 1880’s Focused on home market Focused on jeweled-lever watches Quality of time pieces inferior to quality of that in the west 5 million units/year in 1930 20
  21. 21. Produces 7% world output in 1960 Produced 7 million units/year in 1960 Faced saturation in domestic market Explored South East Asia Western European United States 66% of exports destined for US or Hong Kong 21
  22. 22. Had Focused Marketing Strategy Focused on Jeweled-lever watches Medium price category through cost differentiation Avoided luxury Segment Existing firms well entrenched and positioned as prestigious watch-makers Investment needed to build up a prestigious image Limited sales in unit terms Contrary to mass production strategy 22
  23. 23. Japan Achieved Low Cost Disciplined workers at low wages Expanded to Hong Kong Advanced production techniques Assembly line Backward Integration 23
  24. 24. Japan Also Gained From... Large home market Well protected from imports Government encouraged concentrated structure Growth of Japanese Economy Enlarged & upgraded production facilities Non-watch production New technology exposure 24
  25. 25. By Ashish USA – The Biggest Consumer in 1970 25
  26. 26. US: Largest Watch Market in 1970 0 Manufactured at 40 Home Import / Virgin 60 Island Export World’s largest watch market – Size – 1 billion $ – Volume – 45 million Bulova and Timex dominant players – 66% to 75% market share total 26
  27. 27. How Bulova and Timex Differed Bulova – Segmentation: • Low(<30$) & Medium(30$-100$) Segment – “Caravells” • Top Segment(100+) – “Accutron” : Patented Tuning Fork Technology. – Cost Advantage – Got cheap jeweled watch from Citizen, Japan Timex – Focused on inexpensive Pin-Lever technology – Believed in Mass Production How They Achieved Success – Directly selling to customer. No jewelers/repairmen. – Exploited all niches (800 different watch models) – Spread across the world, best of whole world – Aggressive advertisement & distribution – Benefited from Govt sponsored R&D projects. 27
  28. 28. How US Watch Industry Evolved After 2nd World War, mostly domestic manufactured – Jeweled lever watches dominated – No labor intensive and specialized skills Price Competition by Timex in low /mid price during 1950-60 – Small swiss firms also came with cheap watches – Japanese started coming in 50s – Mass merchandizing (new distribution channels) revolution Only 2 USA companies remain in 1970, What about rest? – Acquired manufacturing capacity in Switzerland, – Procured from Japanese/Swiss firms – Manufactured/Assembled in the Virgin Islands Most companies became “Marketing” companies 28
  29. 29. The Quartz Crystal Cometh US @ the centre of Quartz technology Seiko introduces first quartz watch in 1970 Piaget, Hamilton join the race Price range $1,350 - $2900 Objective – to milk the cream off the market In 1971, others join in. Price range $125 - $475 1972, more players. Prices fall further.
  30. 30. The Quartz Crystal Race Heats Up Waltham introduces a quartz crystal, solid state, liquid crystal display (LCD) watch Microma Universal, supplier of IC and LCD, enters the watch market Chip fabricators - Texas Instruments, RCA, Motorola to enter electronic watch making ?? All quartz watches worldwide contained IC by US electronics manufacturers
  31. 31. Quartz Is Superior! Low labour cost – as low as 10% compared to 70% for mechanical watches No patent issues. Technology available outside the watch-making field Low cost without compromising quality Higher economies of scale possible Quartz crystal and LCD technologies being perfected further
  32. 32. Quartz Will Impact The market Tall claims of decline of mechanical watches Prognosis of emergence of American watch industry and submergence of others High hopes due to long range price prospects Estimated market share in 1980 only 1/3 of total market of 300 million units Swiss watchmakers claim preparedness for mass production of quartz watches
  33. 33. By Anshuman Is Swiss Watch Industry Prepared? 34
  34. 34. Why did the Swiss dominate? Strong dimensions of the Swiss competitive strategy – Specialization: developed as a tradition and a cottage industry – Brand identification: “Made in Switzerland” – Product quality : excellent – Technological leadership: leader in mechanical watches The Swiss business scope – Catering to world market – Catering to almost all the market segments 35
  35. 35. World market, all The Competitive Positions (Approx.) Bulova segments Timex Omega, Rolex small Competitive scope Swiss Seiko, Citizen Restricted market Price Differentiation Competitive strategy 36
  36. 36. Why did/should dominant position erode? 2 Flank 1 Preemptive Attacker Defender Contraction Counter-offensive Mobile Frontal attack by the competitors •Showed no signs of Dynamic Capability 3 •Showed signs of Core Rigidity •Competitors adapted the Scale-driven value drivers •Failed to recognize the Industry Disruption & Technical Substitution Government policies 37
  37. 37. Our Recommendations To Swiss Consolidate quickly Invest more – In R&D – In Production Select your market Position your brand – Advertise Play like the leader – Extend market, defend position, expand share – Take lead in innovation, your original position 38
  38. 38. That’s All From Group A 39

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