Changing Structure of Watch Industry Essay

SWISS WATCH MARKET In 1970s the Swiss industry produced around 75 million units per year as compared to 25 million units in 1940s. Since 1966, when the Swiss Government’s restriction on sale and acquisition of watch companies lapsed, the industry experienced a crescendo of mergers, bringing down the number of firms to around 1000. In 1971, ‘ASUAG’, the “super-trust” combined the assembling firms selling seven different brands into the General Watch Holding Company. This move forged important new financial and managerial links between the component manufacturing and assembling sectors of the watch industry.

By 1971 almost three-quarters of all Swiss watch exports were accounted for by eight watch-making groups. But the industry structure was still lopsided. Several hundred small firms contributed the other quarter of Swiss exports. In the second half of the 1960s Some of Swiss companies, started investing in US watchmaking firms. Eg. Iseca SA, acquired 100% of the Waltham Watch Company. Sopinter SA acquired a 16% interest in Elgin  and Chronos Holding SA, purchased 20% of Gruen. In 1971, A Swiss Company, ‘ Bush Universal, Inc. ’,  bought 50. 2% of one of the most famous names in American watchmaking, the Hamilton Watch Company.

Though the Swiss manufacturers were barely able to meet the mounting competition within the industry, they all possessed one valuable asset; established trade names. Swiss watchmakers also invested in Research and Development. Obviously they wanted to avoid dependence in US Watch manufacturers. In 1971, Swiss introduced first quartz watches. JAPANESE WATCH MARKET Starting from 1880s, Japanese watchmakers concentrated exclusively on manufacturing Jewel-lever Watches. They stressed Jeweled Lever production as they wanted to emulate the best in western watchmaking.

By the late 1930s Japanese production of watches had reached the level of around 5 million units per year. For the next 20 years the figure remained below 5 million due to the World War II and its aftermath. In 1960 the production of watches hit the 7 million unit level In 1970 the industry produced almost 24 million units i. e. about 14% of the total world’s watch output. Unlike Switzerland, the Japanese Watch industry has always been highly concentrated. Over the years, four firms have accounted for almost all Japanese watch production. More strikingly, two firms (K. Hattori & Co.

Citizen Watch) and have accounted for almost 90% of the production. K. Hattori was only the sales arm of a cluster of firms known as the Seiko Group. In the late 1950s the Japanese watchmakers, especially Seiko and Citizen, became major suppliers of watch movements and components to the U. S. industry. Some American jeweled-lever manufacturers imported inexpensive movements from Japan, put the movements into their own cases, and marketed the watches at prices comparable to those for the Timex line of watches. By the mid-1960s the Seiko group had become the world’s largest producer of jeweled-lever watches.

Just because the Japanese have not made pin-lever watches does not mean that they have not competed in the low price end of the market. They have matched their competitors, mainly the Swiss, in terms of quality and features of watches but have undercut them in terms of price. In 1968 about 5% of the watches imported directly into the United States come from Japan and about half of all the components imported into the Virgin Islands in that year also come from Japan. Adding together direct and indirect imports, the Japanese supplied about 8% of the U. S. market at that time.

The rapid growth of Japanese economy induced Japanese watchmakers to take investment risks that competitors elsewhere shied away from. In 1970 Seiko became the first watchmaker in the world to introduce a watch employing the quartz crystal technology. US WATCH MARKET in 1970 the United States was both the World’s largest watch market and the world’s largest net importer of watches. However, watchmaking represented an insignificant part of U. S. manufacturing industry. In fact, only two U. S. watch companies, Bulova and Timex, were involved in any domestic watch production.

Since the beginning, U. S. companies have struggled to cope with the labour requirements of watchmaking. Some U. S. watch sellers never tried; from the start imported finished watches or movements and simply put them in watch cases here. Other firms tackled the problem by locating at least part of their production overseas. Bulova and Gruen, for example, established their own manufacturing plants in Switzerland in the early years of the 1980s. After the Second World, jeweled-lever watches dominated the U. S. market. Then during the 1950s and early 1960s the situation changed drastically.

Timex first stormed the low-price end of the watch market and later moved up into the middle price range. At the same time marginal Swiss producers flooded the U. S. market with inexpensive pin-lever and jeweled-lever watches making price competition all the more severe. In 1960s the Japanese began to carve out their piece of the U. S. market. On top of this, the mass-merchandising revolution of the 1950s threw the traditional watch distribution system, sales through jewelers and fine department stores, into chaos. To survive in a market dominated by price competition, one after another U.

S. watch company gave up on domestic watch manufacturing until, by 1970 there were only two survivors Bulova and Timex. Throughout the 1960s and into the 1970s Bulova sold a line of watches in each of the three major market segments, low, medium, and high-price, and equalled or outfaced competition in each segments. Also in 1960 Bulova introduced “Accuton” into the market which was a huge success. Bulova’s success also relied on aggressive marketing. Advertising and distribution support, were the two critical marketing factors. Timex was a major manufacturer in 1950s .

Timex’s product and market strategy differed from that of the traditional watchmakers. Timex did not build its reputation on the jeweled-lever watch. Instead, it took a pin-lever movement, simplified it even further so that it could be mass-produced with automated techniques, put in simple but tasteful cases and marketed its first watch line to retail at $6. 95 to $7. 95. Then Timex went outside the conventional distribution system, first selling most of its watches through drug stores and subsequently through a number of mass merchandisers.

Next, Timex drummed up sales through intensive advertising. Both Bulova and Timex made their Brand names the key to watch sales. They sold watches at low prices. They internationalized their marketing, Production and R;amp;D skills. Government too supported the R;amp;D work. During 1950s and 1960s they ventured into electro-mechanical devices. SUMMARY By the second half of 1960s watchmakers in Switzerland, US and Japan were racing to be the first in Quartz Clear Electronic watch market in US. Seiko topped in 1970 by introducing analog-version.

But due to technical reasons it was recalled. Then Bulova launched its analog ‘Accquartz’ and then other manufacturers followed. Mid 1972 Benrus introduced its analog version of quartz watch with lowest ever price which challenged entire industry. Later, The Walthman Watch Company introduced a quartz crystal, completely solid state, liquid crystal display  watch, less than half the price of the first watches of this type. Same time, Gruen introduced its Teletime, a watch comparable to Waltham’s cheaper than Waltham watch.

Now, Microma, a supplier of integrated circuits and liquid crystal displays, disclosed the idea to sell further cheaper watches under its own brand name. The introduction of the quartz watch in 1969 was a revolutionary improvement in watch technology. By the 1980s, quartz watches had taken over most of the watch market from the mechanical watch industry. At the beginning of the 18th century, Switzerland was one of important centers of watchmaking. By the early 1970s the Swiss industry produced around 75 million units per year as compared to 25 million units in 1940s.

However the Swiss watch industry was far more fragmented than that in any other watchmaking nation. In the early 1960s about 2000 separate firms were engaged in watchmaking in Switzerland. They could be brought under two categories. 1) Finished watch manufacturers 2) Component Manufacturers Since 1966, when the Swiss Goverment’s restriction on sale and acquisition of watch companies lapsed, the industry experienced a crescendo of mergers, bringing down the number of firms to around 1000. Both horizontal and vertical mergers were changing the industry profoundly.

For eg. The Societe Swiss de 1 ‘Industrie Horlogers (SSIH), controlled about 9% of total Swiss watch exports in the early 1960s . Then, after 1966, SSIH broadened its activities and, in 1971, merged with Economic Swiss Time Holding (ESTH). This second group, composed of a number of pin-lever manufacturers, accounted for 20% – 25% of total Swiss pin-lever output. By the end of 1971, the enlarged SSIH controlled over 20% of Swiss watch exports and had an annual turnover of close to $ 130 million.

In 1971, ‘ASUAG’, the “super-trust” controlling a majority interest in Ebauches SA and in the three largest component manufacturers, gave birth to another large horizontal group, when it combined the assembling firms selling seven different brands into the General Watch Holding Company. This move forged important new financial and managerial links between the component manufacturing and assembling sectors of the watch industry. Meanwhile, Ebauches SA entered into another set of arrangements with both horizontal and vertical merger characteristics.

In 1970 the Longines – Record Watch Company and the Rotary Watch Company joined to form Holdings Longines SA. Then, in 1971, Ebauches became major partner in this new venture. As in the case with ASUAC, the Swiss joined together companies whose fundamental activities were assembling and marketing watches and simultaneously linked the amalgamation to the component manufacturing sector. The upshot of these mergers, and dozens more, had been the creation of a partially concentrated industry. By 1971 almost three-quarters of all Swiss watch exports were accounted for by eight watch-making groups.

But the industry structure was still lopsided. Several hundred small firms contributed the other quarter of Swiss exports. Thus there was a growing gap between the big watchmaking combinations and the little independent producers. Under these circumstances, it seemed fairly certain that only one of two different futures faced most of the small companies: absorption by the big holding groups or collapse. As for the large watch companies, the mere fact that most of them had multiplied their size through a series of mergers did not guarantee that they would enjoy the benefits of size.

They still had to tackle such tasks as eliminating duplicate product lines, combining production facilities, streamlining management systems, and so on. As suggested above, in the early 1970s the evidence of progress along these lines was still sparse. In the second half of the 1960s Some of Swiss companies, started investing in US watchmaking firms. Eg. Iseca SA, acquired 100% of the Waltham Watch Company. Sopinter SA acquired a 16% interest in Elgin and Chronos Holding SA, purchased 20% of Gruen. In 1971, A Swiss Company, ‘ Bush Universal, Inc. ’, bought 50. % of one of the most famous names in American watchmaking, the Hamilton Watch Company. Subsequently, after Hamilton’s losses deepened further, Bush spun off the watch business into a new subsidiary and sold 17% of it to Aetos, as part of the deal, also accepted a note from Hamilton which, if converted after three years, would increase the Swiss Company’s interest in Hamilton to 51%. Hamilton seemed destined to become a member of the Swiss camp. Though the Swiss manufacturers were barely able to meet the mounting competition within the industry, they all possessed one valuable asset; established trade names.

To the Swiss, control of the names, opened the door to increased penetration of the U. S. market. There was some evidence that the Swiss intended to fight the electronic watch battle in the United States with trade names which American consumers would assume were those of fine old U. S. watchmakers. Since the Second World War, the Swiss sponsored watch-repair training schools in many countries. They established technical centres and after-sales service centres in a number of foreign markets. They frequently held seminars, in Switzerland and overseas, on a wide range of subjects related to the watch industry.

And they conducted a variety of training programmes covering the management, marketing, and distribution aspects of the watch business. Swiss watchmakers also invested in Research and Development. Obviously they wanted to avoid dependence in US Watch manufacturers. In 1971, Swiss introduced first quartz watches. Starting from 1880s, Japanese watchmakers concentrated exclusively on manufacturing Jewel-lever Watches. They stressed Jeweled Lever production as they wanted to emulate the best in western watchmaking. By the late 1930s Japanese production of watches had reached the level of around 5 million units per year.

For the next 20 years the figure remained below 5 million due to the World War II and its aftermath. In 1960 the production of watches hit the 7 million unit level In 1970 the industry produced almost 24 million units i. e. about 14% of the total world’s watch output. Unlike Switzerland, the Japanese Watch industry has always been highly concentrated. Over the years, four firms have accounted for almost all Japanese watch production. More strikingly, two firms (K. Hattori & Co. Citizen Watch ) and have accounted for almost 90% of the production. K.

Hattori was only the sales arm of a cluster of firms known as the Seiko Group. Two subsidiaries in the group, Daini Seikosha and Suwa Seikosha, produced watches, movements, and components. Another subsidiary produced clocks. Still other subsidiaries manufactured products outside the time-piece field. K. Hattori managed all the sales activities for the group, marketing its products worldwide under the Seiko trade name. By the mid-1960s the Seiko group had become the world’s largest producer of jeweled-lever watches. Japanese watchmakers, adopted more or less the same product and market strategy.

The industry started out making only jeweled-lever watches. Just because the Japanese have not made pin-lever watches does not mean that they have not competed in the low price end of the market. To the contrary, at home and in Asian countries the Japanese have marketed a complete line of jeweled-lever watches ranging in price from the cheapest to the most expensive. Yet the main thrust of their marketing attack has been in the medium-price category. They have matched their competitors, mainly the Swiss, in terms of quality and features of watches but have undercut them in terms of price.

In the late 1950s the Japanese watchmakers, especially Seiko and Citizen, became major suppliers of watch movements and components to the U. S. industry. Some American jeweled-lever manufacturers imported inexpensive movements from Japan, put the movements into their own cases, and marketed the watches at prices comparable to those for the Timex line of watches. Others imported Japanese movements and parts into the Virgin Islands, finished the watches there in company-owned assembly plants, and shipped the watches, duty-free, into the United States.

In 1968 about 5% of the watches imported directly into the United States come from Japan and about half of all the components imported into the Virgin Islands in that year also come from Japan. Adding together direct and indirect imports, the Japanese supplied about 8% of the U. S. market at that time. A combination of four factors has made it possible for the Japanese to be remarkably efficient low-cost watch producers. These factors have been: a. a ready supply of disciplined, zealous workers at low wage rates; b. advances mechanized and automated production techniques; c. vertical integration; and . mass production of standardized movements and watch models. The Japanese watch industry grew rapidly, mainly due to the large home market which was well protected from foreign competition as only expensive watches were imported into the country. Government policy helped as well. Government encouraged the highly concentrated industry structure. Consequently, the leaders in the industry did not have to waste or resources contending with new competitors. The rapid growth of Japanese economy induced Japanese watchmakers to take investment risks that competitors elsewhere shied away from.

In 1970 Seiko became the first watchmaker in the world to introduce a watch employing the quartz crystal technology. Subsequently, Seiko had to withdraw the watch from the market to sort out technical problems. But within the year Seiko was back on the market with an improved quartz watch — one boasting “a special temperature compensation device designed to make the crystal’s vibration as perfect as possible in order to provide extra accuracy’. Clearly, Seiko was not about to give up its claim to a share of the electronic watch market. US n 1970 the United States was both the World’s largest watch market and the world’s largest net importer of watches. However, watchmaking represented an insignificant part of U. S. manufacturing industry. Workers engaged in watchmaking constituted only one-tenth of 1% of total manufacturing employment. In fact, only two U. S. watch companies, Bulova and Timex, were involved in any domestic watch production. Since the beginning, U. S. companies have struggled to cope with the labour requirements of watchmaking. Some U. S. watch sellers never tried; from the start imported finished watches or movements and simply put them in watch cases here.

Other firms tackled the problem by locating at least part of their production overseas. Bulova and Gruen, for example, established their own manufacturing plants in Switzerland in the early years of the 1980s. After the Second World, jeweled-lever watches dominated the U. S. market. Then during the 1950s and early 1960s the situation changed drastically. Timex first stormed the low-price end of the watch market and later moved up into the middle price range. At the same time marginal Swiss producers flooded the U. S. market with inexpensive pin-lever and jeweled-lever watches making price competition all the more severe.

In 1960s the Japanese began to carve out their piece of the U. S. market. On top of this, the mass-merchandising revolution of the 1950s threw the traditional watch distribution system, sales through jewelers and fine department stores, into chaos. To survive in a market dominated by price competition, one after another U. S. watch company gave up on domestic watch manufacturing until, by 1970 there were only two survivors Bulova and Timex. Throughout the 1960s and into the 1970s Bulova sold a line of watches in each of the three major market segments, low, medium, and high-price, and equalled or outfaced competition in each egments. Also in 1960 Bulova introduced “Accuton” into the market which was a huge success. Bulova’s success also relied on aggressive marketing. Advertising and distribution support, were the two critical marketing factors. Timex was a major manufacturer in 1950s . Timex’s product and market strategy differed from that of the traditional watchmakers. Timex did not build its reputation on the jeweled-lever watch. Instead, it took a pin-lever movement, simplified it even further so that it could be mass-produced with automated techniques, put in simple but tasteful cases and marketed its first watch line to retail at $6. 5 to $7. 95. Then Timex went outside the conventional distribution system, first selling most of its watches through drug stores and subsequently through a number of mass merchandisers. Next, Timex drummed up sales through intensive advertising. Both Bulova and Timex made their Brand names the key to watch sales. They sold watches at low prices. They internationalized their marketing, Production and R;amp;D skills. Government too supported the R;amp;D work. During 1950s and 1960s they ventured into electro-mechanical devices.

By the second half of 1960s watchmakers in Switzerland, US and Japan were racing to be the first in Quartz Clear Electronic watch market in US. Seiko topped in 1970 by introducing analog-version. But due to technical reasons it was recalled. Then Bulova launched its analog ‘Accquartz’ and then other manufacturers followed. Mid 1972 Benrus introduced its analog version of quartz watch with lowest ever price which challenged entire industry. Later, The Walthman Watch Company introduced a quartz crystal, completely solid state, liquid crystal display watch, less than half the price of the first watches of this type.

Same time, Gruen introduced its Teletime, a watch comparable to Waltham’s cheaper than Waltham watch. Now, Microma, a supplier of integrated circuits and liquid crystal displays, disclosed the idea to sell further cheaper watches under its own brand name. 1) Low labour input required. 2) No firm was likely to build any sort of patent wall with Electronic Watch. The technology was held outside the watchmaking field. 3) Cost reduction was not at the cost of quality. 4) The cost of electronic watch was determined by cost-volume relationship. 5) Electronic watch would undergo improvements.