A Business History of the Swatch Group

People were virtually writing the Swiss watchmaking industry off in the early 1980s, as it had not managed to contain the worldwide expansion of it’s Japanese competitors. Powered by the mass production of first high-quality mechanical watches, then quartz watches, the Japanese watchmaking industry launched a growth policy in the second half of the 1960s in a bid to challenge Swiss domination of world markets.¹

During the summer of 2010, the Swiss press and international media paid a vibrant tribute to Nicolas G. Hayek, who passed away on 28 June 2010 and was acclaimed as the saviour of the Swiss watch industry The American business magazine Forbes celebrated “a legend…credited with engineering the rebirth of the Swiss watch industry”,¹ while The New York Times wrote about “a flamboyant figure [who] saved the Swiss watch industry with the introduction of the Swatch.”² Indeed, when the big Swiss banks hired Hayek as a consultant in the early 1980s, the Swiss watch industry was in the grip of an economic crisis which threatened its survival. After nearly 40 years of virtually steady growth (the drop in exports of watches and movements during World War II had been more than offset by the production of munitions for the belligerents), the Swiss watch industry entered a recessionary phase in 1975. Swiss foreign trade statistics clearly reflect this phenomenon (see Figure 2.1). The volume of exports soared from 24.2 million watches and movements in 1950 to 40.9 million in 1960 and peaked at the historic level of 84.4 million in 1974, before falling to an annual average of 31.3 million pieces in 1982–1984. As for the number of people employed, it nosedived from almost 90,000 in 1970 to fewer than 47,000 in 1980.

At the beginning of the 1980s, the main measure adopted by Swiss watchmakers to pull themselves out of recession was the merger of the two biggest Swiss watch groups, namely ASUAG and SSIH (1983). With gross sales amounting respectively to CHF1.3 billion and CHF815 million in 1979, they outstripped the other watchmakers, third place being jointly occupied by the Société des Garde-Temps SA (SGT, brands Avia, Elgin, Fleurier, Invicta, Sandoz, Silvana, Titus, Waltham) and Rolex, whose gross sales at the time were valued at CHF190 million.¹ What is more, in 1979 ASUAG and SSIH employed about half of the workforce in the Swiss watch industry² However, their combined clout must be seen in perspective, as it was primarily due to the crisis which had impacted other companies. In reality, ASUAG and SSIH faced huge industrial and financial difficulties, and their survival owed a great deal to the support of the major banks.

The rationalization of means of production within the Swiss watch industry, which was pursued in the years 1985–1998, was clearly a new phenomenon in this industrial branch, given the scope of the restructuring. Indeed, the merger of ASUAG and SSIH led to a conglomerate of weakly integrated watchmaking manufacturers, and the restructuring of the production of watches, movements, and watch parts posed a major challenge in the first years of the Swatch Group’s existence.

The restructuring and the globalization of the production system were not enough on their own to power Swiss watchmaking’s triumphant return to world markets in the second half of the 1980s. Production was but a single aspect of a multifaceted policy, which also attached considerable importance to marketing strategy whose role was to enable the Swatch Group to establish itself as the world’s leading watchmaking enterprise. This new marketing strategy was implemented in two stages. First, during the years 1985–1995, the emphasis was placed on restructuring distribution systems, a move which was part of the overall policy to streamline the Group. Second, in the mid-1990s, the Swatch Group adopted a policy of brand repositioning.

The marketing strategy adopted in the early 1990s was pursued and developed in the years that followed. The main thrusts of this policy were repositioning to the high end; strengthening of differentiation between brands; and major investment in distribution. This means that whereas company growth in the 1980s was based on rationalization efforts within the Group, it was subsequently increasingly driven by marketing. Production systems were even revamped from this perspective — with a shift from manufacturing movements to manufacturing finished watches. The new marketing strategy implemented from the mid-1990s onwards was based on four main thrusts.

Omega no doubt best embodies the changes which the Swatch Group has undergone since the middle of the 1990s. The success of this brand, which accounted for around one-third of Group watch sales in the second half of the 2000s, is emblematic of the Group’s new marketing strategy. Omega was picked as the main “affordable luxury” brand, the most profitable market segment in terms of turnover and the one where the major watchmaking groups are fighting it out. Omega’s rivals are no longer Japanese watchmaking firms like Seiko, but rather other “affordable luxury” Swiss brands, such as Rolex, Cartier, and TAG Heuer. So the following question comes to mind: how exactly did this brand become a luxury brand in the 1990s?

Swiss watch exports to China exploded from CHF36 million in 2001 to over a billion Swiss francs in 2010, making this market the fourth largest outlet for the Swiss watch industry, with 6.8 per cent, behind Hong Kong (19.7 per cent), the United States (10.4 per cent), and France (7.2 per cent). If Hong Kong and Taiwan are included, Greater China accounted for 28 per cent in 2010.¹

Despite Omega’s success, the undeniable charisma of Nicolas Hayek, and the Swatch Group’s special place in the watchmaking industry, the Group does not have a monopoly on the world watchmaking market. There are a host of brands outside the Swatch Group, including the only watch brand that is consistently ranked in the 100 Best Global Brands of the American magazine Business Week: Rolex (68th place in 2009).¹ In order to better highlight the Swatch Group’s place on world markets and the sweeping reforms of its production system and marketing strategy, it is useful to take stock of the competition and sketch out the primary characteristics of its main rivals.

Over a period of 15 years, between 1985 and 2000, the Swatch Group underwent profound change, which transformed it from a disparate conglomerate of weakly integrated Swiss watchmaking firms into a centralized, rationalized, and globalized multinational company Whereas during the 1990s and the 2000s its Japanese rivals continued their stubborn race for technological innovation, which they saw as the driving force of a possible new phase of growth, the Swatch Group managed to establish itself as the world’s leading watchmaking group without introducing any fundamental innovation in the technical field. This “non-technological innovation”, as Jeannerat and Crevoisier call it,¹ was primarily based on two complementary policies: the rationalization of the production system, on the one hand, and the adoption of a new marketing strategy, on the other.