Swiss watchmaking: Industry in a time of strife

The easing of a Swiss law that obliges Swatch to supply its rivals with the parts that make a timepiece tick has sprung a war among watchmakers

The rarefied industry of Swiss watchmaking doesn't really do public fallouts. Considering its huge size and the scale of its influence in the luxury goods world, remarkably little is known about what actually happens inside the likes of Cartier, Omega and Panerai, and tales of disagreements and dust-ups rarely see the light of day.

To the outsider, all seems impossibly well in the world of luxury watches – business is booming, the products are the best they've ever been, and everyone's in it together. Learning about the industry in those glossy Sunday supplements can be like reading an insipid Christmas family newsletter.

So it is ever more fascinating that some of the most famous brands in the world have been locked in a high-profile legal tussle over the world's biggest watchmaker, Swatch, and its supply of "movements" – the delicate motors that make an automatic watch tick, so to speak.

Swatch, whose brands include Omega, Breguet and Blancpain, currently supplies millions of these movements a year, made by its ETA division, to other watchmakers. Indeed, half of all classy Swiss automatic watches have ETA movements inside. If you are lucky enough to have a modern automatic watch, no matter what brand name is on the face, the chances are the beating heart inside it will be made by ETA.

So important are these movements to the industry in Switzerland that, under Swiss law, Swatch has to provide them. Unsurprisingly, it isn't too chuffed, and has been desperately trying to get the rules changed. "Why should we be forced to supply Cartier, owned by the giant Richemont corporation with movements for their watches when they're our arch-rivals?" is a fair paraphrase of its argument.

Or, to quote Nick Hayek, chief executive and son of the late founder Nicolas Hayek: "In no other industry do you have one company supply all the critical parts to the people who then compete directly with it." Take the car industry, he argues, you don't see Volkswagen/Audi supplying engines to BMW.

But it's not so simple, as the smaller watchmakers who make the Swiss "scene" so fascinating for collectors will tell you. Since its formation in 1793, ETA has absorbed other movement manufacturers, including some of those that fell on hard times during the so-called Quartz Crisis of the 1970s and 1980s – when quartz watches from the Far Eastseverely damaged demand for their far more expensive mechanical forebears. The independent makers point out that Swatch Group is already the world's largest manufacturer of watches, with sales last year breaking the Sfr7bn (£4.8bn) mark for the first time, and the withdrawal of ETA movements would leave Swatch to monopolise the market.

Small and medium independents that rely on ETA movements would go out of business, leaving Swatch Group to sail off into the sunset on board the mother of all superyachts and the industry facing a crisis comparable to the 1970s and 1980s, when 1,000 companies went bust and two thirds of the workforce was laid off. However, after years of lobbying, Swatch Group finally got a ruling last year from the Swiss competition commission, saying that it could begin cutting back its supply of ETA movements starting from January 1 this year.

Fury erupted in the Alpine valleys, to the extent that no fewer than nine watch companies challenged the ruling in court.

One of the plaintiffs was Peter Stas, chief executive of Frédérique Constant. Over the last 25 years, Stas and his wife Aletta Bax have built up the independent watch company from scratch and Frédérique Constant now sells around 120,000 watches a year. Between 5 and 10 per cent of these are powered by movements made in-house, but the company is a long way from being entirely self-sufficient, still relying on the supply of parts through ETA.

In a statement he released in the autumn, Mr Stas was unequivocal. "A lot of companies will cease to exist while Swatch, the monopoly operator, will simply get stronger," he said.

Swatch responds that, with booming sales growth in China and other emerging markets, it will need all the movements it can make for its own brands. Why should its expansion be held back by less advanced rivals?

So, why can't the majority of Swiss watchmakers just develop their own movements? It all comes down to money.

Talk to any small watchmaker and they will say they would love to, but the costs are astronomical – between €4m and €7m per calibre – a vast sum that is well beyond the reach of most independent watch brands.

Breitling is thought to have spent as much as €20m on developing its Calibre 01 and Calibre 04 internal mechanisms for its watches. The bigger brands have been moving in this direction for a while now. Rolex is entirely self-sufficient. Omega, IWC and Panerai use a mixture of in-house and bought-in kit.

So what are the independents going to do?

One short cut is to purchase a movement manufacturer, as Cartier did when it bought the industrial arm of Roger Dubuis a decade ago to build movements for its celebrated Fine Watchmaking collection – but again, deep pockets required.

Faced with little alternative, smaller companies will have to strike agreements with other movement suppliers – the main one being Sellita.

The trouble is that ETA is also the main supplier of the tiny parts Sellita uses, and the competition commission ruling allows Swatch to scale back those supplies too. Needless to say, Sellita is none too pleased.

There remains a huge question about whether non-ETA movement makers will be able to keep up with the expected demand. Will the independents be able to capitalise on the new-found demand from the emerging markets, or will they go under?

Christopher Ward, the English watchmaker, uses ETA movements in most of his automatics. He says: "We think the industry outside Sellita and ETA has been relatively lazy – the smaller, independent brands haven't really done anything, yet the writing was on the wall way, way back.

"While I think a lot of companies are bleating that the ruling shouldn't be allowed, we actually think that what has happened will be a stimulus to the industry – a little bit of a wake-up call.

"Certainly, if necessity is the mother of invention, then something is going to happen in Switzerland, otherwise some of the brands in the middle or lower tier will struggle and go under. Long-term, the industry is going to have to operate in different ways, and we see that as being largely positive.'"

He has been developing his own in-house movement, keeping the cost below £1m by partnering up with other companies. Alongside that, he is working with Sellita to reduce his reliance on the ETA models.

Rival firms will have been doing the same, no doubt, but it remains to be seen if they can react fast enough to ensure their survival.

Who owns who?

Swatch:

Breguet, Blancpain, Glashütte, Omega

Richemont: Vacheron Constantin, Baume & Mercier, Jaeger-LeCoultre, Lange & Söhne, Panerai, IWC,

Piaget

LVMH:

TAG Heuer, Zenith, Hublot

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

A nap a day could save your life - and here's why

A nap a day could save your life

A midday nap is 'associated with reduced blood pressure'
If men are so obsessed by sex, why do they clam up when confronted with the grisly realities?

If men are so obsessed by sex...

...why do they clam up when confronted with the grisly realities?
The comedy titans of Avalon on their attempt to save BBC3

Jon Thoday and Richard Allen-Turner

The comedy titans of Avalon on their attempt to save BBC3
The bathing machine is back... but with a difference

Rolling in the deep

The bathing machine is back but with a difference
Part-privatised tests, new age limits, driverless cars: Tories plot motoring revolution

Conservatives plot a motoring revolution

Draft report reveals biggest reform to regulations since driving test introduced in 1935
The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory