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?


Breguet, Blancpain, Glashütte, Omega

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



TAG Heuer, Zenith, Hublot

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview
When do the creative juices dry up?

When do the creative juices dry up?

David Lodge thinks he knows
The 'Cher moment' happening across fashion just now

Fashion's Cher moment

Ageing beauty will always be more classy than all that booty
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

Health fears over school cancer jab

Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

'I forgive everyone, but I don't forget'

Fifa president Sepp Blatter issues defiant warning to opponents
Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

Weather warning

Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

High hopes for LSD

Meet the volunteer users helping to see if it cures depression and addiction
German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

Saving Private Brandt

A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral