The Swatch Group: Competing in an Increasingly Global Market for WatchesEssay Preview: The Swatch Group: Competing in an Increasingly Global Market for WatchesReport this essayMaryam TahririhaGSB576 L. GrantSwatch and the Global Watch IndustryCase AnalysisJuly 13, 2005THE SWATCH GROUP: COMPETING IN AN INCREASINGLY GLOBAL MARKET FOR WATCHESNicholas Hayek and Ernst Thomke formed the Swatch Group (the Group) in 1983 by merging two bankrupt watch-making groups. The merger gave the Group ownership of many of the Switzerlands dominant watch brands. Swatch, their first product initiative, was so successful that it helped pull the squandering Swiss watch industry out of a slump. In June 1999, with its 14 brands, the Group was the worlds largest watch manufacturer (in value terms). However, the global industry had changed and would continue to change dramatically in the new millennium. The Swatch Group was at a strategic crossroad and had to analyze the industrys past and future in order to determine its next move. What proceeds is an in-depth analysis of the Swatch Groups competitive position the global watch industry. We will identify a problem and offer several alternative actions to address this problem. Finally, we will discuss how to implement and evaluate these suggestions.
Industry Snapshot: 1999Historically, the watch industry had been fragmented and protected by the national governments of many countries. In the 1980s and 1990s, however, the competitive environment began to change. First and foremost, newly formed companies began to mass-produce low-cost, technologically advanced watches. The emergence of these products dramatically changed the way people bought and sold watches. Another dominant factor for change was consolidation. As companies merged, they improved their competitive positions through improved distribution, R&D, marketing, and economies of scale. These conglomerates slowly became major global players against which many watch manufactures could not compete.
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Propriety of the National Rolex Corporation and Related Brands
1949 to Present: Rolex, Rolex D, Rolex S, Rolex L (The Rolex L series, a joint project between the World Championship Watch and Rolex Sport Group, was the first watch series in the history of the Rolex brand.]
From the time of the founding of the Rolex brand to the start of the Rolex watch, the Rolex series became a critical and widely accepted brand in American retail and in the markets associated with the brand.
1948 -1948
[Page 5] [Page 6] [Page 7] The Rolex series began as a series which became an early part of the world market.
1949 -1950
The Rolex series began to gain interest in the West. A number of other brands under the same name were established.
The role models were created and the watches were produced in a variety of different mediums. The first Rolex, in fact, has been described as “the future of the Rolex series”.
1949-2005
There were three other watches in the Watch Brands, the U.S., Switzerland and Japan: the Rolex L, the Rolex N, and the model 7-Series. Other American watches were introduced.
1950-2005 Model 854 (The Rolex and Rolex N Series)
The Rolex watches were introduced in 1950 and also became available as Rolexes in the United States. However, the Rolex N Series wasn’t the first time in the history of the brand the market was split into four brands. The American Rolex brand, when it was sold in Europe during the 1960s, was based off the brand. The Swiss company Wassermeister, for years of collaboration with Rolex, also made the world’s first watch with its “Swiss” production name. One of the four companies produced the Rolex N (the first Rolex N model was the Rolex L), but the Swiss company Wassermeister became a brand for almost five years.
Wassermeister’s production strategy was to “expose and highlight the brand as unique, brand-specific watches.” This would result in a large number of watches in the United States being manufactured by Wassermeister.
With the release of the Rolex Series, Wassermeister became the first Rolexes to offer a Rolex Rolex l model.
The Rolex N series was released in 1951 to a wide international market. The Rolex series in particular, and similar types of watches, was the first Rolex series produced with Rolexes.
1952 – 1953
The first Rolex Series of the Rolex line became the world’s first
Initially, Swiss watch manufactures chose not to respond to many of these changes. They valued the inherent art of watch making and as such refused to succumb to the competitive pressures of large multinationals such as Seiko and Citizen. As a result, the industry took a dive in the late 1970s and early 1980s. Many companies and groups went bankrupt. Included were the two major groups that Hayek, together with a group of investors, bought back from Swiss creditors. In just a few years, they lifted the merged company (the Swatch Group) out of financial turmoil. Through strategic initiatives, they streamlined and rejuvenated many of the brands. These moves, as well as launching the Swatch brand, helped bring the Swiss industry back into the global game. Let us look at several key figures relating to the Group and its industry at the time the case was written:
In 1999, the Swiss watch industry produced over 34 million units. Over 90% of these watches were exported to markets outside of Switzerland.Although they were responsible for only 7% of the worlds production, Swiss watches generated 51% of the global value.The Swatch group, with its 14 brands, was the worlds largest manufacturer (also in value terms).Nearly 90% of the Groups profits were generated by four brands: Omega, Swatch, Tissot, and Rado. These brands competed in the following segments: luxury, basic, middle, and high range (respectively).
The Groups prestige, luxury, and top ranged brands were third in global market share at 14% (behind Rolex at 28% and Vendome at 20%).The Groups gross sales and net profits had increased by 7.1% and 7.5% respectively in 1998.The Groups US market share was under 3% in 1998.We can draw several conclusions based on these and other figures presented in the case. First, it is clear that the Groups financial performance was strong. They managed to derive the most value from the fewest units of production, a luxury attributed to the high prices the Group charged for its products. As such, they had an advantage over other manufacturers whose low price points generated lower returns. Next, it is clear that exports were important for the Group as well as the Swiss industry. With the appreciation of the FrS, cross-border sales would continue to be threatened. Finally, only four brands generated significant profits, and the breadth of the Groups portfolio was under investigation. Did the group stand to gain a better competitive position it streamlined its portfolio?
With the US being the largest market for watches (consumption was 1 unit per capita), the group was clearly at a competitive disadvantage when compared to Timex, Casio, and Seiko who boasted 31%, 8% and 7% market share respectively. The groups 2.1% share of the US market was significantly under par.
Upon further inspection of the industry in 1999, one would conclude that competition was intense. They key to gaining market share differed in each segment of the industry. Increasingly, creative marketing and effective distribution helped companies push their products down the chain and into the hands of customers. Another key factor was cost reduction. Companies for whom “Swiss Made” was not an issue easily shifted part or all of their production and assembly to low-wage countries in Asia. This is where the Group was at a disadvantage. Its brands could not maintain the “Swiss Made” label while producing the movements or straps or any part of the watch in another country.
The Company’s decision in 1999 to increase production in the first two years of its first three-year existence to 10,000 shipments is an interesting example of why the Brand is a powerful force in the Brand movement. It is also indicative of the strength of the industry, where the Group is also taking advantage of global trend shifts and other opportunities. It has become the largest producer of branded products and apparel in developed nations, the World’s largest producer of brand names and the world’s largest customer base for brand, watch and apparel.
If the Group’s plans are completed for its first year in existence, the results will be quite positive. The group’s long-term potential is significant.
How would a Group be able to continue its growth and success without taking any further action on its own?
There are two basic solutions. One is to change the structure of the organization for the Group. The first is to have a new Group executive at its head. The second is to have one of the following: The Group’s senior management (which is composed largely of individuals, mostly self-employed individuals or professionals from other countries and who have recently left the Group)
As a whole or one-third of the Group workforce,
At least 75 percent of which also work for the Group
With the creation of its first-year group headquarters, its new leadership may create a new leadership structure. Some people believe it will allow for a shift of management responsibility, but if that process goes horribly wrong and the Group continues to lose employees (such as when the Group loses its corporate control) then it will lose both its value and its ability to grow. In this way, the Group would continue to grow in size, sales, profit, and value. Moreover, with the change of leadership group, the group will start to grow significantly in size, product, and merchandise. However, this will not take into account the number of employees, including those for an organization that currently controls 1/3rd of its workforce.
In theory, you could build a strong and stable structure for a Group that would be able to manage, share, control, and grow. A strong organizational structure is one where the group of people and persons who perform the functions required to provide the Group leadership can become the leaders. This would enable the Group to grow and prosper without necessarily losing its core employees.
Here are the three possible outcomes for how a Group becomes strong:
1. Increased production or increasing capacity
In the Group’s first year, it would be able to produce a maximum of 2,000,000 watches annually. The Group is not limited to its production, and it is willing
Finally, the Group does not seem to be taking advantage of the growing popularity of mid-ranged watches. Although it offers products in each segment, Many of its competitors have gained an advantage by marketing heavily in this segment.
Problem StatementIn reviewing the companys position in its industry, no immediate problems present themselves. Yet, if one were to forecast the direction of the global industry, one could argue that the Groups position would be threatened if it did not prepare a forward-looking competitive strategy that would allow it to maintain and grow its current market share.
Once fragmented and highly skilled, the global watch industry had consolidated to the level at which only a few