Swatch and The Global Watch IndustryIssues Facing the Swatch Company:The Swatch Watch Company recovered from near bankruptcy in the early 1980s

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Swatch and The Global Watch Industry

Issues Facing the Swatch Company:
The Swatch Watch Company recovered from near bankruptcy in the early 1980s and transformed themselves into a world leader in terms of value by late 1990s.  Swatch is once again facing a new set of challenging issues that will affect the company in a changing global economy. The following are the current issues that Swatch needs to deal with:
(1) Swatch sales have been flat between 18-20 million units a year.
(2) Sales and profit margins levels have been below those levels achieved in 1990.
(3) Swatch is facing increased competition from existing markets and new markets.
Analysis of the Issues
Historically, 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.  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.  Consolidation was another dominant factor in this change.  As companies merged, they improved their competitive positions through improved distribution, research & development, marketing, and economies of scale.  These conglomerates slowly became major global players against which many watch manufactures could not compete.  

Initially, Swiss watch manufactures chose not to respond to many of these changes.  They valued the 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 plunged 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 world’s production, Swiss watches generated 51% of the global value.  
  •  The Swatch group, with its 14 brands, was the world’s largest manufacturer (also in value terms).  
  • Nearly 90% of the Group’s 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 Group’s prestige, luxury, and top ranged brands were third in global market share at 14% (behind Rolex at 28% and Vendome at 20%).  
  • The Group’s gross sales and net profits had increased by 7.1% and 7.5% respectively in 1998.  
  • The Group’s US market share was under 3% in 1998.
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Several conclusions can be drawn based on these and other figures presented in the case.  The groups’ financial performance was strong.  They managed to obtain the most value from the fewest units of production, which can be attributed to the high prices that were charged for the products.  This put the group at an advantage over other manufacturers whose low price points generated lower returns.  Exports were as important for the Group as they were for the Swiss industry.  With the appreciation of the Swiss Franc cross-border sales would continue to be threatened.  Finally, only four brands generated significant profits, ...

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