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, and the Group’s portfolio was under investigation. Did the group stand to gain a better competitive position if 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 whose market share was 31%, 8% and 7% respectively. The groups 2.1% share of the US market was significantly below the industry’s norm. Upon further inspection of the industry in 1999, it can be concluded that competition was intense. They key to gaining market share differed in each segment of the industry. Increasingly, creative marketing, effective distribution, and cost reduction helped companies push their products from the factory into the hands of the customers. 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, straps or any part of the watch in another country. Finally, the Group did 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.
Potential Solutions
Upon reviewing the Swatch Group’s opportunities in the market, several distinct strategic moves could help the company compete against global players. These are:
- Streamline product portfolio by determining which brands are key profit drivers for the group. Drop product lines with low market share/low profit margins in markets where key competitors possess significant cost saving advantages.
- Maintain Swiss Made status of high-end/luxury product lines only. Shift manufacturing and/or assembly of mid to low-end product lines to Asia.
- Through a joint venture with Titan Industries (and others, as needed), develop a product line to fill the gap in the mid-range segment.
- Acquire a mid-ranged watch company with an established market presence in Europe and North America.
- Invest heavily in research and development in order to develop niche products (high value/low volume strategy) for untapped, lucrative markets.
- Through vertical integration (forward integration), establish direct distribution and/or retail channels.
How Solutions will resolve the problem:
Titan industries presents an ideal solution for many of the issues that presents challenges for the Swatch Company; through partnership with Titan industries in India the Swatch can achieve the critical mass that is necessary to compete globally in all segment of the industry, and achieve economies of scale by transferring the battery making, the case manufacturing, the assembly, and the marketing & distribution to India where labor is much cheaper than Switzerland. Keeping the design, and movement in Switzerland will insure quality, and maintain the “Swiss made” label by having 50% from the components by value Swiss-manufactured; which is the oldest registered and protected national branding name that will guarantee the success of this partnership.
Economies of scale will give The Swatch Company the power to compete on quality and cost bases, both in existing markets such as Europe, and North America, in addition to the ability to enter new markets such as India and China; the fastest growing market in the world of more than two billion population. Partnership with Titan industries in India will ease some of the Swiss franc appreciation effects in the global markets particularly in the United States.
Creating niche products:
The Swatch presence in all market segments and price categories should be reorganized to represent only successful brands; only four brands that accounted for 82% of total sales and 88% of operating profit should be the focus of the Swatch operation. Focusing on those high sales high profit brands will reflect on the designing, manufacturing, advertising, marketing and distribution efficiency; in which will impact margins positively, and increase profits. Eliminating poor or low performing brands will insure high quality increasingly demanded by customers in the global market, in addition to reducing inventories both finished and unfinished goods, inventory reduction will enhance return on investments, better cash flow, and faster turn of supplies, in addition to eliminating of low margins products; which will reflects on the financial capabilities of the company.
Focusing on the four successful brands will make distribution easier, more efficient, and more attractive for retailers handle and maintain. It will eventually increase the number of retailers who carry the Swatch brand. Focused brands will give advertising money more bangs for the buck, advertising budgets don’t have to be split among so many brands. Impact of proposed solutions: The Swiss will feel the trickledown effect of shifting manufacturing overseas and the elimination of many product lines in the largest watch manufacture in the nation. Positions will be eliminated, workers will be leadoff, and there spending ability will be felt through the economy.
Exports will decrease, there will be a good chance that Switzerland will lose its prestigious position as the world’s leading exporter of finished watches; it even might effect other industries in the nation if this strategy demonstrated success into moving or shifting there manufacturing into other countries. The proposed strategy will give the Swatch Company a better global position to defend its markets and to compete better in the low and middle price ranges where the Swiss were forced to abandon their leadership. The proposed strategy will keep competition busy defending its markets, and fighting for the new growing markets in India and China; which gives the Swiss an opportunity to maintain there leadership in the high price range in the global market. In addition to gives the Swiss protection against possible entrees in its local market.
Ethical and social responsibility:
The world global business environment is in a perpetual state of change, the Swatch Company must position it self to meet such changes and challenges imposed by competition. The past should be a lesson for the future, the Swiss watch industry almost went out of business in the early 1980s, because it failed to change its long term position, it was only when it responded to the global threats it was successful again, it is now must chose again between short term social obligation or long term survival obligations; it is no choice there.
Competition in the past did everything it can to gain market shares and penetrate new markets, competition will not stop or change expanding strategies because they feel sorry for the Swiss, they will continue to do everything possible to expand markets, defending their existing markets, and fighting the Swiss from trying to enter existing or new markets, they will even try to compete with the Swiss on there world leadership in the high range price segments; and just like in the past if the Swiss were not ready for such competition they will lose that leadership without a fight. Losing such leadership in such a segment would mean a near death experience to the Swiss watch industry again.
The Swatch Company will not only layoff workers, but it will close its doors if it does not position itself to be able to compete in global market, it will not survive while international competition looking for ways to improve margins, increase sales and profits in existing markets and in new markets, the Swatch company closing or losing its leadership will have greater effect on the Swiss economy far more than its shifting manufacturing overseas. From a financial point of view shifting manufacturing is the logical thing to do, but from social and ethical views it is a choice between layoffs or complete shutdown.