Tweet
Saw this article on bloomberg. Will the new regulation increase the value of swiss made timepiece? Or it's just another policy to corner the Swiss timepiece market?
Swiss Watchmakers May Not All Be Swiss Enough to Scale Barriers
April 11 (Bloomberg) -- Mondaine, the maker of Official Swiss Railways watches, may have to shut a two-year-old factory because its timepieces aren’t Swiss enough.
The future of the 10 million-franc ($11 million) plant in Solothurn and its 110 workers would be jeopardized should larger rivals such as Swatch Group AG succeed in calls for fewer non- Swiss components to be allowed in Swiss-made timepieces, according to Mondaine co-owner Ronnie Bernheim. Mondaine, which has been making watches modelled on the nation’s train-station clocks for 25 years, uses imported dials and cases.
“This law would be cutting the industry into two,” Bernheim said in an interview in Basel. “The volume business will be killed, except for the big companies. Our foreign competitors are laughing.”
Watches were Switzerland’s fastest-growing major export last year. The industry has rebuilt itself since teetering on the brink of collapse in the 1970s. To keep its lead as other manufacturers shift to countries such as China in search of cheaper labor, the industry is trying to erect higher barriers to entry, which would make Swiss watches a scarcer luxury.
Since 1971, watchmakers have been allowed to use non-Swiss components for less than 50 percent of the value of the watch’s movement, or motor. The Federation of Swiss Watchmaking, which includes Swatch Group and competitor Cie. Financiere Richemont SA, asked the government in 2007 to add higher requirements on the use of Swiss components in the value of the entire timepiece. The government proposed that for industrial products, 60 percent should come from Switzerland. A final decision may be made next year, said Jean-Daniel Pasche, head of the group.
Cheaper Parts
The proposal is a “tough issue” because it’s part of measures that would affect branding across a broad range of industries including food, according to Pasche.
“Swiss-made is kind of a synonym for quality,” said Thomas Chauvet, an analyst at Citigroup Inc. in London. “For the longer-term preservation of the industry’s strength, and the fact that they have no rival, it’s important to raise the bar.”
Makers of luxury Swiss watches such as Swatch Group’s Breguet brand would benefit from tighter laws because they source most of their components from Switzerland, according to Rene Weber, an analyst at Bank Vontobel in Zurich. Less- expensive watch brands made in the country use cheaper imported parts because they face more competition from Japan or China, Weber said. Mondaine’s Official Swiss Railways watch sells for as much as $595, while Breguet timepieces can exceed $700,000.
“Swiss-Made is very important as the basis for this industry,” Swatch Group Chief Executive Officer Nick Hayek said at a March 10 press conference. “We’re not going to produce in India, Russia or anywhere else.”
Job Threat
The proposed rule changes would threaten jobs at producers of less-expensive Swiss watches, Bernheim said. Two-thirds of industry jobs are at companies with fewer than 500 employees, according to the Swiss Watch Industry Employers’ Organization.
The “big hurdle” is the cost of producing mechanical movements, Bernheim said. Building an assembly line that makes them costs at least 20 million francs and can take five-to-10 years of testing, he said. Many watchmakers in the industry need to buy cases, crowns, dials nd hands from outside Switzerland, because there isn’t enough production in the country, he said.
Luxury watchmakin one of the few manufacturing industries that has resisted a full shift of production to Asia. Still, the industry’s growth has attracted non-Swiss companies.
Non-Swiss Competition
Tianjin Sea-Gull Watch Co., a Chinese company founded in 1955, has begun producing complicated watch mechanisms such as tourbillons, which on a Swiss watch can command prices of more than $50,000. MontieK, an Amsterdam-based company, this year is starting to sell European-designed timepieces with Sea-Gull movements for as little as 1,300 euros ($1,883).
“In the future we can compete with the Swiss,” Keith Choi, sales manager for Tianjin’s Tsinlien watchmaking unit, said in a March 25 interview. “At least we can hold the market among the middle class now.”
The strength of the Swiss franc, which has risen 18 percent against the dollar in the past year, makes it easier for watchmakers to use more non-Swiss components and still claim the “Swiss-Made” moniker, said Jean-Marc Jacot, CEO of Parmigiani, whose timepieces cost $70,000 on average.
Making Swiss watches might become more difficult if Swatch Group succeeds in negotiations with Switzerland’s competition regulator to end rules requiring it to sell timepiece movements to competitors. Swatch’s ETA unit has a de facto requirement to sell to third parties because of its dominant position, according to the regulator, known as Comco. ETA makes as much as 80 percent of Swiss-made movements, analysts at Sanford C. Bernstein estimated in a March 18 report.
‘Down The Drain’
A watch company might buy a movement from ETA for 250 Swiss francs and sell the timepiece for 10,000 to 20,000 Swiss francs, Swatch Group CEO Hayek said in February. Watchmakers could spend 40 million francs to 60 million francs to set up their own factories and make components themselves, he said.
According to Mondaine’s Bernheim, Switzerland’s lower-end watchmakers will be sacrificed should the country adopt the rule changes being sought by the larger companies.
“There’s generations of work done by people that will just go down the drain,” the executive said. “This law would really be a slap in our faces.”
Swiss Watchmakers May Not All Be Swiss Enough to Scale Barriers
April 11 (Bloomberg) -- Mondaine, the maker of Official Swiss Railways watches, may have to shut a two-year-old factory because its timepieces aren’t Swiss enough.
The future of the 10 million-franc ($11 million) plant in Solothurn and its 110 workers would be jeopardized should larger rivals such as Swatch Group AG succeed in calls for fewer non- Swiss components to be allowed in Swiss-made timepieces, according to Mondaine co-owner Ronnie Bernheim. Mondaine, which has been making watches modelled on the nation’s train-station clocks for 25 years, uses imported dials and cases.
“This law would be cutting the industry into two,” Bernheim said in an interview in Basel. “The volume business will be killed, except for the big companies. Our foreign competitors are laughing.”
Watches were Switzerland’s fastest-growing major export last year. The industry has rebuilt itself since teetering on the brink of collapse in the 1970s. To keep its lead as other manufacturers shift to countries such as China in search of cheaper labor, the industry is trying to erect higher barriers to entry, which would make Swiss watches a scarcer luxury.
Since 1971, watchmakers have been allowed to use non-Swiss components for less than 50 percent of the value of the watch’s movement, or motor. The Federation of Swiss Watchmaking, which includes Swatch Group and competitor Cie. Financiere Richemont SA, asked the government in 2007 to add higher requirements on the use of Swiss components in the value of the entire timepiece. The government proposed that for industrial products, 60 percent should come from Switzerland. A final decision may be made next year, said Jean-Daniel Pasche, head of the group.
Cheaper Parts
The proposal is a “tough issue” because it’s part of measures that would affect branding across a broad range of industries including food, according to Pasche.
“Swiss-made is kind of a synonym for quality,” said Thomas Chauvet, an analyst at Citigroup Inc. in London. “For the longer-term preservation of the industry’s strength, and the fact that they have no rival, it’s important to raise the bar.”
Makers of luxury Swiss watches such as Swatch Group’s Breguet brand would benefit from tighter laws because they source most of their components from Switzerland, according to Rene Weber, an analyst at Bank Vontobel in Zurich. Less- expensive watch brands made in the country use cheaper imported parts because they face more competition from Japan or China, Weber said. Mondaine’s Official Swiss Railways watch sells for as much as $595, while Breguet timepieces can exceed $700,000.
“Swiss-Made is very important as the basis for this industry,” Swatch Group Chief Executive Officer Nick Hayek said at a March 10 press conference. “We’re not going to produce in India, Russia or anywhere else.”
Job Threat
The proposed rule changes would threaten jobs at producers of less-expensive Swiss watches, Bernheim said. Two-thirds of industry jobs are at companies with fewer than 500 employees, according to the Swiss Watch Industry Employers’ Organization.
The “big hurdle” is the cost of producing mechanical movements, Bernheim said. Building an assembly line that makes them costs at least 20 million francs and can take five-to-10 years of testing, he said. Many watchmakers in the industry need to buy cases, crowns, dials nd hands from outside Switzerland, because there isn’t enough production in the country, he said.
Luxury watchmakin one of the few manufacturing industries that has resisted a full shift of production to Asia. Still, the industry’s growth has attracted non-Swiss companies.
Non-Swiss Competition
Tianjin Sea-Gull Watch Co., a Chinese company founded in 1955, has begun producing complicated watch mechanisms such as tourbillons, which on a Swiss watch can command prices of more than $50,000. MontieK, an Amsterdam-based company, this year is starting to sell European-designed timepieces with Sea-Gull movements for as little as 1,300 euros ($1,883).
“In the future we can compete with the Swiss,” Keith Choi, sales manager for Tianjin’s Tsinlien watchmaking unit, said in a March 25 interview. “At least we can hold the market among the middle class now.”
The strength of the Swiss franc, which has risen 18 percent against the dollar in the past year, makes it easier for watchmakers to use more non-Swiss components and still claim the “Swiss-Made” moniker, said Jean-Marc Jacot, CEO of Parmigiani, whose timepieces cost $70,000 on average.
Making Swiss watches might become more difficult if Swatch Group succeeds in negotiations with Switzerland’s competition regulator to end rules requiring it to sell timepiece movements to competitors. Swatch’s ETA unit has a de facto requirement to sell to third parties because of its dominant position, according to the regulator, known as Comco. ETA makes as much as 80 percent of Swiss-made movements, analysts at Sanford C. Bernstein estimated in a March 18 report.
‘Down The Drain’
A watch company might buy a movement from ETA for 250 Swiss francs and sell the timepiece for 10,000 to 20,000 Swiss francs, Swatch Group CEO Hayek said in February. Watchmakers could spend 40 million francs to 60 million francs to set up their own factories and make components themselves, he said.
According to Mondaine’s Bernheim, Switzerland’s lower-end watchmakers will be sacrificed should the country adopt the rule changes being sought by the larger companies.
“There’s generations of work done by people that will just go down the drain,” the executive said. “This law would really be a slap in our faces.”