The Watch Industry

AN OVERVIEW 

Despite the importance of Switzerland as the world’s best know watch producer, the country ranks third in world production, with 30 million units per year, behind China & Honk Kong (over 1 billion units per year) and Japan (around 700 million). US, France and Italy produce between 4 and 7 million units/year. Germany production is gaining in importance every year, with nearly 300 thousand units.As noted, there is a huge discrepancy in terms of physical production in the world ranking. The reason is the large quantity of quartz watches produced in Asia (China & Honk Kong, Japan, India).

1947-Rolex-Ad

Let us mention Russia, although there are no production statistics available, given the continental dimensions of the country, with over 150 million people, we believe that production is not small.

Moscow-Russia

Many fake watches, also called replicas of famous brands, use mechanical movements from China and Russia since they are very cheap.

In the 70s, with the emergence of the low quartz watch, the number of Swiss brands fell from 1,600 to 600 currently. The 90,000 workers in the 60’s decreased to 30,000 in the mid of 80’s. Today, with the growth of the Swiss watch industry, that number increased to 55,000 people. This last figure is not higher due to the continuous mechanization (labour saving technical progress) and specialization of the labour force. For example, the introduction of Computerized Numerical Control (CNC) allows the production of complex parts with very high precision. Another reason is the drastic reduction of operations with human intervention in the production process, which also contributed to increase quality, reduce materials waste (scraps usable or not) and time to produce.

While the value of the Swiss production of quartz watches (85% of current physical production) grows at very low rates (between 2% and 3% per year), the production of mechanical watches has been growing at rates around 10% per year, particularly in the last five to ten years.

Currently the major markets for the Swiss watches are Asia (Hong Kong and Japan, with 44% of imports), Europe (34%) and the USA (20%). China & Honk Kong not only produces watches of lower quality, but also contributes to pollute the environment. Japan is second in the ranking of the largest producers, but this country adopted less environment damages practices.

In the fine watchmaking or haute horlogerie, whose simplest pieces start with prices above $ 8,000, is largely dominated by the Swiss industry and Germany. For example, the two most prestigious German brands, Adolphe Lange & Söhne and Glashütte Original, despite their watches are produced in t he small town of Glashütte (Saxony), the controlling shareholders are respectively Richemont and Swatch Groups.

German-watch-and-clock-making-museum-Glashuette_image_2col

The two main Japanese manufacturers, Seiko and Citizen, are gradually increasing the proportion of higher added value of watches, especially the first, following the secular Swiss commercial strategy, but with increasing participation of non-conventional or hybrid mechanical movements.

Seiko has developed a hybrid movement, electro-mechanical, called Spring Drive, whose watches are sold at a price starts from US $ 3,500. This movement is very interesting. Power is obtained mechanically and stored in a mainspring barrel, like in automatic watches.

Spring Drive Tri-Synchro regulator

An electric circuit control, named Tri-Synchro regulator, which is the heart of the Spring Drive system, replaces the traditional escapement (escape wheel, anchor and spiral) of mechanical watches. The mechanical energy obtained by the movement of the wrist provides energy for both the mainspring barrel and for a dynamo of the Tri-Synchro. The electric impulse provided by a quartz oscillator regulates the unwinding of the mainspring inside the barrel and the accuracy, according to Seiko, is +/- 15 seconds per month.

For example, the accuracy of a good quality mechanical movement oscillates between +1 to -1 minute per month for a certain temperature range. It tends to be more accurate during the winter and less during the summer season.

In non-conventional mechanical watches accuracy no longer exceeds 30 seconds per month, as the Gyrotourbillon II from Jaeger Le Coultre.

JLC Gyrotourbillon II

Citizen adopted for many years the Quartz Eco-Drive, which avoids the use of conventional battery. In the Eco-Drive system, the power required to maintain the movement may be quartz solar source or any other light source captured by a crystal installed on the display and transmitted to a panel similar to the solar energy supplied and this keeps a battery fixed. The accuracy of watches with the Eco-Drive system is excellent, better than the Spring-Drive system and as well as the conventional mechanical watches. Citizen competes with Seiko and several Swiss brands such as Tissot, Mido in quartz movements.

We believe competition in the global watch industry is increasing in all price ranges. Due to the world economic growth, particularly in emerging countries such as China, India and Russia, new brands were created in Switzerland with the focus on the high-income consumers. In Brazil, the consumer market is still nascent, but potentially promising. However, there are two major obstacles to the growth of better quality watches sales in Brazil, the high taxation on imported watches (see article of my own for the PULSO watch magazine, edition 52, 2007) and the consumer fear to be a victim of robbery or theft.

Excluding very exclusive brands with little production (up to 250 pieces per year) and exaggerated prices, it seems that a common business strategy for most manufacturers is to keep a basic collection, with a lower price, where profitability is greatly reduced, but sufficient to support the global fixed cost and provide some visibility of the brand in the market. The profitability that provides a return on investment compatible with the business risk in the high-end segment is the continuous development of watches with higher technological content and the addition of precious metals and new high-tech materials.

Even the top brands, not exceeding the number of twenty-five, are experiencing a transformation.

Cartier SantosA recent example is Cartier, which produces watches, jewellery and accessories. Its watches are among the most sold in the world, ranking third position in the ranking. This century-old brand, originally French and now belonging to the Richemont Group, installed a new and ultra-modern workshop in the town of Meyrin – canton of Geneva – in order to produce its own movements and components. The brand is determined to change the consumer perception that its watches are known rather for exterior design, like the flagship models Santos or Tank created in the early twentieth century, than by the quality of their mechanical movements.

The increased competition is driving manufacturers to produce better quality watches in all aspects, from movements with greater accuracy and resistance to shocks. New case designs, new dials, better quality sapphire glass, more durable leather straps and bracelets. The major beneficiary of this general improvement of the industry is the final consumer.

There is a reason for this competition, which is the growing interest of people for watches. Currently consumers, be male or female, want to have a piece, if possible for every occasion, that is, a watch to be used during the work, another to go out and another for sports activities. The scenario for the watch industry for the coming years seems to be quite favourable.

However, in the high-end watches segment, the competition will be fiercer. Two reasons: the top watch brands are opening their own boutiques in several countries and because the number of wealthy people or very rich is quite limited.

VC Boutique CJ 1

Therefore, each watch manufacturer will have to be very creative to consolidate its position in the market niche.

 

 

Um comentário

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