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The Watch Industry
From Boom to Bust
In 1968, Switzerland dominated the world of watchmaking as they had for the previous 60 years. They had more than 65% of the world unit sales and over 80% of the profits. They not only made the best watches in the world, they were continually improving them. They lead the world in accuracy; waterproofing; manufacturing, they had the best bearings, springs and mainsprings; self-winding watches and more.
The Swiss were so far out in front in the watchmaking industry no one was a clear second.
Then, something startling happened that devastated the Swiss Watch industry.
In less than 10 years, the advantage the Swiss watchmaking industry was built upon had been demolished. Between 1979 and 1981, 50,000 of the 62,000 watchmakers in the country lost their jobs. Can you imagine that in your industry, a shutdown of your industry so severe that 80% of the employees were terminated in a matter of two years. That is an extraordinary shift!
From Mechanical to Electronic
It was not that the Swiss were lazy, on the contrary, they were constantly innovating and improving their standards.
Simply put, a paradigm shift occurred. One of the fundamental rules of watchmaking had been overturned. It wasn't just broken it was thrown out the window.
Watchmaking shifted from the mechanical to the electronic.
In that one change, the entire competitive advantage of the Swiss watchmaking industry was lost.
Alternatively, another nation, Japan, which had less than 1% of the world watch market in 1968 (as compared to over 60% by the Swiss) took over the industry virtually overnight. Seiko in particular, through the development of the electronic quartz watch, had grabbed 33% of the world market.
What Happened?
The irony is that the Swiss were not only aware of this paradigm, they practically invented the technology that created the shift. In 1967, Swiss researchers invented and patented the electronic quartz movement. Yet, when the idea was presented to the Swiss manufacturers it was rejected.
Whilst it is not clear why the new watch was rejected, it was probably linked with the fact that it didn't look like a watch. It didn't need bearings, it required almost no gears, it was battery powered and it was electronic.
(Compare this to John Harrison’s solution to the ‘Longitude’ problem presented to the Royal Society relative to those assembling astronomical charts.)
It simply couldn't be the watch of the future because it had so little resemblance to the watches that already existed. Furthermore, it relied upon very little of the experience, know-how and expertise that the Swiss had built the watchmaking industry upon.
Alternatively, the Swiss were renowned for creating the best watches in the world: the most accurate, the most durable and the most expensive. If you wanted the best you bought a Swiss watch.
The Digital Novelty
When the digital watch was produced it was initially, like many new technologies, offered as an expensive novelty. Then it became clearer they could be stamped out more cheaply than the analogue watch because they had so few moving parts and the manufacturing and assembly was simply cheaper and easier.
Perhaps, the Swiss thought the digital watch was not their market.
Or perhaps, they may have even thought that the digital watch was below their standards. They allowed the Japanese, particularly Seiko and Casio to produce their 'cheap junk watches' whilst they continue to dominate the high-end luxury market.
The Swiss watch industry were so certain their invention was virtually useless they displayed it publicly at the World Watch Congress in the same year that it had been invented. This is not the strategy of a company with a corporate secret that could earn millions of future revenue dollars. In contrast, Japanese company Seiko took one look at the design and then took over the market leader position in the watchmaking industry.
Market Share
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Swiss
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Other
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Japan
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1968
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Total Market
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65%
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34%
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1%
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1980
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Low End (less than $75)
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0%
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Middle (between $75-$400)
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3%
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High End (more than $400)
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97%
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In 1980, Japanese company Seiko had capture 33% of the total watch market.
To continue this article, The Watch Industry, Part 2
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