Has Swiss watchmaking lost a battle?
Originally posted in March 25, 2020
« Ten years ago, competition from Japanese products was not taken seriously. Only a few well-informed producers were concerned, notably in the USA, Germany and Switzerland. But the public shrugged its shoulders. They “swallowed” all the “stories” told by retailers: the Japanese were copying, they weren’t inventing anything, their merchandise was of poor quality, and so on. Since then, however, faced with the commercial success of Japanese industry - whether in watchmaking, electronics, household appliances, machine tools or optics - public opinion has become aware of the Japanese challenge. Long lulled to sleep by gossip, the West is awakening, trembling. Yesterday unaware of the threat, it is now trying to ward it off. Here, we will examine just one aspect of the problem that is of particular interest to the Swiss: watchmaking. »
In the course of my research into Seiko, I came across this excellent article in the Journal de Genève, dated... June 19, 1968! And yet, reading this introduction, you wouldn't expect an article going back that far!
https://www.letempsarchives.ch/page/JDG_1968_06_19/9/article/8102630/seiko
Here’s a translation of the full article that follows the quote above:
For this study, we will base ourselves on the travel report in Asia by Dr Pierre Renggli, taken from a document presented to the ASUAG (future Swatch Group) Executive Committee.
Despite the dismantling of giant trusts, Japanese industry is very concentrated. The size of Japanese companies therefore far exceeds that of Swiss companies, which gives them, initially, an undeniable advantage. Furthermore, the State, without directly subsidizing the economy, exercises a positive influence by supporting, through its decisive action in the financial sector, the companies whose development chances are particularly interesting. In experience, this financial dependence of Japanese industry has proven favorable. In his report, Mr. Renggli notes: we should not speculate on the fact that the Japanese expansion drive would diminish, for the sole reason that companies in this country do not have surplus capital, like certain Swiss brands. Their economic expansion will not come up against financial problems, but rather the lack of labor qualified.
STRUCTURE OF JAPANESE WATCHMAKING
Image of this centralization, the production of wristwatches is essentially in the hands of four producers:
K. Hattori & Co.: 50% of production (number of pieces), brand: Seiko;
Citizen Watch Co.: more than 30% production;
Orient Watch Co. and Ricoh Watch Co. share the rest of the market.
Hattorl, which owns 45% of the capital of Orient Watch Co., is a powerful trust made up of several factories which employ 1,500 to 4,000 people. This company produces approximately 600,000 pieces per month (1966 figure), or approximately 10 to 12 times more than a medium-sized Swiss company. Citizen manufactures 370,000 pieces per month, Ricoh 120,000 and Orient 90,000. These four big Japanese brands are supported by numerous subcontractors, but it is the brand who launches the finished product on the market. In Switzerland, it is often the opposite, hence a certain disadvantage in terms of market penetration strength.
TECHNICALLY, THE EQUAL OF THE SWISS
From a technical point of view, the Japanese focused on anchor movements. They do not produce any Roskopf watches. Their production is characterized by very sophisticated goods. The standard (and cheap) product has little or no success with them. Automatic and shockproof watches represent 50% of production. 70% of the men's watches are equipped with calendars and 35% with the day-date system (day in full letters plus the date). Seiko and Citizen also manufacture electric watches and are actively studying quartz movements, as is Ebauches SA, which has just produced interesting protoypes. As for atomic clocks, Japan does not yet manufacture them. Japanese watchmaking has very little interest in specialties: extra-flat watches, diving watches, high-frequency watches, etc.
The myth of the standard, cheap Japanese watch must disappear. Today, Japan's policy is to adopt and implement, very quickly and on a large scale, immediately, the most progressive solutions. Moving towards Swiss watchmaking technology, the Japanese have, without a doubt, copied a lot of the Swiss industry. However, they are at the origin of technical novelties that can easily hold their own against Swiss counterpart. On this point Mr. Renggli is categorical: Today we must see them as a competitor who has reached our level in many areas.
AT THE FOREFRONT ON THE COMMERCIAL LEVEL
On the commercial front, Japan is at the forefront. The Swiss were, for example, forced to adopt certain characteristics of Japanese clothing, less conventional than theirs. In Southeast Asia, it is the Japanese who set the tone. The strength of Japanese watchmakers also lies in their sales organization. On this point, they also imitated the methods of large Swiss companies by generalizing them and bringing them to a rare degree of perfection. It is interesting to cite here an example reported by Mr. Renggli:
The Seiko Centers are a combination of an exhibition hall, a store and a repair workshop. We find them in the most important cities in Hong Kong, Bangkok, Manila, Taipei, etc., we even already see them in the Middle East, in Tehran. It is clear that we are building a network systematically. We could almost say of these centers that they are the symbol of all-conquering power of a modern branded watch factory. These centers are presented as follows, for example in Taipeh: a “Seiko-Center” has been installed in a well-located place in the city center, which looks like this: on the ground floor, a luxurious exhibition room where you will find the latest new products from Seiko; on the first floor, a store; on the second floor, an exhibition of photographs, posters, etc., which presents modern manufacturing methods and the technical discoveries of the brand; Finally, on the third floor, a repair center has a stock of spare parts for the local market. The great influence enjoyed by these centers is not only due to the advertising or the friendly welcome one receives, but also to the efficiency of the repair service. This service was tested at the Seiko center in Hong Kong, using specially chosen Seiko watches. The result was astonishing: most of the time, spare parts were exchanged free of charge, even when the watch warranty had expired, including parts as expensive as the complete balance wheel. The price of a complete overhaul did not exceed 10 HK$ (approximately Fr. 7.-). In addition, repairs are carried out very quickly, on average twenty-four hours, it is a “quick repair service”. In complicated cases, we simply change the movement of the watch. Undoubtedly, this generous policy works in Seiko's favor, as it counters the frequent complaints about: missing spare parts, long waiting times and the high cost of repairs that many Swiss watches suffer from.
JAPAN: 5% OF THE MARKET
Under these conditions, what is the situation of Swiss watches in South-East Asia? The most optimistic would say that this is hardly a time for complacency. The latest figures are worrying. Swiss watch exports decreased (in volume) by 9.6%1 in Asia (Middle East excluded) from January to April 1968. (-17.1% for the United States and Canada.)
What is going on? In Japan, Switzerland only sells expensive watches. It has had to leave the mid-range market to its competitors (around 95% of consumption). Swiss watchmaking only retains 5% of the market in volume and 15 to 20% in value. This represents approximately 500,000 pieces. Fortunately, there is a Japanese clientele who always have a preference for watches worth several thousand francs, such as Rolex or Audemars-Piguet. But this glimmer of hope is very slim. Indeed, the optimism displayed by Japanese importers is often only based on a limited increase in sales of a few hundred pieces for a market... of more than 100 million inhabitants.
In Hong Kong, a showcase market for the entire Far East, the situation is not encouraging. Seiko and Citizen are well placed in this market as well. However, the efforts of the Swiss were considerable in the British colony. Advertising costs for all Swiss exporters far exceed the expenses incurred by the Japanese, who nevertheless obtain better results. In 1966, the Japanese sold 1,232,295 pieces to Hong Kong compared to 1,063,059 for the Swiss. However, Seiko, Citizen and Orient spent six times less on their propaganda on Hong Kong than all Swiss brands. This success of the Japanese is easily explained. The middle class Swiss watches are not competitive. The Swiss product belonging to this price category is below the Japanese quality, of a Seiko, for example. Mr. Renggli is not kind to the Swiss; he concludes: It is striking to see Swiss exporters constantly compare their respective positions while remaining surprisingly indifferent to the fact that Seiko and Citizen, who, less than six years ago, shipped practically nothing to Hong Kong, now sell more finished watches there than all Swiss brands combined. We consider this Japanese commercial explosion as a sort of natural phenomenon, as a catastrophe against which we are powerless.
In short, the following can be said:
1. If the current trend remained unchanged for a short time currency exports would supplant Swiss exports in all parts of the South-East. Japanese watches are homogeneous in quality, average to good.
2. If we consider all the exports, including the export of movements, from the quantitative point of view, Switzerland will remain at first place for a long time. However, from the point of view of quality, the majority of the articles sold as “Swiss made” are of inferior quality and cause an undeniable harm to the “goodwill” of Switzerland.
DID THE SWISS MISS THE MARK?
To the advantages, which are due to the quality, the modern structure of Japanese companies and the lack of cohesion and foresight of Swiss companies, are added two factors: Japan benefits from incontestable political and commercial goodwill throughout the South -East Asian, except Korea. In addition, Japanese companies were (and still are) protected by very high customs duties (even after the Kennedy Round) which allowed them to build enormous complexes protected from all competition. The profits made then facilitate the extraordinary expansion of Japanese watchmaking.
These two factors should not, however, make us forget the essential: if Japanese watchmaking is experiencing unprecedented prosperity, it is because it learned the teachings of Henry Ford more quickly than Europe: it manufactures economical items with impeccable technology. It reaches out thus to more and more buyers. Was Swiss watchmaking too slow to understand that quality alone could no longer ensure commercial success?
NB Mr. Pierre Renggli is chairman of the board of directors of ASUAG, an organization which brings together Ebauches S.A., Assortiments réunis and Balanciers réunis (which will become Swatch Group later on).
Seiko is working energetically to move from the middle class to expensive categories, the latest Seiko chronometer costs Fr. 500.- (41,000 Yen) in Tokyo, gold watches for men more than Fr. 2000. (170 000 Yen). All this suggests that Seiko already enjoys considerable prestige today, which will have a more and more important impact in the category of Swiss watches of a certain price. (Taken from Mr. Renggli's report.)
End of the article
In South-East Asie, facing the Japanese challenge, has Swiss watchmaking lost a battle?
I have to say that this article is very different from the way the Swiss press has treated Seiko over the last 50 years, but with hindsight and the economic/technical/historical data available to us today, it's undeniable that the author was very clear-sighted!
Indeed, the 60's were the most significant decade in Seiko's history, with the birth of Grand Seiko, the technical victory over Omega and Longines to time the 1964 Olympic Games in Tokyo (for those interested, click here), a fierce battle with Omega for the 1966 Asian Games (article in progress), the release of three excellent Hi-Beat calibers in 1968 (manual, auto and ladies).
But just a few months before this article went to press, Seiko was making a big splash at the Neuchatel and Geneva Chronometry Competitions, a decisive event in the history of these competitions, which began in 1872 and were simply discontinued due to the technical prowess of the Japanese. In 1969, Seiko also launched the Grand Seiko VFA (for Very Fine Adjusted), watches with a rate of +/- 2 seconds per day! But as this was not enough, Seiko also launched the world's very first automatic chronograph in May 1969, followed a few months later by the world's very first quartz watch.
“The rest is history”, as they say, and the 70s were to be the decade of the Swiss watchmaking crisis, wrongly dubbed the quartz crisis. But it was only what this excellent article saw coming: the superiority of the Japanese industrial model sculpted by Seiko over an outmoded Swiss industrial model. On this subject, read Pierre-Yves Donzé's excellent article if you haven't already !
“Technically the equal of the Swiss”, “in the vanguard commercially”, “have the Swiss missed the boat?”, the author of the 1969 article does not spare the Swiss industrialists, but his warning cry has probably never been heard...
Today, the title of this article seems obvious, almost a rhetorical question. The 60s and 70s were marked by a series of Japanese victories in the world of watchmaking that indelibly shaped its history.
After almost half a century, Seiko and Grand Seiko are back on the scene with the same ambition they displayed in the 60s: to do everything in their power to beat the Swiss at their own game. After major changes in the USA in recent years, the Japanese giant is now turning its attention to Europe... Will Japanese watchmaking win the next battle again?