The Rise of the Swatch Group

In 2012, the Swatch Group earned 8.143 billion CHF or 8.6 billion US dollars in gross
sales. This was a 14% increase in gross sales from the previous year [1]. The Swatch Group’s
current success is nothing short of amazing considering that in the late 1970’s the Swiss watch
segment almost collapsed due to the inexpensive watch alternatives being produced in Japan, the
U.S. and the Soviet Union [2]. The hero of this survival story, Nicolas G. Hayek, revolutionized
the way in which Switzerland thought about time pieces and brought together many Swiss watch
brands under a single entity. In this paper, the way in which he saved the Swiss watch industry
and how he grew his Swatch Group into the global company that it is today will be analyzed.

Surviving the Onslaught

Towards the end of the 1960s the global watch market was beginning to change. Mass
produced mechanical watches made in Japan, the U.S. and the Soviet Union were gaining market
share and driving down Switzerland’s dominance in the market. In reaction to this, Swiss
engineers innovated their watches to be waterproof and shockproof. They also discovered the
ability to use quartz in order to create watches with incredible time accuracy as well as
manufacturability. Foolishly, they dropped this quartz technology. Japan based watch
manufacturers embraced the quartz alternative and quickly gained dominance in the lower price
point market. The Swiss watch industry needed to pivot, so they embraced the high price point
market and began to make their watches with more gold and diamonds [2].
Enter Nicolas Hayek, the famous Swiss management consultant. Hayek saw a shattered
Swiss watch industry of once great firms. In order to guarantee the survival of the industry he
advised two of the larger Swiss watch companies, SSIH and ASUAG, to merge into a singular
entity SMH. The newly created SMH was restructured in such a way that streamlined the
manufacturing of the Swiss watches. Most notably, ETA was given the full responsibility of
manufacturing all watch movements. From here, Hayek made his first big move.
Hayek recognized that the watch market had changed. People were opting to buy mass
produced quartz watches over the carefully manufactured time pieces that used to be the pride of
Switzerland. By having SMH develop a technology to produce quartz watches that had one third
the number of components as former watches, SMH was able to develop a watch that could
compete with those of the Japanese (Exhibit 1); however, the success of this new watch was not
attributed to its cheap price. Similar to how Apple’s founder Steve Jobs believed that “form
follows emotion”, Hayek believed it was the switch from a watch as a functional item to an
emotional item that caused the success [3]. A watch had become an item of fashion and
expression.

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 Exhibit 1: Original Quartz Swatch Watch

The recognition of this fact is where the story of SMH goes from one of survival to one
of growth. SMH changes its name to Swatch and uses its vertical integration to effectively
manufacture and sell watches. The 19 brands that Swatch contained become redistributed across
four market segments based on price and reputation. Each brand carries its own unique identity
and avoids the faulty step of trying to be “everything to everyone [2].” The Swatch group
contains a brand with a watch to fit every person. Watches become more than something to keep
the time, they become fashionable.

Increasing Global Presence

The Swatch Group is not an ideal example of a global firm. Their capital base, supply
chain and mindset are heavily Swiss (Exhibit 2). However, keeping this Swiss mindset is
beneficial to the company. Swiss watches are viewed as well-made and designed to last, similar
to how people think Swedish furniture is hip and young. This Swiss image that the Swatch
Group maintains by keeping their capital base, supply chain and mindset Swiss allows for them
to gain a better image. This image then allows them to gain a stronger market presence.

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 Exhibit 2: Swatch Group Globalization Framework

Capital Base: 41.6% shareholding of the Hayek

pool of investors; Nick Hayek states "We don't
sell shares, we sell watches."; Listed on Swiss
stock exchange - Not Global

Mindset: Enjoy being viewed as a Swiss

Company; Have considered selling in a
solely Swiss product stores - Not Global

Market Presence: Sell watches around the

Supply Chain: Most of the 160 production
world in Europe, the Americas and Asia -
sites in Switzerland - Not Global
Global

One of the largest reasons for Swatch Group’s increased global presence is the way in
which they divide up their brands into four market segments. These four segments are the
luxury, high, middle and basic ranges [4]. These market segments, based off of price and
reputation, allow the Swatch Group to strategically have access to all corners of the time piece
market. This is true by both geography and class. Geographically, the Swatch Group is able to
offer a region multiple brands within one of the four segments that all have a different identity.
The culture of the region is able to unknowingly choose which brand they prefer, and then the
Swatch Group will focus that brand in the particular region. In terms of class, the Swatch group
has the four segments to offer watches of varying price and make. All the brands of the Swatch
Group are shown in Exhibit 3.
By offering every customer segment in every region a unique watch, the Swatch Group is
able to maintain a diverse customer base. By looking at the Swatch Group through the use of the
Business Model Canvas, one is able to see how independent and strong of a firm it is. Their
strong vertical integration allows them to require few partners and minimize their cost structure.
They own a majority of the channels through which they sell, and maintain a healthy relationship
with their customers by offering a variety of unique time pieces through multiple brands. This is
also the way in which the deliver value to their customers. They also maintain a narrow and
focused list of key activities. If the Swatch Group were a start-up, their credentials would be
very strong on a global front.

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 Exhibit 3: All Brands of Swatch Group

Lessons for Entrepreneurs

The story of the Swatch Group is a story about how to pivot and understand the changing
markets in which your company exists. The origin of the Swatch Group was a scattered Swiss
watch industry. By consolidating and changing the way in which they thought about watches,
the Swatch Group was able to regain a strong standing in the market. Using forward thinking,
they saw the movement from a watch as a functional object to one of emotion. Using this
knowledge, they created a company that had numerous brands and a wide range of “emotions” to
pick from. They also carefully watch and understand the markets in which they sell their time
pieces. They understand what drives Chinese customers to buy watches and which of their
brands align with those forces. From this an entrepreneur can take to always understand your
customers and their wants.
There are other important concepts that an entrepreneur can take from the Swatch Group.
In particular, the concept of not trying to be “everything to everyone” presented by Urquhart is
of importance to entrepreneurs. For the Swatch Group, they segregate their brand’s
characteristics to maximize their exposure in the market. For a startup, the concept applies to
focusing efforts on a niche in the market into which it can grow. Furthermore, the Swatch
Groups smart use of vertical integration should be noted by entrepreneurs. By controlling every
aspect of the manufacturing and sale of their watches, the Swatch Group is able to guarantee the
quality of their product. They are also better able to see changes in the market and can adjust

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appropriately before the changes have a negative effect. Entrepreneurs can take from this. By
controlling both the sale and manufacturing of their good, an entrepreneur is better able to see
changes in the demand of the market and adjust manufacturing accordingly. This results in
saved resources and time.

Works Cited

[1] Swatch Group. Financial Statements 2012 Consolidated Financial Statements Financial
Statements of the Holding

[2] Rohit Deshpande, Karol Misztal, Daniela Beyersdorfer. The Swatch Group

[3] Steve Jobs. Steve Jobs Quotes by Walter Isaacson

[4] Swatch Group Website. Swatch Group, Watches and Jewelry