International Business Report
Maciej Idzik
19008297
Contents
1.0 Terms of reference
2.0 Procedure
3.0 Findings
3.1 Industry introduction
3.2 Impact of globalisation on
Swiss watchmaking industry
4.0 Conclusion
1.0
Terms of reference
This report will analyse the impact of globalisation of markets on a Swiss watchmaking
industry, which does not seem to be penetrated in this context by any academic text so far.
It will focus on globalisation drivers and the globalisation of markets. This report is for
Level I Business Management Core 2 course (International Business) at Liverpool Hope
University, due on 26th January 2021.
2.0
Procedure
The primary sources for this report will consist of academic texts, Swiss journals, statistics,
industry magazines and publications. This article uses GBP, CHF and USD currencies
simultaneously to maintain accuracy of sourced information, where currencies vary
depending on the country. The full list of references can be found under section 5 of this
article.
3.0
3.1
Findings
Industry introduction
The watchmaking industry is a long-established industry dating back to the 15th century
Europe. The Swiss watchmaking sector is a dynamic one, recently exporting and
outsourcing work to other countries and continents. The industry generated for
Switzerland a turnover of (in billions) 15.5 GBP in 2017 as juxtaposed to 16.8 GBP in
2019. However, unit numbers exported fell from (in millions) 23.4 to 20.6 respectively
(FHS, 2019; FHS, 2017). Within the industry there is 8 leading companies. Swatch
(27.5%) and Rolex (24.8%) add up to 52.3% of all market share of Swiss watches
worldwide (Roulet, 2020).
The industry can be separated in two sectors: mechanical and electronic watches.
Mechanical watches exports kept rising from 4.4 million CHF in 2000 to 17.1 million CHF
in 2019, whilst electronic watches exports fell from 4.8 million CHF in 2000 to 3.4 million
CHF in 2019 (FHS, 2020).
3.2
Impact of Globalisation of the Swiss Watchmaking industry- Markets
Globalisation was defined by Denis et al. 2006 as an “increasingly integrated world
economy” with a system of more open, market-driven economic governance. Further,
globalisation of markets focuses on growing interdependency between different
economies in a matter of trading and exporting activities (Cavusgil, 1993).
Swiss watchmaking industry, further referred to as SWI, can be described as an economy
of scope. To understand why, the paper presents the following data:
SWI Export by price categories (FHS,
2020)
CHF <200
Total
CHF >3,000
1000 units
Million CHF
1000 units Million CHF 1000 units Million CHF
2000
29.656
9,276.50
22,795
1,231.20
488
3,153.20
2019
10,646
20,502.70
11,627
818.1
1,668 14,179.40
(Table 1)
As shown on the Table 1 (above), it is clear that, as overall value of SWI exports increases
from 2000 to 2019, the quantity of it falls. This is caused mostly by globalisation and
shifting of Swiss manufacturers from competing in low to high price categories: 22,795
thousand units in 2000 and 11,627 thousand in 2019 of watches below 200 CHF, as
juxtaposed to an increase in sales of watches above 3000 CHF (FHS,2020). This proves
that increasing quantity in SWI, a progressively luxurious market, would be pointless
since it would only lower the value of a single unit. Increasing the variety of offered
models for a single company would be profitable as luxurious products are often
personally adjusted towards the customer. Globally, the market is very standardised.
Little to no customisation must be done before exporting to foreign markets. First issue
for SWI can be drawn from this paragraph.
In the 1960s Switzerland was a leading manufacturer of watches. 15 years later SWI was
considered dead. In 1970s quartz (electronic) watches began to appear in Japan and USA,
despite being developed in Switzerland, where they were proclaimed as impossible to
succeed. Thanks to globalisation starting at that time Japan quickly proceeded to become
a watchmaking champion in both quantity and value. This globalisation of technology,
which can be described as “the way companies (…) organize production, trade goods (…)
and develop new products” (NAP, 1988) was a first big struggle for SWI, and it continued
until early 2000s, when manufacturers such as Swatch mostly gave up on Swiss Made
affordable watches which could not compete with low retail prices and quality of
competition like the Japanese Casio and shifted focus towards mid-range and luxurious
products. (Aguillaume, 2006). Later on, introduction of Apple Watch in 2015 draws the
end of Swiss Made mid-range watches as shown by the following figures. In 2019 Apple
Watch reached 30.7 million shipments (36% growth YoY) as juxtaposed to the whole
SWI reaching 21.1 million shipments (-13% growth YoY) (Strategy Analytics, 2019). To
not repeat the mistake from 1970s, SWI brands like Swatch and Tissot attempted to
create smartwatches of their own, but they could not compete with the quality of
software and the depth of retail channels of Apple (Naas, 2020). In terms of market
globalisation this shows how customers are choosing products from other economies
thanks to simpler means of export, being a direct example of shift in tastes and lifestyles.
Young customers claim they would only wear a smartwatch or nothing at all (Strategy
Analytics, 2019). This leaves SWI with luxury market, which has been growing rapidly
thanks to globalisation.
For example, in Asia watch market was more or less non-existent before opening up
trade with western countries. Thanks to that western brands did not have to adjust a lot
when it comes to marketing and the product itself before entering that market, making it
rather standardised. The only elements that required change was persons in
advertisements (changing ethnicity from typical European to typical Asian) and
adjusting the calendars on watches to Asian standards and languages. The entry mode
for SWIs in external economies would solely rely on export, as training of watchmakers
can only happen in Switzerland and that solution turned out to be the cheapest one.
Nowadays, Asia (Hong Kong and China in particular) have accounted for 53% of export
turnover of Swiss watches in 2019. This has to be with an increase of per capita income
in those eastern economies and establishment of Swiss luxury brands amongst wealthy
Asian customers. With the opening of Chinese borders wealth of the Chinese GDP shoot
up from USD 1,205 billion in 2000 to USD 15,222 billion in 2020. This has made a lot of
Chinese people rich and seeking to spend that money on luxurious products, naturally
increasing the demand. Because there was none in China, their focus shifted to Europe,
where SWI is still thriving amongst luxury watches. This accounted for half of 4.6x rise
in SWI luxury watch sales between 2000 and 2019 (from CHF 3.15 billion to CHF 14.18
billion (Swithinbank, 2021). Every Swiss retail point in Europe, America and (obviously)
Asia has a Mandarin-speaking staff member precisely because of the revenue those
customers generate (Barber, 2012). Another important point can be drawn from this.
Because of Switzerland’s highest status as luxury watch manufacturer, many individuals
choose to purchase a ‘Swiss Made’ watch precisely because of its country of origin. This
then adds a lot to the value of the product itself, especially in export countries. Export
itself is a key to the growth of SWI, since domestically there is not enough potential
buyers for those expensive products. Because of the products’ light weight, where the
box is usually heavier than the actual watch, they have a remarkably high value to the
weight ratio and can be exported cheaply. Some manufacturers started even producing
their boxes in the destination countries and only exporting watches from Switzerland,
making shipping even cheaper (Lankarani, 2020).
The high status required for owning such product leaves the so-called Davos Men longing
to own such timepiece. Davos Men is a term popularised by Huntington in 1996
describing people belonging to the global elite and those aspiring to it. Naturally, just as
a good suit would be a part of such culture, so is a good watch (Berger, 1997). This creates
another target group for SWI of the current times.
There is a noticeable opportunity of growth everywhere else worldwide. Developing
countries, such as Myanmar, are expected to grow their GDP rapidly, therefore creating
a market for luxurious watches (Focus Economics, 2020). This market is always going be
capped since only so many people can afford expensive watches, however currently it is
still far from being fully developed.
4.0
Conclusion
Globalisation has had an industry-changing impact on the Swiss watchmaking industry.
Beginning with globalisation of technology reducing customers’ interest in Swiss
watches in 1980s and 1990s, through shift in lifestyles and tastes of people around the
world to the growth of the Asian market securing SWI as the go-to manufacturer of
luxurious watches. The low and medium range price products, however, has been mainly
taken over by Japanese and Apple products respectively. If not thanks to the East, SWI
would have half the exports it generates currently. This is then where Swiss brands aim
to focus on their marketing and sales (Barber, 2012).
References:
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Barber, T. (2012) Asia focus: Signs of a bubble in China cause concern. [online]
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