Table of Contents
1. Foreword
2. The Swiss Watch Industry from 1960-1980
3. The Société suisse pour l’industrie Horlogère SA (SSIH) and the Allgemeine Schweizer
Uhrenindustrie AG (ASUAG)
4. The Causes of the Quartz-Crisis
5. Nicolas George Hayek
5.1 His Childhood and Education in Beirut
5.2 The Move to Switzerland in 1949
5.3 The Acquisition of the Machine Factory and Iron Foundry Ed Mezger
5.4 The Recovery and Return of the Father-in-Law
6. The Beginning of Hayek Engineering
6.1 The Reasons behind Hayek Engineering’s Success
6.2 Hayek Engineering, SSIH and ASUAG
7. The Schweizerische Gesellschaft für Mikroelektronik und Uhrenindustrie AG
8. Hayek and the SMH
9. The Swatch Group
9.1 The Swatch AG
9.1.1 The History of the Swatch AG
9.1.2 Swatch before its Success
9.1.3 The Swatch Strategy
9.1.3.1 The Product
9.1.3.2 Price
9.1.3.3. Location
9.1.3.4 Advertising
10. Summary Remarks
1. Foreword
“Without Senior Hayek there would not be a Swiss watch industry anymore.” This statement has
been made many times and by a great number of people. You will also find this statement in the
Swatch Group customer report.
Yet, is it possible that a single man could single-handedly have saved the entire Swiss watch industry?
How did Nicolas Hayek even get into the Swiss watch industry? How did he become the main
shareholder and president of the Swatch Group? What is the market value of his company? Why is
the Swatch Group so successful? And finally, was Nicolas Hayek alone responsible for these
achievements?
Before these questions can be adequately addressed, it is necessary to describe the historical
situation of the Swiss watch industry, which first made it possible for Senior Hayek to save it.
2. The Swiss Watch Industry from 1960-1980
In 1960, the market share of the Swiss watch producers was between 35-44%. The demand for the
watches was greater than the supply, thus eventually leading to an over-demand for the Swiss
timepieces.
In order to meet the demand, the watch manufacturers bought up large inventories of individual
components, for a mechanical watch consists of 300-350 parts. It was assumed that the demand for
individual components would increase, thus it would no longer be cost-effective to have each part
individually manufactured. This is how the large inventories came to be.
At this point, the Swiss watch industry was quite proud of their achievement and dominance of the
world watch market. After the crisis of the 1930s, the branch of the Swiss watch industry was finally
doing better.
“The striving toward perfection (…) cultivated the sales, which only served to further reinforce the
watch manufactures’ belief that only Switzerland could produce such qualitatively high quality
watches.”1
The confidence and pride for the Swiss watch industry led to self-praise and an over-estimation of its
abilities. The Swiss watch-barons became increasingly powerful and started paying less and less
attention to the competition: the foreign markets. Research into the development of new and
innovative watches fell by the wayside. Only a few brands tested electronic watches in order to try
and put them out into the market. They were, however, considered traitors. In the eyes of the other
Swiss manufacturers, these electronic watches had nothing in common with traditional Swiss
mechanical watches.
However, as history has shown, it was a grave mistake to not have taken these watches (and the
technology behind them) more seriously, for in 1969 the Japanese manufacturer Seiko introduced a
world premier: the first quartz wristwatch (Image 2.2). The Swiss simply smiled, because they already
1
had a reliable and inexpensive watch, i.e. the Roskopf watch. In 1860 Georges Frédérik Roskopf
dedicated himself to the development of an inexpensive watch movement. As the result of various
changes to the movement, the watch became thinner and less-expensive to produce: as low as 20
Francs per movement. The Swiss companies were thus convinced that they could compete with the
competition from abroad. However, this turned out to be a form of self-deception. The demand for
mechanical watches changed almost overnight, and the Swiss manufacturers quickly felt the effects.
Soon thereafter Japan, closely followed by China, flooded the European market with inexpensive,
electronic quartz watches. The quartz watches were less expensive, much more accurate and lighter
as the mechanical watches. The price for such watches sank almost daily, thus allowing anyone to be
able to afford one. The Swiss watch industry watched helplessly as their sales fell drastically. Only a
handful of prestigious brands, for example, Rolex, Patek Philippe or Jaeger-LeCoultre, were able to
hold their own.
Nevertheless, in the middle and lower price segments, the quartz watches began to take over. And
because the watch industry is the third largest source of revenue in Switzerland, something had to be
done quickly. Making matters worse, the Swiss-franc was becoming stronger compared to the U.S.
dollar, thus making the watches even more expensive abroad and leading to a further reduction in
exports.
The Allgemeine Schweizer Uhrenindustrie AG, which had been the backbone of the Swiss watch
industry, as well as the Société Suisse pour l’industrie Horlogère SA demanded support from the
federal government, since their profits threatened to decline. As such, the crisis had exposed the
fundamental weak spot of the branch: they had no clear strategy as to how to deal with the crisis,
even though they were the ones who should have helped the industry safely navigate through this
crisis.
3. The Société suisse pour l’industrie Horlogère SA (SSIH) and the Allgemeine Schweizer
Uhrenindustrie AG (ASUAG)
On February 24th, 1930, Omega (Louis Brandt & Frère SA) and Tissot (Charles Tissot & Fils SA), along
with several other watch companies, merged to become SSIH. Together the two subsidiaries held an
influential position within the industry. They had 7 of the 10 directors and presided over 100% of the
share capital. The fusion made it possible to raise product quality, while at the same time, expand
the product line. In order to complement the existing range with high-quality products, SSIH bought
Lemania Watch Co. in 1932.
Companies such as Marc Favre & Co. (specializing in high-calibre women’s watches), Marke Lanco
(focusing on the mid-price segment), Aetos Watch Co. in Geneva (concentrating on the lower price
segment), and finally Economic Suisse Time Groupe (whose brands AGON, Ferex, Continental and
Buler rounded out the inexpensive price class) were all eventually incorporated into the SSIH.
Picture 3.1
The ASUAG was founded one year after SSIH was established, and was supported both financially and
organizationally from the federal government. Ebauches SA (Société anonyme) represented the core
of the organization. All ebauche manufacturers were forced to join the ASUAG. This SA was
responsible for “coordinating the sales of ebauche-blanks, trimming down the product line, as well as
fostering specialization and useful new developments”.2
In the statutes ASUAG was obligated to deliver parts, components, and movement blanks to all of the
watch manufacturers. Furthermore, this holding was established in order to retain control over the
key technologies. This meant that it was forbidden to export, for example, templates, components,
watch machines and tools to other countries. This was done to insure the inviolability of Swiss
watches.
“Via share-transfer ASUAG created in 1971 the watch conglomerate General Watch Co. (GWC) to
which brands such as Certina, Diantus, Edox/Era, Endura, Eterna, Longines, Mido, Rado, Rotary and
Technos belonged”.3
Image 3.2
Both SSIH and ASUAG were run like family businesses. As such, “the holding company wanted to
preserve the long-standing experience and maintain the traditional ideas and attitudes regarding
production processes and marketing”.4
4. The Causes of the Quartz-Crisis
Since the crisis in the 1930s, the Swiss watch industry had been living in an ivory tower, free from the
pressure of foreign competition. As such, the watch barons did not realize the profound changes that
were taking place on the world market.
As has already been mentioned, the great demand for Swiss watches only served to reinforce the
watch barons’ belief that they were indeed the best. However, this situation was about to change
quickly.
When it came to technical sophistication, the Swiss watch industry was able to hold its own. In 1969,
before Seiko presented its quartz watch, the quartz watch Beta 1 was developed in Neuenburg.
However, both the implementation and marketing of the watch were grossly inadequate.
The consequences of the quartz crisis were quite severe. The warehouses were increasingly being
filled with unsold watches and components. The result of the diminishing demand meant that
production had to be decreased and the workforce reduced. The number of employees was
decreased by two-thirds (from 90,000 down to 30,000). Approximately 1200 manufactures were
either closed or bought up.
Sales and profit began to dwindle. “Between 1974 and 1983 the export volume was halved from 91
million watches and movements down to 43 million pieces”.5 The manufacturers began to merge
into public limited companies [Aktiengesellschaften] in order to limit the risks.
2
3
4
5
At least 30 banks were shareholders in SSIH, which was also in severe crisis. Moreover, SSIH did not
look like it was going to be able to pull itself out of the crisis. And were SSIH to have gone bankrupt, it
would have resulted in a disastrous chain reaction. It would have taken a great number clients , and
consequently debtors, down with it.
It became obvious that a new marketing strategy was desperately needed. Peter Gross, general
director of the Bankgesellschaft Zürich, suggested conducting a situation analysis. The suggestion
was accepted in the hopes that it would save the watch industry. Yet, to whom should such a difficult
task be assigned?
5. Nicolas George Hayek
Image 5.1
My father and I met Nicolas Hayek (image 5.1) roughly one year ago at the Post Zürich Enge. With a
self-confident stride, a kind radiance and light blue eyes, he walked in through the entrance. He
possessed the self-confidence of a man that knows what he has already achieved as well as what lies
ahead. On each wrist he wore three watches – one from each of his brands. My father called out,
“Nicolas Hayek!”. He now recognized my father and turned around. My father wanted to greet him
and offered him his right-hand, to which Hayek replied offering his left – a response that somewhat
confused my father. Hayek went on to explain that he was sick, and that his hand was full of germs.
My father then grabbed Hayek’s right-hand and shook it and said, “Give me a few of them [germs],
because yours make one strong.”
However, Hayek is now dead (image 5.2 and 5.3). He died most likely due to a heart attack on June
28th, 2010 while working in his office in Biel. He had high blood pressure and often became very
agitated.
Hayek had already made arrangements for both his daughter Nayla and son Nick, who have been
working in the company for many years, to take over when the time came. Even his grandchild Marc
(Nayla’s son) was assigned a task.
Nicolas Hayek had experienced and achieved a great deal. How he was able to achieve so much as
well as his character will be the subject of the next chapter. The following questions will be
addressed: Why did Hayek come to Switzerland? How did he treat his employees? Could anyone else
have pulled the Swiss watch industry out of such hard times?
5.1 His Childhood and Education in Beirut
Born on February 19th, 1928, Nicolas Hayek grew up in affluent quarter of Beirut called Achrafieh. He
has a sister Mona and a brother Sam. Not too much is known about Sam. His mother Linda came
from a wealthy family of attorneys and his father Georges was a dentist trained in the United States.
They raised the children Greek-orthodox. Nicolas went on to attend a Jesuit school, where he
received lessons in religion. Nevertheless, he remained somewhat distant to matters of religion
throughout his life. He claimed that the teachers were never able to answer the deeper questions.
This curiosity and questioning nature reveals an important aspect of Hayek’s character. He was a very
self-confident individual and unconventional thinker. It was precisely this unconventionality and
straight-talking attitude for which he later became well-known.
When school was not in session, he always went to the family’s second residence in Koura (Libanon),
where he supervised the workers during the olive harvest – a job that apparently enjoyed a great
deal.
After having completed his studies at the Jesuit school, Hayek went on to receive his Matura from
the AUB Preparatory School in Beirut. Later he attended the Christian Université Saint Joseph, where
he studied mathematics, chemistry, and physics. At the age of 21 he received the Certificate of
License with a grade between satisfactory and good.
Several of the Hayeks’ employees worked in the household – among them a Swiss woman named
Marianne Mezger who served as the family’s Au-pair. While this job is not highly regarded, it did not
stop Nicolas Hayek from falling in love with her. As the parents became aware of their son’s feelings
for Marianne, they tried to end the ‘inappropriate’ and unwelcome relationship. However, given
Nicolas’ stubbornness, it did not take long for him to decide to move with her to Switzerland.
5.2 The Move to Switzerland in 1949
Penny less Nicolas Hayek now lived in Switzerland. Back then, the xenophobia was much more
pronounced than it is today, above all when it came to foreigners without any financial means. His
Lebanese appearance combined with his poor German provoked a strong aversion by many Swiss.
Even later in life, because of his appearance, his loose ties, and rolled up sleeves he stood out from
the crowd.
At first, it was very difficult for him to find a job. However, after a long search, he finally caught a
break and received an internship at the Swiss Reinsurance Company [Schweizer Rückversicherung] as
a mathematician. But it did not take long for him to realize that this was not the job for him. And
while he knew that his talents were not being utilized, for the sake of his wife Marianne, he did let it
get him down.
In 1951 he married Marianne, and in the same year she gave birth to their daughter Nayla. Hayek
was not sure, however, how he was going to be able to support a family.
5.3 The Acquisition of the Machine Factory and Iron Foundry Ed Mezger
Fate took Hayek in an unexpected direction. His father-in-law suffered a stroke and was taken
immediately to the hospital. Since his children were too young to take over the business, the
Machine Factory and Iron Foundry Ed Mezger was effectively a ship without a captain. Confronted
with this prospect, Marianne and her mother asked Hayek to take over the family-run business. He
did not need to be asked twice, and accepted the offer to become company’s director.
In the beginning, however, this was no easy task. His German still wasn’t very good, not to mention
his Swiss-German, and he did not have any experience in this branch. To make matters worse, the
employees did not trust their new foreign boss. However, within several months, Hayek had learned
enough Swiss-German in order to let the employees know what is what.
In 1956 Hayek travelled to Düsseldorf in order to attend a convention for foundries. With directed
and concerted questions, Hayek was able to extract a great deal of important and useful information
from other colleagues attending the convention. His inactions were profitable not only in the sense
of having acquired useful knowledge about the industry and how it works, but he was also able to
return home with several new customers. The orders the new customers placed brought in enough
money to allow the company to buy the production halls which they had until then been renting. As
such, Hayek skills as a director made it possible for the company to gain its independence.
5.4 The Recovery and Return of the Father-in-Law
In the meantime, Hayek had become accustomed to calling the shots and not having to justify his
actions to anyone. Yet, once his father-in-law had recovered from the stroke and wanted to take over
as director again, Hayek had great difficulty assuming a subordinate role within the company. The
inevitable confrontations that ensued were eventually resolved by Hayek leaving the company, and a
very strained relationship to his parents-in-law.
While Hayek had learned a great deal during his tenure as director of the company, he also came to
realize that he could not assume a subordinate position, i.e. work for someone else. Since he now
knew several important figures within the machine factory and foundry industry, he decided to
become independent and found his own company.
6. The Beginning of Hayek Engineering
Image 6.1
Once again, Hayek was unemployed. At least this time he had some equity to work with. Yet, this was
only enough to pay for his room in a boarding house. His family, Marianne, Nayla and the newly born
Nick, had remained with the parents-in-law in Aarberg near Bern.
Since what little equity he had was grossly insufficient for starting a company, Hayek took out a loan
for 4,000 Swiss-francs from a bank. Initially, this money was used to rent an office in the
Bahnhofstrasse 11 in Bern. Together with a colleague named Knight, Hayek founded a management
consulting company in 1957, where he served as an adviser.
However, as is often the case when starting a business, the beginning was very arduous. Hayek
received one rejection after another. It was claimed that he was too insignificant a figure, lacked
adequate experience, and thus did not possess enough knowledge to run a consulting firm. Making
matters even more difficult, the company did not even have a telephone. When Hayek needed to
make a call, he had to use the public telephone across the street from his office. And the business
contacts that he had made when he served as director of the Mezger factory, those who promised to
help him, suddenly did not want to have anything to do with him. He has at the end of his rope. The
situation seemed so hopeless that it was only because of Marianne’s support that he was able to
endure and continue forward.
Then came the breakthrough – not in Switzerland, but rather in Germany. Germany was still in the
midst of re-organizing and rebuilding its industry after the Second World War. To this end, and in a
attempt to avoid the mistake they made after WWI, the Americans, English, and French lent
Germany an enormous amount of money. Hayek was able to use this situation to his advantage, and
soon was able to count the most well-known Germany industrial company to his list of clients. Even
in Switzerland, the previously unknown Hayek was beginning to make a name for himself.
When Hayek first came to Switzerland as a man without financial means, he was denied
naturalization as a Swiss citizen. Yet, now a successful businessman, his application for naturalization
was finally approved. A further significant step for Hayek and his family involved a short day trip
Marianne and her son Nick took to Hallwilersee [Lake Hallwil]. As the story goes, Nick was so
impressed with the area and landscape that the family decided to build a house there. With his
naturalization, an expansive and quiet place of their own, and a successful business, one could say
that Hayek had finally arrived.
In 1963 Hayek registered his consultancy firm with the city’s trade register (image 6.1) and moved,
without his business partner, into new offices in the Dreikönigsstrasse 21.
6.1 The Reasons behind Hayek Engineering’s Success
The reasons for Hayek’s success have partly to do with his wife Marianne, who had always supported
and encourage him. However, the greater part of his success is due to abilities as a businessman.
“Jochem Thieme, who had the opportunity to observe Hayek closely during the ca. fifteen years he
worked for him, characterised him thusly: “Never have I ever encountered an individual with such a
combination of attributes: highly intelligent, a memory like an elephant, extremely quick thinking,
diligence, and tremendous energy combined with an almost women’s intuition”.6
“Hayek is able to immediately distil the most important elements from a chaotic complex of
numbers, and then draw the appropriate conclusions”.7
In contrast to the often repeated figure of 350, Hayek Engineering consisted of roughly 40
employees. Hayek almost exclusively hired those who would bring a great deal experience to the
table. “He preferred physicists to engineers because physicists don’t give up so quickly. They keep
pushing the limits and sometimes even go beyond them”.8
The working conditions at Hayek Engineering were strictly regimented. Hayek only paid the hours
that someone was actually productive. Time spent travelling was not considered work time.
Moreover, despite the fact that almost everyone worked a great deal of overtime, only 40 hours of
work were paid. Yet, to encourage his employees to constantly strive for more, bonuses for the best
employees were given at the end of the year.
All of the proposals that the employees came up with had to go through Hayek. He would look over
each proposal and make notes in the margins. Hayek had to know everything that was going on in
6
7
8
the company, and nothing left the firm without his approval. One could say that he was a bit of a
‘control freak’. For instance, once during a meeting, a client asked the advisor responsible for his
contract about something and not Hayek (who was present at all meetings). Apparently this was too
much for Hayek and he then loudly exclaimed that he was the boss here and not the employee – the
client should speaking directly with him. Somewhat disgruntled, the employee left the room.
Hayek routinely called his employees on the phone in order to keep them on their toes (image 6.1.1).
He even called his employees during holidays. He was never without a phone – even while driving.
Image 6.1.1
Hayek Engineering continued to grow. In Switzerland he was able to acquire several clients and was
constantly receiving inquires per telephone. The most important call, however, came from Ms.
Esther Grether, owner of the Doetsch Grether AG. The company products, among other things, the
well-known “Grether’s Pastilles” and is in charge of the distribution of Nivea products in Switzerland
(image 6.1.2). The phone call from Ms. Grether marked another major turning point in Hayek’s life.
6.2 Hayek Engineering, SSIH and ASUAG
Ms. Grether received a call from the general director of the SBG, Peter Gross. He wanted to know
whether she was interested in investing in the watch industry – to which she replied, “Why not?”
(image 6.2.1). She then asked Mr. Gross if he already had someone in mind to manage the company
she would potential invest in. He replied that he did not. Ms. Grether then said that she had a few
consultants that she would like to involve in the project – one of which was Hayek.
Ms. Grether promptly called Hayek.
Image 6.2.1
The telephone rang for quite some time before Hayek picked up. He brashly asked whether she had
enough money for such an enterprise – to which she responded, “Yes, es bizzeli öppis. Let’s say five
million”.9 Without delay, Hayek said that he was already on his way over.
In reality, Hayek did know what he had gotten himself into. The watch industry was new ground for
both him and his advisor. Despite his ignorance of the trade, Hayek was eager to master the task at
hand.
He was instructed to make an accurate assessment of the SSIH because it had a few problems. Hayek
immediately sent his vice director Jochen Thieme and several advisors to Biel in order to assess the
situation at SSIH.
The watch production facilities were nothing like the large, loud factories and foundries they were
accustomed to analysing (image 6.2.2). The concepts and terms belonging to the technical
terminology like movement blanks, spiral spring, bezel and dial used in the watch industry were
mostly foreign to the advisors. While Thieme and his advisors did the best they could to assess the
situation in Biel, they quickly realised that the approach needed in the case of SSIH would differ
greatly from their usual assessment approach to foundries.
9
Image 6.2.2
Despite the initial setbacks, the advisors identified the corporate culture as the most significant weak
point in the system. SSIH’s marketing strategy was out-dated, and would eventually ruin the
company. The company’s management was completely ignorant of this fact until Hayek’s advisors
explained the current situation and recommend that immediate action be taken in order to advert a
disaster.
Once all of the weak spots and potential counter-measures were discussed in a meeting with the
bank corporation [Bankverein], the Omega-Tissot-Group (SSIH) and Hayek’s advisors, did the banks
commission Hayek to conduct another analysis – this time of ASUAG, whose situation was at least as
bad as that of SSIH.
The advisors had a fair amount of work ahead of them. The screening of ASUAG took over a year and
uncovered one mistake after another during the analysis. All of the suggestions were gradually
pushed through by the creditor bank. The entire management was let go and a five person control
committee was given acting authority. The committee consisted of a bank representative and
selected experts in the field. One of these experts was Ernst Thomke, who would later go on to work
with Hayek.
7. The Schweizerische Gesellschaft für Mikroelektronik und Uhrenindustrie AG
In the fall of 1982, the control committee decided, in accordance with Hayek’s assessment, to merge
SSIH and ASUAG; for the order for SSIH to file for bankruptcy had already been issued. The merger,
however, was postponed for six months in order to wait for Hayek Engineering’s final report. Against
all expectations the report concluded that saving the two watch manufacturers was not out of the
question. The report indicated that a great number of errors and mistakes made by both companies
were the result of a poor marketing strategy and lack of automation. Nevertheless, the report came
to an optimistic conclusion and indicated that the prospect for a brighter future was indeed available.
In 1983 SSIH and ASUAG merged into the Schweizerische Gesellschaft für Mikroelektronik und
Uhrenindustrie AG (SMH). The new company was divided into three parts: (1) finished watches, (2)
watch parts and components and (3) diversification (image 7.1)
Ernst Thomke was elected to the board of directors and placed in charge of the finished watch
division, where he has done well for Swatch. The banks to a large extent followed Hayek’s
recommendations. Now, he had his hand in everything. In the meantime, Hayek Engineering had
earned around 200 million Swiss-Francs.
Image 7.1
Blue indicates finished watches
Orange denotes production: watches, movements, components and precision positions (“parts”
perhaps). Further systems and companies for the diversification can be found on p. 158 in Die Zeit
der Uhren by Lucien F. Trueb.
Despite the merger, the banks were still somewhat sceptical and were quite reluctant to approve a
further expensive reorganisation measure. However, they really did not have a choice in the matter.
To not approve the measure would have meant losing their entire investment. As such, roughly a
billion Swiss-Francs were pumped into the company – an investment that soon began to pay-off.
Within one year the industry was doing better and the worst of the crisis lay behind them. The
prospects for generating a slight profit in 1984 looked realistic. Slowly but surely, the watch industry
was on the path to recovery.
Despite the visible improvements in the industry, the banks were nonetheless not willing to continue
with the project, and wanted to get rid of their SMH shares. They believed that the watch industry
was going to take a turn for the worse and wanted to minimize their exposure by selling off their
stocks.
8. Hayek and the SMH
Hayek Engineering had been very successful over the years, and Hayek had become a wealthy man.
He began to search for a company that he could invest in and asked Peter Gross whether he knew of
a company that would “fit” him. After some time, Gross responded, “SMH would fit the bill. You
already know everything you need to know about the company!”.10 Once Hayek decided to purchase
a two-year limited option of up to 51% of the shares, the then bank president Niklaus Senn
immediately agreed. Hayek, however, did not want to carry the entire risk alone, and thus started
searching for other investors. The first person he contacted was the multi-billionaire and investor
Stephan Schmidheiny.
Schmidheiny was warned about such a step, but the fact “that Hayek was willing to risk his own
fortune on the accuracy of his own assessment had impressed him”.11 In 1985 Schmidheiny and
Hayek respectively bought 7% of SMH. The news spread quickly and the course started to climb.
Hayek knew that he had to act quickly, for the longer he waited the more expensive the whole
proposition would be for him. As such, he and a consortium of investors, among them Esther
Grether, bought a 51% majority of the company. Schmidheiny and Hayek now owned 17%
respectively and had paid together 94 million Swiss-francs to do so.
For strategic reasons, Hayek wanted to bring another investor on-board. When he approached the
former head of Migros Pierre Arnold with the idea, Arnold did not want anything to do with it. Only
once Hayek had practically begged him on his knees to join them did he finally agree. Since Arnold
did not have enough money to invest in SMH, he had to borrow 2 million Swiss-francs from a bank.
Several years later Arnold was able to sell his shares to Hayek and Schmidheiny for several time their
original value.
The consortium had to abide by fairly strict rules. No one was allowed to sell their shares to a third
party without a vote. Hayek also had the right of veto, thus he was able to protect himself from
possible revolutions. Furthermore, Schmidheiny had a contract with Hayek that he would give his
vote to Hayek.
10
11
Hayek had succeeded in becoming the dominating figure in the watch company. In June of 1986 he
officially took over as director of the company, thereby replacing Pierre Arnold as president. To
commemorate the occasion Hayek put on a feast at his house in Meisterschwanden near Lake
Hallwil. Everyone in attendance had something to celebrate. The investors had acquired the
controlling interest in the company for the bargain-basement price of 150 million Swiss-francs (half
of its market-value), and Hayek celebrated his assent to company president.
9. The Swatch Group
SMH was re-named the Swatch Group in 1998. One of Hayek’s ambitions was to have at least one
brand in each of the market segments – a feat that he eventually accomplished. With the addition of
a several renowned watch manufacturers, the Swatch Group currently presides over 19 different
brands. (image 9.1)
Image 9.1
Dark Red represents the prestige and luxury brands
Red represents the upper market segment
Violet represents the middle price segment
Blue represents the lower price segment
Green represents the private labels
Eventually Schmidheiny sold his shares to Hayek, who thereby acquired controlling interest in the
company. Under his management the value of the Swatch Group had increased by a factor of 27. In
2009 the Swatch Group produced 3,996,000 watches – 1,433,000 of them with mechanical
movements. None of the movements or components utilized in the watches were sourced from third
party manufacturers. All of the watches were produced in Hayek’s factories in Switzerland, China and
Thailand. His ETA SA manufacturer in Grenchen (Biel) produces the heart of the Swiss watch industry:
the Valjoux 7750 (also known as ETA 7750) movement blank.
Without this movement the majority of chronographs manufactured in Switzerland would not work.
To more precise, the ETA supplies movements not only to the brands belonging to the Swatch Group
but a number of other brands as well, e.g. IWC, Breitling and Panerai. The ETA has a 75% market
share of the production of movement blanks in Switzerland. With the exception of Rolex with a 15%
market share and a select few expensive luxury brands, there are no other movement
manufacturers. And since Rolex only manufactures movements for its own production, it does not
present any real competition.
The Swatch Group’s marketing strategy belongs to the best in the world. There is not a single watch
magazine that does not depend on the Swatch Group’s advertising for its survival. Senior Hayek even
tried to publish his own watch magazine, but it did not succeed.
The Swatch Group’s advertisements are everywhere – whether it be tennis tournaments,
conventions, auto races, open air events, ice sports of all kinds, in newspapers among many others.
(image 9.2)
Image 9.2
The next section deals with the question as to how the Swatch brand was able to achieve such a
marketing presence.
9.1 The Swatch AG
The Swatch watch is the bestselling watch in the world. Up till 2008 the Swatch AG had designed
5,000 different models, and from these models over 370,000,000 wristwatches have been produced.
The Swatch AG has 600 of their own stores throughout the world. Moreover, they organize among
other things a variety of events and competitions. In 2009 Swatch sold 10 million watches (99%
quartz and merely 1% mechanical). They present two new collections pro year each consisting of 70
different models. Swatch’s flexibility and world-wide recognition contributes to their ambition to
appeal to everyone and adapt to any trend.
No one would dispute that Swatch is one of the best managed companies in the world. The brand’s
success, however, was not clear from the very beginning. In November of 1982 only a few hundred
watches were sold. Luckily, this trend did not stay static, and by 1985 Swatch was selling 1 million per
month.
Today, Nicolas G. Hayek is referred to as Mr. Swatch. While he certainly is responsible for making
Swatch what it is today, he did not contribute to it genesis. It was Thomke, the former director of
ETA, who commissioned the construction of the first Swatch watch and brought it to market in 1983.
“In the beginning the Stimmung was in no way euphoric. Some thought that this ‘unserious’ plastic
product in flashy colours would marginalize Swiss watches and intensify the then crisis.” FN11
On the contrary, the Swatch watch would eventually go on to become a tremendous success and
helped heal the wounds of the Swiss watch industry. The next section will treat how this success
came to be.
9.1.1 The History of the Swatch AG
In order to compete with the Japanese and re-take the watch market they lost, the Swiss watch
manufacturers needed an extremely thin quartz movement. Responding to this call, in 1976 ETA (a
subsidiary of the Ebauches SA) developed a quartz-calibre (quartz movement) only 3.7 mm. high and
brought in to market. The movement’s diminutive dimensions allowed the production of a watch
only 6-8 mm. high. This movement triggered a virtual watch ‘space race’ between the Japanese and
the Swiss.
In 1978 Japan responded by bringing a movement only 4.1 mm. high to the market. In the same year,
they bested their own record with an improved version: a quartz watch merely 2.5 mm. high.
The only way to top this mark and break the 2 mm. limit, the quartz movement had to be completely
redesigned. ETA was able to achieve their goal by incorporating the watch bottom directly into the
watch housing. This design not only saved vital space, but also greatly reduced the production costs.
The result of these efforts was the world’s thinnest watch. At only 1.98 mm. the watch was not only
remarkable thin, but also extremely expensive. The “Delirium Tremens” (most likely a play on “très
mince” cost 40,000 Swiss-francs per timepiece. (images 9.1.1.1a,b)
Images 9.1.1.1a and b
The newly developed integration of the housing bottom into the housing was carried over into other
models. Thomke had the ETA engineers attempt to construct a much less expensive version of the
Delirium Tremens. However, it did not take long for him to recognize that this direction was not the
solution they were looking for. He once again gathered the ETA engineers together to reassess the
situation – this time the synthetic material specialist Elmar Mock and the watch technician Jacques
Müller.
Both Mock and Müller, under the constant pressure from Thomke, contributed the most to the
genesis of the contemporary Swatch. Thomke had succeeded in creating a thin and inexpensive
watch. This breakthrough was the reason why the newspapers at that time began to refer to him as
Mr. Swatch – a title that the media has now bestowed upon Hayek.
The newly developed quartz watch now consisted of only 51 parts instead of the previous 91.
Additionally, the watch housing consisted of a plastic and was only made possible via a special
injection moulding process. (image 9.1.1.2)
Image 9.1.1.2
The man responsible for inventing the name “Swatch” as marketing consultant Franz Xaver Sprecher,
who created the name for the label by combining the words “Suisse” and “watch”. This in
combination with the marketing strategy he developed, which to a large extent contributed to the
brand’s success, is why he too is considered one of the Swatch AG fathers. Together Hayek, Thomke
and Sprecher brought the Swatch AG up to speed. The general strategy they conceived and
implemented still serves a model for other today.
9.1.2 Swatch before its Success
The test market for the launch of the Swatch was the U.S., and it was an absolute flop. While there
were many reasons for the failure, two in particular stood out: (1) the lack of a solid marketing
strategy and (2) the design of the watch was too conservative.
Something had to be done quickly if they were going to save the idea. As a result, marketing
strategist Franz Xaver Sprecher and several other industry designers were brought onboard to come
up with a solution. Franz Sprecher immediately set about the task and penned the following maxims:
“With the Swatch watch we want to obtain a strong position in the international markets.”
“Swatch is not intended to be a short-lived fashion fad, but rather should establish itself as a longterm fashion brand.”
“The Swatch should recapture the market share lost to the Japanese and Far East competition”.12
Now that Swatch had a definite set of goals in mind, it was time to develop a well-thought out
marketing strategy. The usual strategies would not be effective in this case, because the Swatch was
not an expensive timepiece with a longstanding heritage and meticulously constructed. A new
approach was necessary. However, before they could bring the Swatch to the market, they needed
to formulate a specific message:
The Swatch should represent a watch that brings together cutting-edge technology, high quality, yet
offered at a low price. A watch that stands for fun, lifestyle and provocation; one that stands out due
to its fresh and playful design, yet produced in a way the respects the environment. The Swatch was
conceived as a second or accessory watch. “One should be able to change the watch as one changes
a dress shirt, T-shirt or the bathing suit”.13
9.1.3 The Swatch Strategy
The strategy consisted of a marketing mix of the four P’s:




Product
Price
Place
Promotion
9.1.3.1 The Product
The goal was to offer a large assortment of Swatch watches that would be able to follow new trends.
The fully-automation of the production lines made it possible for the company to adapt quickly. Each
watch should be unique, yet, at the same time, based upon the same kind of watch. Swatch brings
roughly 140 new watches to the market each year. They are designed in Milan, where the designers
are inspired by the newest fashions, trends, and cultural atmosphere.
Here are four of the most well-known types of Swatch watches:

MusiCall
Image 9.1.3.1.1
12
13

Maxi Swatch
Image 9.1.3.1.2

Swatch Solar
Image 9.1.3.1.3

Swatch Chrono
Image 9.1.3.1.4
9.1.3.2 Price
The fully-automated production lines not only made it possible to rapidly respond and adapt to new
trends, but also meant that the company could save on personnel costs. Furthermore, Swatch
watches were sold directly to customers via so-called Swatch-Shops, thus cutting out the ‘middle
man’ and thus reducing the retail purchase price.
A standard Swatch watch has remained around 50 Swiss-francs. Occasionally, a limited collection is
produced in order to raise the prices during auctions.
9.1.3.3. Location
The watches were sold in department store, boutiques, sporting goods stores, traditional watch
stores as well as in Swatch-Shops. Kiosks and discount store were excluded because they would have
damaged the brand’s public image. The watches were sold in so-called store-in-stores, where a
smaller section or department was exclusive for the Swatch brand. These departments were
intended to radiate a cheerful, festive and artistic atmosphere – everything that the Swatch watch
embodied.
Nonetheless, the number of retail outlets should remain relatively small. In the words of the Swatch
AG: “As many sales as possible with the least number of points-of-sale”.14
9.1.3.4 Advertising
The Swatch AG’s advertising campaigns are characterised by innovative fashion products, bright
colours, and striking design. Events are constantly being planned and often take place at unusual
locations, e.g. at the Scottish Loch Ness.
Hayek can often be seen with famous individuals such as Cindy Crawford, Dean Barker, to name but a
few. Public relations, special events and unconventional promotional strategies are very important to
the Swatch AG. Swatch’s innovative and sometimes even outrageous promotional gags, for instance,
14
the 165 meter tall, 13.5 ton giant Swatch hung from the German Commerzbank in Frankfurt, were
not uncommon. (image 9.1.3.4.1)
Image 9.1.3.4.1
Thus, it came to be that the Swatch AG grew and grew and has now occupies an important place in
the Swatch Group next to the luxury brands like Breguet and Omega.
10. Summary Remarks
With the ETA-Manufacturer, Nicolas Hayek has built up a virtual monopoly within the Swiss watch
industry. He bought up all of the factories and plants that produce watch movement components.
Since he is the only supplier (with the exception of Rolex and a few extremely expensive luxury
brands), he can set any price and decide to whom he sells. Only those able to present a clear concept
and who have not come into conflict with Hayek receive his watch movements. While there have
been several lawsuits involving this business practice, none of them were successful.
However, this does not mean that Nicolas Hayek should only be casted in a negative light. The fact is,
without him the Swiss watch industry probably would not even exist. Together with Ernst Thomke,
Jochen Thieme, Franz Xaver Sprecher, his wife Marianne, Hayek saved the industry. One could say
that he was the right man, at the right time and at the right place. No other person could have done
what he did. While Ernst Thomke is clearly a talented and competent businessman, who routinely
helps companies out of difficult situations, once the company in question is doing better, he then
leaves to seek out a new challenge. I firmly believe that he could have helped the watch industry, but
not to the same extent that Hayek did.
Nicolas Hayek has had a great impact upon all of us. He kept an important and vital economic sector
from being lost and was able to re-establish the positive image of a valuable Swiss product abroad.
Some see in him a heroic figure, while others see him as egocentric, overbearing monopolist. During
the course of my research I have come to know both side of this controversial, yet complex figure.
*I would like to thank my family for their support. I would especially like to thank my father for
assisting me with the content and my mother for the proofreading of the article. Thanks also go out
to Martin Buschbeck, Oliver Benz, René Weber, Lucien F. Trueb, Jürg Wegelin and Lukas Egli.
Bibliographic References