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| Rolex left and Seiko on the Right |
Well, let's see what caused the recovery of the so-called legendary Swiss watchmakers.
A Different Narrative
In 1974, Swiss exports of watches exceeded 84 million units. Beginning in 1975 through 1984, Swiss annual production fell to an average of 31 million units. In 1970, employment in the Swiss watch industry stood at 90,000 workers, but fell to approximately 45,000 in 1980. In other words, unemployment reached 50%.
And They Blame it on Quartz
The advent of quartz technology had literally nothing to do with the failed Swiss watch industry. That's a myth of gigantic proportions. Call the story propaganda. That's all it is.
Quartz watch production had little impact on the already failed Swiss watch industry; it did not cause the collapse. In 1975, the Swiss produced cheap watches. You could easily call them the low-cost leader.
The Swiss mass-produced watches. 70% percent of their total production involved the use of cheap pin pallet movements also known as "dollar watches". They sold movements that competed in China with Chinese factories.
In 1975, Swiss Made meant cheaply made. They build pretty nice clocks and music boxes, but the mantra of "history, technical superiority and tradition" didn't exist.
SMEs v Monolithic Corporations
Between 1930 and 1975, the Swiss watch industry consisted of small to medium sized businesses. Two loosely organized holding companies existed, but even they lacked an ability to organize and execute a competitive global trade strategy. No entities in Switzerland could boast of having economies of scale in production, distribution or in how to interact with international consumers.
The Japanese could boast about economies of scale in every facet of their businesses from watches to the construction of automobiles. Seiko made the case, face, hands, bands, crowns, movements and the boxes in which they shipped their watches. They had a global distribution system in place.
The Japanese took a process approach to business. They left the Swiss in the dark ages of production oriented enterprises. The Swiss found it difficult to organize their failing industry players into a co-operating base.
If the advent of quartz watches caused the Crisis of 1975-85, then it's ironic that quartz watches helped bring the industry out of their mess. Even that's misleading. Folklore around the "Swatch" brand of watches suggests that a plastic watch with a battery rescued their industry. If you study the statistics, the Swatch watch had a modicum of impact on the gross revenues of the country.
The Swatch impacted the Swiss watch industry by delivering their first global product. Finally, the banks, government and boards of directors could see how consolidation could return them to prominence. The innovation occurred in the collective mindset of the Alpine country, not in a new product that looked like a watch.
Blame it on the Japanese
If you placed the blame on technically superior Japanese watches, then you would have most of this problem solved. Seiko and Citizen simply made better mechanical watches than the Swiss. Were they cheaper? Not cheaper, but less expensive.
The Japanese had standardized their means of production. They used modules in the assembly of mechanical movements. They started with a basic watch that only told time. If you wanted a self-winding feature, you just added a module.
The Swiss built their watches from the ground up. If you wanted a self-winding watch, you built an entirely different movement than one for just telling time. If you wanted a chronometer, the same problems applied.
The Japanese also had global distribution and service facilities. Their technical superiority allowed them to standardize parts and ship large quantities of the same or similar pieces without the need to mix and match.
While each Swiss company marketed watch models in the thousands, Seiko, for example, marketed less than 100. Improvements accounted for a share of Japanese models The Japanese used a global marketing approach and it called for minimizing effort and maximizing profitability.
Yen v Franc
The Japanese had a currency advantage in the 1970's. Their currency remained stable against the dollar while the franc rose to record levels making Swiss watches more expensive (and less desirable).
In 1944, the Allied nations adopted a system of monetary management. They set rules to govern monetary policy among countries. The rules set exchange rates by tying currency to gold with the International Monetary Fund bridging temporary imbalances of payments. It help prevent competitive devaluation of currencies.
On 15 August 1971, the United States unilaterally terminated convertibility of the US dollar to gold, effectively bringing the negotiated currency system to an end. It meant the United States dollar became the world's reserve currency. Most fixed currencies became free-floating, especially in Europe.
By 1973, the shift in the floating rate began to erode the US dollar's value against the Swiss franc. Between 1973 and 1979, the dollar lost approximately 60% of its value against the franc. This caused a significant rise in prices for goods from Switzerland.
The Japanese did not agree to a floating rate currency until 1977. Consequently, the yen did not appreciate against the dollar as the Swiss watch industry crisis imploded.
The Real Impact of Quartz Watches
Seiko launched their first quartz watch in late 1969. Their launch preceded the release of quartz models by Swiss companies by a year. You couldn't say that the Japanese pulled off a coupe. Quartz watches sold for a premium in the early days.
In fact, the percent of quartz watch production by Seiko had little effect on its product line. Seiko continued making mechanical movements. In a sense, Japan established only a slight marketing advantage with the early release of a quartz watch. Like many publicity stunts, they merely positioned themselves as an authority in technology.
Irony
Once the Swiss reorganized their industry around process improvement, economies of scale and lowering costs without sacrificing quality, they beat the Japanese. Seiko must have believed the Swiss quartz narrative, because the Japanese company focused on technological improvements instead of brand recognition. They did cheapen their image, if not their product.Today, the Swiss make about 2% of the watches sold in the world, but have 50% of the revenues. Asian companies sell 98% of the watches in the world and garner the other 50% of the world's revenues.
The Swiss must see the humor in it all. They came out with a metal "Swatch" line called the Irony. Here's one made in 1995. It's from my collection.