The Swatch Group’s Challenge in the Global Watch Market

4404 Swatch Individual Case Writeup Assignment 

Juming Zhang

King’s College of Western University

The swatch group’s challenge in the global watch market

The Swatch group is a watch manufacturer company based in Switzerland. In the 1990’s, the Swatch group has become the most successful watch manufacturer company in the world. They had 14 percent of the world market share, and it appeared a steady growth on sales and net profit. However, Swatch was facing a downward profit pressure in late 1990s. Under this pressure, overcapacity and tough head-to-head competition lead to a reduction in the number of watch movement manufacturers from 30 to just 3. At the same time, Swatch was also facing fierce competition from foreign companies, global marketing strategy and sales failure in many market places, including the biggest consumer base, United States. In the U.S. Swatch only has 11% of the total share of market. Swatch’s major competitor Timex has nearly 31%, by offering effective response to the trends in the 1990s. Timex was the  world’s best-selling sports watch with more than 25 million units sold since its 1986 introduction (see exhibit 1 and 2). And Timex’s success threaten Swatch space in the market, especially in U.S. In addition to these problems, management style has been an issue in the late 90s; CEO, Hayek’s management style was criticized as a “big boss” parent control way of managing, discarding any suggestion from others. Hayek’s way of management was considered as a vertical management, which is outdated under the globalization trend in the future. His lack of ability in marketing and production department slowed down the development revolution under globalization. The traditional organizational principles will inevitably lead to a serious management difference between departments.

The new global strategies

Firstly, the Swatch group should improve the economy of scale to reach a higher gross profit. At the same time, it needs to maintain its quality and creativity, in order to achieve the original comparative advantage in the global market. Offshore manufacturing is widely adapted throughout the world (Beamish, 1997, p18). Offshore manufacturing could lower the cost and increase the efficiency of production, especially with Swatch’s “affordable cost” product, but, Swatch only has a 9% of profit margin (compare to the industry average 13%); reducing cost should be the priority of the upgrade (Beamish, 1997, p103). Swatch should address a different outsourcing strategy than their major competitors. Timex outsource most of their manufacturing, assembly and market distribution process. In comparison, Swatch should keep the design, case, and movement department in Switzerland. Swatch’s watches could be “Assembly in elsewhere”, but the reputation must rely on “Swiss Made”. Swiss expertise plays a major role of the successful design and quality control, which provides an add-on value toward the brand’s reputation. On the other side, the factors of outsourcing depend on cultural affinity, geopolitical risk, cost, and resource availability (Beamish, 1997, p43). Swatch group could choose India or Hong Kong as their outsourcing foreign plants. Both locations have large groups of high cost performance, skilled, experienced watch workers. India could provide required production through Titan industries. Titan is a fast growing company which could handle Swatch’s high industrial requirement in the future. The second option, Hong Kong, was the world’s dominant centre for watch assembly with 80% of share in the world. Swatch may find a good deal by its efficient economy of scale.