Description
Read Michael Porter’s “The Five Competitive Forces that Shape Strategy” 2008Read Michael Porter’s case study on the Global Watch Industry. As an initial analysis, think about the watch industry from the following two parts:a.You should do the 5-Forces Analysis of the Global (Swiss) Watch Industry circa early 1950s What did Swiss watch makers do to dominate the global wrist watch market for such a long time?b.What did TIMEX (USA) and Seiko (Japan) do to become the world dominant wrist watch manufacturers?write 800 words total I have attached both readings
Unformatted Attachment Preview
For the exclusive use of S. Miyagawa, 2021.
Harvard Business School
9-385-300
Rev. September 17, 1993
Hattori-Seiko and the World Watch Industry in 1980
The production of watches was one of the oldest global industries, with a history of
international competition dating back to before 1900. The industry had undergone some dramatic
changes, however, and industry leadership had shifted several times. Hattori-Seiko, the world
leader in 1980, was faced with the task of sustaining its position in a rapidly changing competitive
environment.
This note describes the structure of the world watch industry, focusing on the industry’s
development and evolution in the three principal watch-producing countries: Switzerland, the
United States, and Japan. The note separates the industry’s recent history into three parts:
(1) the period up to 1950, (2) the 1950s and 1960s, and (3) the 1970s.
Early Industry History
Until 1957, all watches were mechanical and spring-powered, based on the technology used
in large clocks. The invention of the first watch is usually attributed to a German clockmaker in
1510. The Munich clockmakers largely ignored the new invention, however, and the craft of
watchmaking advanced more rapidly in France and England during the 16th and 17th centuries.
Miniaturization of parts and the development of assembly techniques had been a major achievement in craftsmanship; designing and producing even smaller and thinner watches continued to
be a major challenge. Watches were originally made to be carried in a pocket, usually on a chain.
The mechanical watch consisted of two groups of parts: the exterior visible elements—such
as the case, crystal, dial and hands—and the movement, which contained over 100 or more individual
components. A mechanical watch movement consisted of an ebauche, consisting of the winding
mechanism and a gear train; and the regulating component, including the escapement wheel and
hairspring, which controlled the rate at which the watch movement worked.
Mechanical watches could be divided into two broad types: jeweled-lever and pin-lever.
More expensive watches contained jewels that tipped the teeth in the movement. Jeweled-lever
Instructor Edward J. Hoff prepared this note under the supervision of Professor Michael E. Porter as the basis for class
discussion. Joseph Fuller, MBA ‘81, contributed substantially to the preparation of the note. This note also draws from
“Timex Corporation (373-080), prepared by Dr. Frederick Knickerbocker and Professor Hugo Uyterhoeven.
Copyright © 1985 by the President and Fellows of Harvard College. To order copies, call (617) 495-6117 or write the
Publishing Division, Harvard Business School, Boston, MA 02163. No part of this publication may be reproduced,
stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.
1
This document is authorized for use only by Shimpei Miyagawa in 2021.
For the exclusive use of S. Miyagawa, 2021.
385-300
Hattori-Seiko and the World Watch Industry in 1980
watches were more complicated in construction than pin-lever watches and cost much more to
produce. The number of jewels could range from one to twenty-three or more, and the cost of the
watch rose with the number of jewels. Pin-lever watches used metal pins instead of jewel-tipped
teeth, allowing the entire escapement mechanism to be greatly simplified. Pin-lever watches tended
to be less accurate and to wear out faster than jeweled-lever watches, but could be more rugged.
The quality of both jeweled-lever and pin-lever watches varied widely depending on the
precision with which the parts were made and assembled. Improvement in accuracy was the
principal focus of watchmakers, as they worked to improve the design and crafting of the
movements. Accuracy was measured in minutes per month. Watchmakers also sought to make
movements as thin as possible and to create elegant and stylish cases. The highest-quality
watchmakers, especially the Swiss, encased their most accurate and thin movements in gold and
other precious metals.
Production of mechanical watches was labor intensive and involved a high degree of
handcrafting. Immediately following World War II, the full production cost of a watch was divided
into approximately 60% for labor, 20% for materials, 20% for depreciation. Construction of the
movement required the most skilled labor, especially for jeweled-lever watches. Transportation costs
added a small percentage above the production cost, depending on destination.
In the late 1940s, most watches sold for $25 to $100 ($150 to $600 in 1985 constant
dollars). Approximately 60% of adults in industrialized countries owned a watch. Watches were
often given as gifts, and handed down through several generations.
Watches were sold almost exclusively in jewelry stores and in some prestigious department
stores. Jeweler margins on watches were 50%, comparable to margins on jewelry. Watches
accounted for approximately 20% of both sales and profits for a typical jeweler. Jewelers serviced
and repaired the watches they sold, and watch repair was a profitable business in its own right.
Some watchmakers, particularly the Swiss, had sponsored training schools for their retailers.
The Swiss Watch Industry
The techniques of watchmaking were brought to Switzerland in the late 16th century by
Protestant Huguenots fleeing religious persecution in France. Some Huguenots settled in Geneva,
which for centuries had been a center of ornate jewelry making. Under the stern edicts of the
Protestant leader John Calvin, who preached in Geneva in the mid-16th century, the
jewelry trade had declined, and many jewelry makers quickly took up the new watchmaking trade.
Genevan watchmakers began to encase their watch movements in precious metals.
In the mid- to late-18th century, several of the Geneva watchmakers moved to the Jura
mountains of northwest Switzerland. This area was populated by farming families who were poor,
but who had educated themselves through a closely knit system of community schools. These
families, said to be characterized by stubborn independence that still carried into modern times,
learned watchmaking from the Genevans and began to make a few watches each year during the
winter months to supplement their farming income. The Swiss concentrated on making watches
rather than clocks because watches were smaller and easier to transport from the mountains. To
improve their craft, which they perceived as vital to continued independence and survival in the
mountains, the Jura Swiss created an extensive system of apprenticeships and training programs.
2
This document is authorized for use only by Shimpei Miyagawa in 2021.
For the exclusive use of S. Miyagawa, 2021.
Hattori-Seiko and the World Watch Industry in 1980
385-300
In the late 18th century, the Jura Swiss also began designing their own high-precision
machine tools to cut and form tiny parts. Most of these early machine tools were built in
England, which was beginning to experience the Industrial Revolution. However, the watchmakers
of London, who were considered the world’s best at that time, saw these tools as a threat to their
craft, and persuaded Parliament to pass a law barring their use in England’s watch industry. Also
in the late 18th century, a Jura Swiss watchmaker invented the pin-lever design.
Individual Jura Swiss families began to specialize in the first half of the 19th century, in
response to advances in new powered machine tools for making parts. Some families concentrated
on parts, while others assembled parts into finished watches. Sometimes, the Jura Swiss sold
movements and parts to the Genevans, who then assembled them into watches. The Jura Swiss,
however, retained a clearly separate identity from the Geneva firms, just as each canton (or
province) retained a strong separate identity within the Swiss federal governmental system. With
few changes, the industry retained this tiered structure up to the late 1960s.
Industry associations
By 1900, the label “Swiss made” had become a symbol of quality in
watches, and the Swiss dominated watchmaking on a worldwide scale. However, Europe was hit
by hard economic times in the early 1920s following the destruction and commercial disruptions
caused by World War I. The Swiss watch industry saw its sales collapse and unemployment soar.
In response to intense competition, over 2,500 separate Swiss firms organized themselves into
three associations:
(1)
The Federation Suisse de Fabricants d’Horlogerie (FH): those firms
assembling watches from component parts supplied by others plus a few
firms with integrated manufacturing operations. These were the firms
that actually sold watches in the marketplace.
(2)
Ebauches SA: 17 manufacturers of jeweled-lever ebauches grouped
together into a trust.
(3)
The Union des Branches Annexes de l’Horlogeries (UBAH):
manufacturers of components other than ebauches.
the
Through these associations,1 the Swiss jeweled-lever watch industry agreed to regulate the
activities of its member firms. The agreements included the following provisions:
(1)
The members of Ebauches SA and UBAH agreed to sell components
only to the members of FH.
(2)
In turn, the members of FH agreed, with one exception, to buy components only from member firms of Ebauches SA and UBAH. The firms in
FH did reserve the right to buy foreign-made components, but they also
agreed not to buy such components unless they were priced more than
20% under the Swiss level.
1. These associations involved the manufacture and sale of only jeweled-lever watches. Many Swiss, particularly in the Jura
mountains, continued to make and sell the less expensive and accurate pin-lever watches.
3
This document is authorized for use only by Shimpei Miyagawa in 2021.
For the exclusive use of S. Miyagawa, 2021.
385-300
(3)
Hattori-Seiko and the World Watch Industry in 1980
The members of FH agreed to set their selling prices in accord with a
complex interassociation pricing system and a markup formula. Ebauches
SA and UBAH supplied the components at specified prices. The watch
assemblers and integrated manufacturers established their prices using a
standard markup above the association-determined manufacturing costs.
With the onset of the world depression in the early 1930s, the Swiss watch industry again
saw sales plummet and sought aid from the Swiss government. In 1931, the Swiss government
persuaded several watch assembly firms to join under one holding company, ASUAG. Many of
the largest firms remained outside ASUAG. The government then agreed in 1934 to invest in a
minority position in ASUAG and to provide the capital for it in turn to acquire the majority of
shares of Ebauches SA and several of the leading component manufacturers. The watchmaking
firms in ASUAG were grouped into the General Watch Company (GWC). Each of the member
firms of ASUAG (whether a watch, movement, or part manufacturer) continued to operate as an
independent profit center. FH remained an association of independent, private watch assembly
and marketing firms.
Also in 1934, a Swiss federal statute ratified the industry’s private controls and imposed
new ones. In addition to the provisions above, the government statute required that Swiss firms
obtain permits to manufacture and to export finished watches, movements, and components.
Government regulations also controlled the transfer of permits and therefore of any mergers and
acquisitions among Swiss watchmaking firms. Government approval was also required for the
export of watchmaking tools and dies, engineering designs, and machinery. Finally, foreign firms
were prohibited from acquiring either the assets or equity of any Swiss watchmaking firms.
Immediately after World War II, the Swiss accounted for 80% of the world’s watch
production. The Swiss watch industry employed 80,000 people in 2,500 separate firms, accounting
for approximately 10% of GNP. Over 95% of Swiss watches were exported, representing about
20% of total Swiss exports.
Throughout the 1940s and early 1950s, most Swiss firms concentrated on
making quality jeweled-lever watches. Swiss watchmakers channeled their promotional expenditures
through organizations like FH into collective campaigns in overseas markets. The campaigns stressed
the quality and reputation of “Swiss made” watches. FH employed one New York advertising firm
from 1947 to 1958 to direct its campaign in the United States. Annual expenditures were modest and
allocated primarily to periodicals. A few of the larger independent watchmakers, such as Rolex and
Omega, supplemented the industry’s activities by promoting their own brands.
Sales and Promotion
The Swiss industry sold watches exclusively through jewelry and department store retail
outlets. Each individual company handled distribution and sales for its own watches. Most Swiss
firms used wholesalers for these functions. Some of the larger Swiss firms established technical
centers and aftersales service centers and sponsored watch-repair training schools in major foreign
markets.
Competitive Changes: 1950-1970
The world watch industry grew rapidly in the 1950s and 1960s. Rising prosperity led to
virtually all adults in industrialized countries owning a watch by 1970. Switzerland maintained the
4
This document is authorized for use only by Shimpei Miyagawa in 2021.
For the exclusive use of S. Miyagawa, 2021.
Hattori-Seiko and the World Watch Industry in 1980
385-300
largest aggregate volume of watch production, though powerful forces were threatening its position
by 1970.
Two new technologies were commercially developed and introduced during the 1950s and
1960s into the world watchmaking industry: the electric watch and the tuning fork watch. The
development of the electric watch resulted from the successful miniaturization of batteries and
electric motors. Electric current from a battery drove a tiny balance-wheel motor, which then
turned a gear train and the hands of the watch. The accuracy of most electric watches was similar
to that of high-quality mechanical watches.
The tuning fork watch represented a major technological advance. An electric current
from a small battery caused a tuning fork to vibrate over 21,000 vibrations per minute. Gears
converted these vibrations into the sweep of the hands on the watch face. Tuning fork watches
could be accurate to within one minute per month.
The United States Watch Industry
During the first half of the 20th century, U.S. watch manufacturers found themselves
competing with Swiss firms that had both lower labor rates and more highly skilled labor. Swiss
wage rates were approximately one-half of those in the United States for skilled labor. Following
World War II, there were seven U.S. watch manufacturers; four made jeweled-lever watches, and
three made pin-lever watches. In addition, more than 100 companies imported Swiss movements
and assembled them in the United States. The late 1940s and early 1950s also marked some
important changes in the U.S. market. Per capita disposable income was steadily increasing. At
the same time, mass merchandising retail stores were emerging that provided new lower cost and
more accessible outlets for goods that had traditionally been sold through specialty stores.
Commercial television was also expanding to become the most efficient and effective medium for
the advertisement of many goods and services.
The early 1950s were characterized by growing Swiss dominance of the U.S. market. Swiss
imports rose from 38% of U.S. consumption in 1949 to 58% in 1954. In 1954, the four U.S.
jeweled-lever watch manufacturers petitioned the U.S. Tariff Commission (USTC) for tariff relief
from Swiss imports, arguing that watch manufacturing technology was essential to American
national defense. U.S. firms also contended that the Swiss enjoyed a cost advantage solely
because of lower labor rates. Watch assemblers who imported Swiss movements countered that
“the real basis of Swiss competition is in superior technology and marketing ability of that watch
industry, not low wages of Swiss workers.” The USTC concluded that, regardless of wages, one
cause of the lack of U.S. competitiveness was the lack of specialized machine tool manufacturers
who could supply the U.S. watch industry with the precision equipment that the Swiss had
designed for themselves. The USTC agreed in 1954 to increase tariffs by 50% on watches with
one to seventeen jewels. The rate increased with the number of jewels, up to $10.75 per watch
for the 17-jewel variety. The tariff on watches with no jewels remained at the prevailing rate of
$0.50 per watch.
Most of the U.S. watch manufacturers either declared bankruptcy or exited the business
during the 1950s and 1960s. A few remained in 1970, although most of them were unprofitable.
At the same time that most U.S. firms were faltering, however, two U.S. companies emerged as
notable successes.
5
This document is authorized for use only by Shimpei Miyagawa in 2021.
For the exclusive use of S. Miyagawa, 2021.
385-300
Hattori-Seiko and the World Watch Industry in 1980
In 1950, the U.S. Time Corporation of Middlebury, Connecticut, introduced a line of
inexpensive Timex watches to the U.S. marketplace. Since its inception, Timex had been guided
by Joakim Lehmkuhl. Born in Norway and trained in engineering in the United States, Lehmkuhl
fled his native country in 1940 in advance of the German army. In 1942, seeing the need for fuse
timers for bombs, Lehmkuhl and a group of business colleagues acquired a majority interest in the
virtually bankrupt Waterbury Clock Company and converted the firm to fuse production. Prior
to the war, Waterbury had manufactured the $1 Ingersoll pin-lever pocket watch that had since
disappeared from the market.
Timex
After the war, as defense orders disappeared, Waterbury’s sales fell from $70 million to
$300,000. Lehmkuhl then reconverted his company to watch production. He said, “because it
seemed the only thing to do.” Lehmkuhl was convinced that a good, inexpensive watch could be
produced by combining the precision tooling techniques used in making fuse timers with a high
degree of mechanization. He gave Waterbury’s engineers the task of designing a quality watch
that could be truly mass produced. Employing technology that came out of the World War II
research effort, the engineers substituted new hard alloy bearings for jewels in the movement.
This feature permitted the construction of pin-lever watches that would be the equal of many
jeweled-lever models and better than any other pin-lever watches then available.
Lehmkuhl changed the company’s name to U.S. Time and adopted the brand “Timex” for
the new product line. The Timex watches introduced in 1950 were men’s watches retailing at
$6.95 to $7.95. They were designed with simple, tasteful styling, and carried a one-year guarantee.
Gradually, the company added watches with more features at slightly higher prices. In 1958,
Timex introduced its first line of women’s watches.
Initially lacking the resources for extensive promotion, Timex approached retail jewelers.
Most jewelers were reluctant to handle the Timex line because of its low prices, pin-lever
movements, and because the company offered only a 30% margin. As a result, Timex began to
distribute its watches directly to 20,000 retail stores, 80% of which were drug stores. While jewelry
stores had an average 1.5 watch turnover per year, Timex management claimed that its retailers
would average a turnover of six times per year. Timex salespeople also displayed showmanship
unheard of in the conservative watch business, slamming the watches against walls and dunking
them in water to illustrate their shockproof and waterproof qualities. By the mid-1960s, Timex
had gained distribution through almost 250,000 retail outlets.
Timex’s advertising began on a small scale, limited mainly to magazines. In 1956, the
company started the first extensive advertising on network television, and the annual budget for
Timex advertising increased from $200,000 in 1952 to $3 million in 1959. The Timex TV
commercials emphasized the product’s durability and low cost. The “torture test” commercials
made Timex renowned, first in the United States and then abroad, as the commercials featured
former news commentator John Cameron Swazey showing Timex watches which, under varying
circumstances, “took a licking and kept on ticking.”
Manufacturing of Timex watches used mass production methods, employing relatively
unskilled labor, and constant attention to production efficiency and quality control. The “simple
but strict” production formula was based on (1) rigid standardization, with full interchangability
of parts; (2) maximum mechanization to reduce human error and to minimize labor costs, and (3)
centralized quality control. The company employed 500 tool makers who designed almost all the
firm’s production equipment. The product design was kept simple to permit mechanization and
6
This document is authorized for use only by Shimpei Miyagawa in 2021.
For the exclusive use of S. Miyagawa, 2021.
Hattori-Seiko and the World Watch Industry in 1980
385-300
assembly processing. While Timex had four screws, other watches had as many as 31. The simple
design and the riveted cases of the Timex watches made repairs impossible.
In the mid-1950s, U.S. Time began to expand both marketing and production overseas. The
company maintained the same product design and production techniques for every market and plant.
George Gelgauda, technical director in the 1950s, stated, “Parts fit together whether they are made
here in Middlebury, Connecticut, or in Germany.” The torture test advertising theme was also used
in every market overseas. Overseas production was used to supply both Timex’s new growing foreign
markets and some of the watches that Timex sold in the burgeoning U.S. market.
The company continued to expand its product line, introducing a line of 17-jeweled
watches in 1957 that retailed at $17.95. Despite predictions that Timex could not sell watches at
this price through its network of retail outlets, the line was a success. In 1962, the company
introduced a 21-jewel watch line, retailing at $21.95. As the Timex watches moved up in price
range and quality, jewelers began to carry some of the company’s line. In 1963, U.S. Time
introduced a line of electric watches, retailing at $39.95, about half the price of the nearest
competitor. These new watches were built with more simplified designs than any other jeweledlever or electric watches then available.
Throughout the 1950s and 1960s (as well as the 1970s and early 1980s), U.S. Time remained
a private company and did not publish its financial data. Advertising Age reported, however, that 1961
sales and aftertax income for U.S. Time were $71.2 million and $2.9 million respectively. The
company had no debt and had financed all expansions in the 1950s out of earnings. It was widely
believed that U.S. Time used far more assembly processing than any other watchmaker in operation.
By 1970, Timex (having changed its name from U.S. Time) had sales in the range of $200
million, approximately 20 plants scattered around the world, and 17,000 employees. Timex
accounted for half the total unit sales of watches in the United States and was the world’s largest
watch manufacturer in number of units produced. (The U.S. market comprised 30% of the world
market in 1970. In that year, Timex produced overseas approximately one-third of the watches
that it sold in the United States.) The company had continued to bid on and perform U.S.
defense contract work, particularly the development and manufacture of fuses and timing mechanisms. Defense contracts represented about 10% to 20% of Timex sales in 1970.
Bulova was the leading U.S. manufacturer of higher quality, jeweled-lever watches. In
the early 1950s all the company’s watches were sold under the Bulova brand name and priced in
the middle range of $25 to $75. Bulova sold only through jewelry and department stores through
a direct sales force.
Bulova
Bulova was also a U.S. defense contractor, bidding regularly on subcontracts that involved
timing mechanisms and guidance systems for weapons. Defense work accounted for approximately
20% to 30% of Bulova’s revenues during most of the 1950s and 1960s. This work usually required
research in metallurgy and electronics.
Although the company had built some watch manufacturing plants and research facilities
in Switzerland in the early 1900s, most of its production in the 1950s was in the United States.
Bulova suffered several difficult years during the early 1950s because of increasing Swiss imports,
and was an active supporter in the petition filed with the U.S.ITC.
7
This document is authorized for use only by Shimpei Miyagawa in 2021.
For the exclusive use of S. Miyagawa, 2021.
385-300
Hattori-Seiko and the World Watch Industry in 1980
In 1959, Bulova made several strategic moves that changed the direction of the company.
First, a Swiss engineer developed and patented a new tuning fork technology. The engineer tried
unsuccessfully to interest the Swiss in the technology, so he sold the patent to Bulova. Bulova
brought the prototypes to the United States and miniaturized them by applying advanced
electronics and metallurgical techniques. Bulova introduced a line of high-quality, tuning fork
watches under the “Accutron” brand name in 1962, sold only through the most prestigious
jewelers. By 1967, Accutron was the best-selling watch over $100 in the United States. Bulova
had exclusive patents on the tuning fork technology until 1970.
In 1963, Bulova introduced the “Caravelle” line of low-priced jeweled-lever watches to meet
the Timex challenge and the growing demand for low-priced watches. Bulova contracted with
Japan’s Citizen Watch Company to produce the movements for the Caravelle line, which Bulova
then assembled and marketed in the United States. Bulova also granted Citizen a license until
1975 to assemble and sell the Caravelle line in Asia. The watches were inexpensive but of high
quality. By 1968, Caravelle was the largest selling jeweled-lever line in the United States. Bulova
sold all three lines through a single direct sales force only to jewelers and department stores.
Bulova also expanded its manufacturing base around the world. The Accutron line was
produced in the United States, the middle-priced Bulova line in Switzerland, and the Caravelle
line in collaboration with Citizen Company in Japan. Management viewed its worldwide
production system as a key competitive strength. Harry Henshel, president of Bulova, stated in
1970, “We’ve been able to beat foreign competition simply because we are foreign competition.”
Bulova’s plants around the world were each dedicated to different product lines.
From 1960 to 1970, Bulova increased its international sales from 5% to 20% of total watch
sales. Bulova introduced the different lines in different countries, and few countries other than
the United States had all three lines. Bulova employed either a direct sales force or an exclusive
distributor in the foreign markets that it entered. By 1970, Bulova had become the largest seller
of watches in revenues in both the United States and the world overall.
The Swiss Industry
With the 1954 increase of U.S. tariffs on jeweled-lever watches, Swiss watchmakers began
to concentrate on selling either cheap pin-lever watches to the United States or highly expensive,
ornate jeweled-lever watches to the United States. While the larger integrated Swiss watchmakers
continued to concentrate on higher-quality, jeweled-lever watches, the smaller Swiss firms tended
to move toward the production of pin-lever watches. With the rapid rise of worldwide Timex
sales, Swiss pin-lever manufacturers expanded to try to gain a share of the growing demand. By
the 1960s, Swiss pin-lever watches were being sold at low prices—some observers termed it
dumping—in Asia as well as in North America. The watches were sold under little-known names
solely through wholesalers or sometimes under inexpensive private labels.
In 1962, FH and ASUAG joined together to establish a research organization, the Centre
Electronique Horloger (CEH). The initial goal was to develop a new time-determining device to
compete with Bulova’s tuning fork mechanism. The mission of CEH was to extend beyond the
laboratory to the actual production of prototypes of new watches for the purpose of test
marketing them. Once the prototypes proved themselves in the marketplace, the member firms
of FH and ASUAG would engage in full-scale manufacturing and marketing. The CEH failed
to develop an acceptable tuning fork technology that did not violate Bulova’s patent. In 1968,
8
This document is authorized for use only by Shimpei Miyagawa in 2021.
For the exclusive use of S. Miyagawa, 2021.
Hattori-Seiko and the World Watch Industry in 1980
385-300
Ebauches SA (part of ASUAG) entered into a license agreement with Bulova to manufacture and
sell watches based on Bulova’s tuning fork movement.
Swiss watch production continued to grow at a steady pace in the 1950s and 1960s, though
the Swiss unit share of world watch production declined from over 80% in 1946 to 42% in 1970 (see
Exhibits 1 and 4). Mounting pressures developed within the Swiss industry to eliminate the
government and industry regulations of 1934. The regulations were eased in 1957 though little of
significance was changed. Gradually from 1966 to 1981, the regulations were rescinded completely.
After the controls on manufacturing permits and mergers were removed, consolidation of
the Swiss industry began to occur. Some watch assemblers merged to provide increased marketing
clout for their individual brand names. The largest of the newly merged watch assembly firms was
SSIH, which controlled the Omega and Tissot brands, among others. Other firms integrated
backward into component manufacturing to enhance production efficiency and product
development effectiveness. The number of Swiss watchmaking establishments declined from 1,927
in 1965 to 1,618 in 1970. Nevertheless, the number of people employed in the Swiss industry
actually increased modestly between 1965 and 1970—from 83,922 to 89,448.
A study conducted for the FH in 1959 had recommended that individual Swiss firms
advertise their own brand names, and not just the concept of “Swiss made.” The study concluded
that many consumers did not trust the jeweler and that the consumer “places his reliance on the
advertised brand name.” Few Swiss watchmakers followed this advice until 1970. FH also voiced
concerns about whether the sale of cheap pin-lever Swiss watches on the world market during the
1960s had undermined the “Swiss-made” label.
The Japanese Industry
The Japanese watch industry had been concentrated since its inception in the 1880s. As
the industry emerged from World War II there were three competitors: K. Hattori (which
marketed the Seiko brand), Citizen, and Orient, which accounted for 50%, 30%, and 20% of
production respectively in 1950. All Japanese manufacturers made only jeweled-lever watches,
using skilled labor commanding wages approximately one-eighth of those in the United States
following World War II. At this time, the Japanese firms all sold their watches to the fast-growing
domestic market exclusively through jewelry stores. Domestic demand for watches in Japan grew
rapidly during the 1950s and 1960s. The Japanese industry remained concentrated with HattoriSeiko, Citizen, and Orient comprising 60%, 30%, and 10% of the market respectively in 1970.
During the 1950s and 1960s, Timex, Bulova, and several of the largest Swiss firms had
attempted to penetrate the growing Japanese market. While the Japanese government played
little or no role in providing financing, underwriting research, or developing of export markets for
Japanese firms, the government did impose tariffs and sales taxes on imported watches, which
combined to add 70% to the price of such watches. The fragmentation of the Japanese retail
channels also presented obstacles to the foreign watch firms. Imported watches accounted for less
than 5% of the Japanese market in 1970.
Over the years the “big two” Japanese watch manufacturers had moved into the manufacture of products outside the timepiece field. By 1970 Seiko was producing desktop electronic
calculators, high-speed printers for use with computers, miniature industrial robots, machine tools,
electronic displays of various types, and information equipment. Citizen produced mechanical
