Thursday, November 19, 2009

Another Lawsuit for The Swatch Group: Op-Ed

There is a funny thing that happens when a recession hits, all of these things that were 'OK' to do during a time of prosperity all at once come under loads of scrutiny. A couple of days ago I was clued into a story, stemming from Australia, about yet another lawsuit that was filed against the mighty Swatch Group by the former general manager of their Australian branch; Mark Watson. The lawsuit alleges that Mr. Watson was wrongfully released from his position at Swatch when he refused to break an Australian law stating that Swatch forced retailers to charge their suggested retail prices, and not allow any form of discount to the customer. In more common terms; price fixing. Though Watson's lawsuit appears to be for personal loss and damages from losing his position it brings up those now age old questions; is The Swatch Group too big, and do its business maneuvers have too much influence in the market?

Let's just get right down to it; Swatch is a massively huge company. It's seemingly really difficult to buy a Swiss watch now without them having some hand in the production somewhere along the line. A quick look at the firms they control and you'll see its a veritable who's who of modern watchmaking. They are the principal owner of many exclusive luxury firms, moderate to lower end brands, and what is one of the largest suppliers [at least until 2010] of mechanical and quartz movements in the world. When taking a step back from it all, its really hard to say that they are not a monopoly.

The love him, or hate him, Swatch Group CEO is Nicolas Hayek; a very outspoken and sometimes overly arrogant, character who some think has too much of a hand in what happens in the industry. For example; in 2006 Hayek announced that his movement manufacturing firm [ETA] would stop selling blank movements [sort of a drop n' go watch movement system] to companies outside of the Swatch Group umbrella. This took the industry and even the Swiss government by surprise, who later cut a deal with Hayek to continue to supply movements until 2010 so the industry could reorganize itself. That 'bridge the gap' deal is pretty much an admission by the Swiss government that Swatch was a monopoly. Since that time Swatch has only grown larger, and acquired more brands and part manufacturers.

Is Nicolas Hayek missing his top hat and monocle?

When asked why Hayek stated at the time that the industry had grown stale and lacked innovation, and he felt that cutting off the supply watch movements it would spur other firms to create more. Since that announcement many Swiss companies have indeed become 'manufacturers' [a term given to watch firms that produce their own in-house movements from scratch]. The problem is the companies that were able to become manufacturers did so because of consistent high sales, and a fat bottom line. They had the capital to invest in developing new movements. There was a period where moderate and lower end brands were caught twisting in the wind while they searched for an alternative supplier and began to use their ETA movements more sparingly. In turn this game of simple supply and demand was proven correctly when a moderate end watch brand with ETA movements began to raise their prices pointing a phantom finger in The Swatch Group's direction for blame.

Now that the dust has begun to settle it looks like a good portion of the mid level brands have turned to the place that every struggling industry turns to when they need materials...China. The Chinese watch industry has subsequently grown in scale since Hayek's announcement. The quality of their movements has greatly increased, and now many Asian watch companies now offer high end complications, once only offered by Swiss companies, at a fraction of the cost. I'm thinking when Hayek stated he wanted to spur innovation he didn't really have China in mind. The Chinese are now being taken more seriously as it helps fill this gap, and at the same time begin to make a name for themselves. Unfortunately the Chinese still have the stigma of poor working conditions and the production of counterfeit watches [and not just the $20 "Rolex" on the streets of New York City, but scary good, functional representations of very high end pieces] and they would need to do more to clean up their and focus on their own creativity before they are welcomed more into the "big game".

I'm positive there are few who would disagree that The Swatch Group is definitely a monopoly in one way or another. That said; you really don't hear much from other companies in the industry accusing them of it. And yes, the government of Switzerland raises concern, and even has investigated them more than once for anti-trust violations but when it comes right down to it; is Switzerland going to mess with one of it's largest sources of financial revenue? Probably not. I would expect more slaps on the wrist, and compromised arrangements to be hammered out between the two. The whole of the watchmaking world seems to be fine with the way Swatch operates...Does that make it OK?

What it comes down to at the end of the day is; do you want said brand of watch, and are you willing to pay for it? The average customer is not too concerned with the practices of a parent company. Be it the Euro, the Yuan, the Yen, the Franc, or the Dollar...The might buck still rules all [even when its worse less than it has been in years].

As always I welcome any opinions.

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