Monday, December 22, 2008

How is Swiss Made ?

Switzerland is considered the home of high end watches. Indeed many of the world's finest watches are made in Swizerland & Switzerland is home to some of the most famous and highly regarded watch brands.

To qualify as "Swiss Made" under Swiss law (OSM, enacted 28 August 1992), a watch must contain 50% by value Swiss made components, the movement must be fitted into the case in Switzerland and final inspection must be completed in Switzerland. In an interesting example of the impact of globalisation in the manufacturing industry, many Swiss watches are partly made in China. This in no way detracts from the quality or value of the finished watch and in fact it is a tribute to the very high standards of Chinese craftsmanship and precision manufacturing.

Many mid-range mechanical & quartz watch movements, these are called "ebauche" or "blank" movements because they have not had their final inspection yet (for ease of reference I call these "movements") and most watch cases in the world today are made in Shenzhen in China, just across the border from Hong Kong. To qualify as "Swiss Made" these watch movements must contain at least 50% by value Swiss made components. The movements and their cases are shipped from China to Switzerland where the movements are fitted into their cases and the finished watches are given their final inspection in Switzerland.

The leading manufacturer of Swiss ebauche movements is ETA, a company specislised in make watch movements. ETA apparently supplies some 85% of Swiss watch ebauche movements and apparently much of its production of is sourced in China.

Cynics may think "Oh well it's easy to have 50% by value of Swiss components, one Swiss made cog probably costs the same as the rest of a movement made in China." Well, ha ha, the cynic would be wrong. Switzerland is home to precision engineering and the manufacture of synthetic gems, you know, the "jewels" or rubies that go in a watch, well they mostly come from Switzerland, as do all those tiny beautifully engineered cogs and springs and levers. In fact many watches which do not carry the magical words "Swiss Made" contain many Swiss made components, right now I am wearing on my wrist a very fine mechanical chronograph, designed and assembled in China, I know the manufacturer and he tells me that most of its components are in fact Swiss made.

There is an interesting twist to this tale. In the 19th Century, probably the best watches were British, these were often hand crafted one off or very limited run pieces. The Swiss had an old established high end and low end watch industry, they imitated English designs and exported these worldwide. Then the Americans developed technology to manufacture by mass production very high quality precision engineered watch components, three US companies are still household names for this, Waltham, Hamilton & Elgin, and in the space of 10 years, Swiss exports of watches to the US dropped by 75%. But US technology was exported to Switzerland and for a while Switzerland and the US competed as makers of fine watches but over time Switzerland replaced the USA.

Then quartz digital and analogue watches were introduced, ironically by Hamilton of the US and CEH of Switzerland and this destroyed the US mechanical watch industry and almost killed the traditional Swiss mechanical watch industry too. But starting in the 1980s in a piece of inspired two pronged marketing, Swiss mechanical watches were sold as "exclusive" high end luxury items and with Swatch, the Swiss fought back at the market's low end.

The collapse of Swiss watch making in the 1970s led to consolidation of the industry in the hands of a few holding companies and a few independent firms. Readers may be interested to know that the Swatch group own ETA and many of the best known and highly regarded brands.

Fortuitously in 1978 China opened its doors to foreign investment offering a large pool of very cheap labour, at the same time as the old mechanical watch industry was on its knees in Europe, North America and Japan. I heard one of the Swiss watch companies led the way to watch manufacturing in China, I think it may have been Tissot. Now, just 28 years later, largely as a result of massive foreign investment, China has moved from 12th to 4th largest economy in the world in absolute terms of Gross Domestic Product ("GDP") and 2nd in terms of GDP measured by purchasing power parity ("PPP"). Now China's labour is no longer as cheap as it once was but its labour is now highly skilled and its infrastructure is amazing.

Do you remember how people used to sneer at "Made in Japan" as meaning poor quality ? Well, now people aspire to buy Japanese, think of Sony, think of Nikon, think of Lexus and speaking of watches, think of Seiko.

Soon the same will be true of "Made in China" - when that happens, remember, you read it here first !

Having said all of the above, the making of watches is now a synergous relationship in which the movement may be assembled in China but many of its parts come from Switzerland and do not underestimate the value added to a good quality watch by the final adjustment and inspection which takes place in Switzerland. Just as a good piano or a fine car needs to be carefully tuned before it sounds right, so a good watch needs to be carefully regulated, adjusted and inspected before it keeps good time, and that takes experience and skill, arts at which the Swiss watch industry excels.

There's a moral to this tale. The moral for me is that international trade and investment can bring people and businesses in distant lands closer to each other and bring harmony, economic growth, prosperity and peace to all.

With good wishes to all who read this !

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