Corporate Strategy : a Look at Swatch

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1. Conduct an industry (five forces) and environmental (PESTEL) analysis of the watch industry When Swatch emerged in 1983, it was a prime time to enter the watch industry. Existing rivalry and the threat of new entrants were medium, allowing Swatch to thrive. Not one of the many competitors held more than 15% of the total global market, thereby creating medium concentration. In addition, cost conditions, excess capacity and exit barriers, and product differentiation were also medium. Although there was high diversity among competitors, Swatch’s strategy of differentiation, complemented with the other industry factors, allowed them to enter the industry and profit. Although there were barriers to entry and a high threat of substitute products, Swatch was able to forgo the barriers and create a niche to avoid threats. While low concentration and extreme price sensitivities of shop buyers created high buying power; the power of suppliers was extremely low, enabling efficiencies in production to emerge. Economic and political tensions were low when Swatch emerged. Swiss political barriers had fallen and the Swiss global reputation remained positive. In addition, economically an increase in consumers’ spendable income, and recent sociocultural desire for fashion, created an opportunity for Swatch to create a niche in the global culture. Constant technological advancements in the industry required innovative teams, legal barriers to protect copyrights and patents, and isolating mechanisms to protect resources and capabilities. 2. Use Mintzberg’s 5 Ps framework to analyse Swatch’s strategy. How did its strategy evolve? Swatch’s strategy evolved over time through many different stages and most of the 5 Ps of Mintzberg’s strategy framework, see Appendix 3. Overall, however, the strategy began as a strategic perspective change and eventually evolved into a strategic position that Swatch still maintains. The first step in the evolution of Swatch strategy was the introduction of Ernst Thomke into ETA. Thomke brought the strategic perspective of lean operations and a culture of innovation. Next, Thomke developed the Swatch strategy by implementing a ploy for his engineers to develop the world’s thinnest quartz watch. He then implemented a plan to position the Swatch brand in the little contested low price range market. After working with New York advertising agency, Swatch slightly changed strategy again by refocusing the brand position as a “fun and fashionable” watch for 18-30 year olds who would buy multiple watches for different occasions. Swatch has since dominated this self-defined market niche position. See Appendix 3 for 5 Ps strategy references.

3. Use Mintzberg’s families of strategies and Porter’s generic strategies to discuss the sources of competitive advantage. ETA conceived Swatch as a watch-making company with their core business located midstream according Mintzberg’s families of strategies. ETA focused on production and design of their new brand of watches. When Thomke became managing director of ETA, he fostered a culture of innovation and cost efficient production. ETA took a differentiation position in the industry; focusing on image, design, and price of the Swatch watch, Appendix 4. Initially, the Swatch division used elaborated the business by using a diversification strategy of making cheap, fashionable watches for a previously underserved stylish, 18 to 30 year-old market niche. Swatch accomplished this by implementing new technologies, teaming with clothing designers, and improving assembly efficiencies. After implementing these strategies, ETA extended their core business through vertical chain integration, increasing control on distribution and marketing of Swatch watches. Using this strategy, Swatch produced almost $45M in sales in 1985. In 1986, Swatch tried to reposition the core business by diversifying. They attempted to move from providing Swatch watches to creating...
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