Swatch and the Global Watch Industry
In the 1980's, Swiss watchmakers began to realize they needed to change their business model to fit into a new global market place. They needed to not only change their views of the market but the infrastructure of watch manufacturing. In order to compete on a global level they needed to improve their technology, design products that would appeal to new markets and be able to compete with other companies on quality and cost. During this time, a merger of two companies helped create a new market for Swiss watches. Asuag and SSIH merged to create Societe Micromecanique et Horlogere (SMH). They developed a line of watches called "Swatch" that appealed to a younger target audience. Their new design, distribution and production strategies created a niche market that became popular worldwide. The Swatch Watch Company transferred itself from near bankruptcy in the early 1980's to a world leader in terms of value by the late 1990's, at this time facing again new sets of challenging issues that would effect their future in a fast changing global economy. These issues included: -Sales being flat between 18-20 million units a year. -Sales and profit margins below levels achieved in early 1990's. -Increasing competition in existing markets and new markets.
Analysis of the Issues Although the Swatch Group was the world's leading manufacturer of watches; they were faced with many issues. They needed to establish a strong presence in the United States market since Timex, Casio, Seiko and Citizen comprised over 50% of the share. The company also became too diversified in producing fourteen (14) different brands even though that strategy established a presence in all market segments and price categories. The Swatch Group lost sight of their positioning in the marketplace trying to be all things to all people, and as such, needed to focus on the mix of products. The internal reorganization types that were utilized by the Swatch Company in the 1980's, and through the 1990's, which gave the Swatch Company its world value leadership, becoming less and less effective facing the challenges of flat sales, and margins and sales below previously achieved levels. It didn't help either that competition was increasing for Swiss watches in existing markets and in new markets. Fashion, lifestyle changes, and changes in consumer tastes were areas that needed to be addressed by the Swatch Group in determining the best markets. In addition, most watch companies had shifted manufacturing to Southeast Asia since it offered lower cost production solutions. They remained the only watch group to continue to produce watches in one of the most expensive countries in the world. At this point in time, the Swatch Group needed to consider turning to India, which had a huge domestic demand and low-cost. Potential solutions to the issues As they did in the early 1980's, the Swatch Group must adopt new global strategies to be successful again. This includes increasing sales by better penetrating current markets and establishing new markets, improving margins by cutting production costs, using company-wide best practices to achieve the highest level of efficiency, and defending existing markets by creating local manufacturing plants. 1. Creating niche products: The Swatch Group's focus on producing fourteen (14) different brands had taken their focus off consumer behavior and lifestyle changes. Swatch Group should focus on the top four products (Omega, Swatch, Tissot, and Rado), as these four brands produce over 82% of the company's sales and 88% of the operating profit. Globally, the Swatch Group had a 14% share of the luxury watch segment with brands like Omega and Rado.1 They should focus on these luxury brands which would prove successful in the Japanese market. Japanese consumers are known for their knowledge about name brands and have a strong desire to buy luxury products. Swiss watches have long been the favorite of...
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