PLEKHANOV RUSSIAN UNIVERSITY OF ECONOMICS
INTERNATIONAL BUSINESS SCHOOL
SWATCH AND THE GLOBAL WATCH INDUSTRY
International Strategic Management
1st year master’s degree student:
Supervisor: Ekaterina Makhnovskaya
Key strategic issue
The Swatch Group is the world’s leading manufacturer of watches with 14 per cent share of the world market, which was the first Swiss company started to compete in a low price segment. In 1998 Swatch increased its net profit by 7.5 percent. However, after key figures left the organization, the Swatch Group started to face persistent difficulties in management and its position on the market. Moreover, company’s strategy started to be unclear for the shareholders, as they have a doubt that current strategy remains sustainable in rapidly changing competitive industry. In view of the aforesaid, it is necessary for Swatch to change its current development strategy in order to keep up with their rivals and avoid a decrease in sales and market share.
There are several ways for Swatch to address the issue of changing its current development strategy. First alternative for Swatch is to move the value-added chain activities to countries offering low production cost. Having manufacturing activities in Switzerland, which is the most expensive country in the world, does not let the company to successfully manage its expenses. The benefit of this strategy is that Swatch will considerably reduce the price for materials, labor and operational costs. It will also let Swatch keep competing with low cost manufacturers on a watches market. Also, moving manufacturing activities to other countries will give Swatch access to new markets, where demand for its products is high and the competition is minimal. Often developing countries provide incentives for the companies that move their manufacturing activities. It will lead to increased trade through exports and imports and to a rapidly growing volume of intermediate contribution between different countries. At the same time, there are some potential threats in this approach. Moving the value-added chain activities means that managers will have less control over the costs and production processes as they do in Switzerland It may result in higher costs, poorer product quality and inefficient production practices. It will also affect customer’s attitude and Swatch may lose part of its market share. People are convinced that Swatch watches are completely made in Switzerland, which means the excellent quality and confidence in the product. The quality of product may be a determinant when choosing watches and consumers may not be willing to pay the higher prices for a product which parts were produced in developing countries. The second alternative for Swatch is to reorganize the company’s portfolio, as the current product line is too complex for the company’s internal possibilities. The company needs to get rid of the brands and product lines which provide less profit and have low market share in highly competitive markets where their rivals are more successful. There are certain advantages of this strategy. First of all, it will allow Swatch to keep up with the competition. Swatch produce their goods is an industry that faces constant changes and it is necessary to update the product line which will reflect the latest demands of customers and up-to-date trends in the technology. Reducing the range of brands and products Swatch manufactures will help the company to become more sensitive to the changing needs of customers. Restructure the company’s portfolio will also help Swatch to choose key profit drivers, focus on them and make them much better than any other products on the market in order to increase the sales and eventually, the revenue. As the company invests all resources in production, it will make it easier to better manage the costly materials...
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