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Chinese made watches mount challenge to Swiss-made brands

by Michael Weare
22 January, 2011
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Michael Weare has been a professional writer for 30 years, writing about Japanese technology, German and Italian cars, British tailoring and Swiss watches. Michael manages the editorial content of Click Tempus and will be keeping the magazine fresh and informative with regular features, as well as bringing great writers to the magazine. Email: michael@clicktempus.com

Chinese made 01

First it was Japan, and now it is China that is encroaching on the centuries old Swiss watch making industry. China has had a long fascination with timepieces and their patience, aptitude and determination to succeed could in time see them produce watches to rival the best that Switzerland has to offer.

Chinese watchmakers will challenge producers of lower-priced Swiss watches because they can make components at prices Switzerland can’t match, the chief executive officer of luxury brand Parmigiani said.

“If I was producing a cheap watch, honestly you have to go to China,” said Jean-Marc Jacot, CEO of Parmigiani, whose average price is $70,000. “You have no solution. It is too expensive to produce in Switzerland.”

Swiss watchmakers including Cie. Financiere Richemont SA, the maker of Cartier and IWC watches, said this week that the strength of the Swiss franc, which gained 19 percent against the euro in 2010, will weigh on profitability. That will intensify the pressure to use Asian components in watches because Swiss-made parts are becoming more expensive, Jacot said.

Chinese producers such as Tianjin Sea-Gull Watch Manufacturing are offering more complex watches, including some of the most difficult features to build such as tourbillons, spinning metal cages that adorn luxury timepieces. The Swiss makers have an edge given their heritage and pedigree, said Tom Russo, who manages about $3.5 billion at Gardner Russo & Gardner in Lancaster, Pennsylvania, including shares of Richemont.

China produced 560 million watches in 2009, while Switzerland produced 22 million, according to Rene Weber, an analyst at Bank Vontobel. Still, the Swiss industry’s revenue was almost five times higher at $12.3 billion compared with $2.5 billion for China. Switzerland produces 95 percent of the watches costing more than 1,000 Swiss francs, he added.

Quality Perception

“For the time being, the quality of Chinese watches is seen as being below Swiss watches and Japanese watches,” said Jon Cox, an analyst at Kepler Capital Markets. “Chinese watchmaking was about cranking out units for the masses under communism, rather than an item of adornment.”

“The Chinese could surely produce countless fine products at prices that would make most western producers’ heads spin,” Russo said. “This is a rallying call around the industry. You can imagine how tireless the industry will be in enforcing Swiss-Made heritage.”

Swiss law requires that 50 percent of the value of the “movement,” or the motor, of an automatic watch be from Switzerland for watchmakers to use the stamp “Swiss-Made.” The Swiss Watchmaking Federation has asked the government to raise that limit to 80 percent. Parmigiani’s CEO said he would support requiring 100 percent of components to be Swiss-made.

Quartz Crisis

Jacot has seen pressure on the industry before. He began his watchmaking career in 1974 at Bulova, an American company that introduced the fully electronic watch. That was the decade of the “quartz crisis,” as competition from Japan’s Seiko Holdings Corp. drove many Swiss watchmakers out of business. Switzerland lost 60,000 watchmaking jobs in the 1970s and 1980s.

China could also present a selling opportunity for European watchmakers. “The Chinese watch success story will be the Chinese buying a Swiss brand,” said watch authority James Dowling. “There’s a market in China for a European competitor to more affordable Seiko and Citizen watches” he said.

“Chinese clients see Swiss-Made as a quality seal,” Bank Vontobel’s Weber said. “But of course they are already now in competition to brands at the low end.”

Swatch Group with its namesake-brand timepieces, which sell for $50 and up, is one of the businesses that’s facing Chinese competition, Weber said. Swatch sells its products as colourful fashion accessories rather than as plain watches to distinguish itself, he said.

Jacot is confident Swiss quality will prevail.

‘Never Be Champagne’

“In China, they produce wine that’s like champagne, but it will never be champagne,” he said. “A luxury product is a product plus everything around the product. If you don’t have what’s around the product, you won’t be in the luxury business.”

Chinese manufacturers are also starting to compete with Swiss watchmakers indirectly through European brands. A group of designers in Amsterdam plan to sell “affordable” high-end watches under the brand MontieK, using China-made Sea-Gull components and featuring mechanisms such as tourbillons, said Jean Taree, who handles press relations for the company.

There is an upside to the competition, according to Jacot, because it will force Swiss companies to innovate. Chinese watches will appeal to “rational” people who want quality at the “right” price.

“Luxury is totally irrational,” he said. “You buy something you don’t need at a price that’s crazy. I’m convinced that the Chinese watch industry will be very big and very good. The Indian industry will be very good also. But it’s a different business.”

Michael Weare | Website

Michael Weare has been a professional writer for 30 years, writing about Japanese technology, German and Italian cars, British tailoring and Swiss watches. Michael manages the editorial content of Click Tempus and will be keeping the magazine fresh and informative with regular features, as well as bringing great writers to the magazine. Email: michael@clicktempus.com

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