Monday 18th December, 2017
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swiss-made-label-lacks-precision-for-watch-industry
ZURICH - If you buy a 'Swiss-made' watch thinking it's almost entirely produced in Switzerland, you might be mistaken.

The manufacture of components including dials, sapphire glass and cases is flourishing in China, Thailand and Mauritius and many of these end up in watches designated as 'Swiss-made.'

Stricter rules came into force this year for watches bearing the coveted label on their dial and for which consumers are prepared to pay a premium.

The key requirement is that 60 percent of the manufacturing costs occur in Switzerland, up from a previous 50 percent threshold that applied only to the movement - the core mechanism.

The new rules were meant to make the label more credible in the eyes of consumers and to shield the industry from Asian competition.

But the change has made it difficult for the makers of cheaper Swiss watches to cut costs and weather a harsh industry downturn. And at the same time it has left the makers of more expensive brands enough leeway to shift a chunk of component supplies to Asia to protect their profit margins.

'Since the Swiss-made rules were tightened, we have fewer orders, not more,' said Alain Marietta of dialmaker Metalem, based in Swiss watchmaking hub Le Locle. 'Some customers ask us to produce half of the components in China so we can be cheaper.'

He said he was concerned about losing customers but had stuck to his principles. 'We want to offer a real Swiss made in Switzerland, otherwise for the people working in the watch industry here, it'll mean slow death.'

Cost pressures

Affordable brands struggle to make money in Switzerland, where labor costs are high, margins are low and intense foreign competition, including from smartwatches, means they can't raise prices.

FILE - Oscillating weights made by independent watch industry supplier Horlyne are pictured in a display case in Le Locle, Switzerland, April 7, 2016.

Citychamp's Rotary brand, which had used the label for decades, offers no 'Swiss-made' pieces in its latest collections, saying the new rules made it hard to deliver value and quality.

Swatch Group, whose watches span all price points and which has extensive production facilities in Switzerland, said it was benefiting from the new rules it advocated. Chief Executive Nick Hayek said in a recent newspaper interview the group might soon be without competition in affordable 'Swiss-made' watches.

Mondaine Group's Ronnie Bernheim said the group's brands, which include popular Swiss railways watch Mondaine, had also abandoned some models that would not have met the new criteria.

National Watch Federation (FH) statistics show the value of exported watches with a retail price of up to 600 Swiss francs ($610), fell by more than 11 percent in the first 10 months of 2017, versus an overall rise of 2.4 percent for all price tags.

Watches account for roughly 10 percent of overall Swiss exports and almost 57,000 people work in the industry.

Specialist companies have sprung up that offer brands the optimum product mix that will qualify for the 'Swiss-made' tag.

EOS Watch Development, for example, promises on its website to deliver 'Swiss-made' products that will help customers save money by combining Swiss and Far East suppliers.

Tough at the top

At the top end of the market where timepieces sell for thousands of francs, a severe downturn in demand translated into sharply lower profits in recent years.

Profitability at luxury group Richemont and more diversified Swatch Group is recovering now, helped by improving sales, but a tight focus on costs remains vital.

FILE - Watches of Swiss watchmaker Swatch are displayed at a shop in Zurich, Switzerland July 15, 2016.

'Some brands in the high end would up to now never have considered buying components abroad for ethical reasons, but also because their excessive retail prices and resulting margin levels allowed it,' said a Swiss dialmaker who asked to remain anonymous.

'The slowing demand forced almost all brands to reposition their products and they benefit from the new law, which is very explicit, to improve their margins by partly sourcing abroad.'

He said his own dial company was mainly producing in Mauritius, where salaries are much lower, but a technical bureau performing some operations in Switzerland meant the dials qualified as 'Swiss-made.'

Several sources said almost all watch case makers now imported sapphire glass from Asia. Luxury watchmakers generally keep their suppliers secret, but recently there have been some initiatives denouncing this lack of transparency.

Francois Aubry, a supplier turned watchmaker, recently launched a timepiece with '99.99 percent Swiss production,' publishing the list of all its suppliers, while the Swiss CODE41 watch project raised 543,000 francs on crowdfunding platform Kickstarter with a concept of total transparency on the mostly

Chinese origin of its components.

Industry body FH said it was its task to intervene if 'Swiss-made' rules were not respected. It has decided to set up a task force to make sure everybody plays by the new rules, especially once a transition period expires at the end of 2018.

However, some watchmakers have already lost patience with the system.

High-end brand H.Moser and Cie this year dumped the 'Swiss-made' label while declaring its own watches over 95 percent Swiss. It denounced the official rules as 'too lenient, providing no guarantee, creating confusion and encouraging abuses.'

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