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It came as a body blow to the industry a few years ago, and now it’s becoming a reality. Watchmakers, watch marketers and ETA movement makers and suppliers the mighty Swatch Group will no longer have to sell its ETA watch parts to any other company as from December 31, 2019. Permission has been granted to gradually reduce, and ultimately cease supply of watch parts to its Swiss rivals. The agreement follows the reversal of a decision first made in July by the Swiss competition authority, known as Comco in French and Weko in German.

Over the next two years Swatch will be expected to deliver just 75% of parts to rival companies from average levels between 2009 and 2011. The supply of parts will then be dropped further to 65% in the years 2016 and 2017 and to 55% in 2018 and 2019.
A clause in the agreement is designed protect "hardship" cases where the denial of parts might be detrimental, even disastrous to smaller companies. Also, the agreement may be reassessed if market conditions evolve differently in the years to come.

The permission has been granted after Comco initially rejected a deal with the Swatch Group back in July over the issue and the latest agreement has be renegotiated. Presently Swatch supplies around 60% of the movements used by the Swiss watchmaking industry and the Swiss Cartel Act was put in place to stop the company cutting supplies. Swatch initially expressed a desire to reduce the levels of supply to other companies under the aegis of their late Chairman Nicolas Hayek.

Commenting on the latest decision the Swatch Group said:"The Swatch Group considers the Competition Commission's decision to be a positive, albeit a tentative, first step toward finally making it clear to all the brands and groups in the Swiss watch industry that they have to invest in their own mechanical movements and assume the associated industrial risk themselves. This is not a luxury but a step necessary for the long-term success of the Swiss watch industry."

2824-2_recto_07.jpg

In recent years several high-end brands have started to focus on developing their own in-house movements, or developing or adapting movements based on some of the ETA hardworking standards such as the ETA 2824-2 or 7750 for chronographs. ETA has 20 production sites located in the foothills of Jura and the Swiss cantons of Valais and Ticino. Their production and assembly of movements and watches are considered global benchmarks for their reliability and performance.

Visit the ETA website
 

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This has been known for many years now and i expect that it will do absolutely nothing to watch brands that do not invest on in-house movements, with the advent of Sellita (who made a million movements last year), TC, Soprod and countless number of other derivatives of the ETA movements, not to mention the movements sourced from the far east (Seagull, Miyota, Seikos' NH etc). The greater issue here is that they plan on cutting parts supply to its competitors as well; the Swatch group owns many of the critical part manufacturers that even it's Swiss clones depend on like Nivarox FAR's hairsprings and mainsprings.

ETA has already begun cutting Nivarox hairspring supply to Sellita and now even a big movement maker like Sellita is having trouble finding an alternative (it has asked comco to delay the reduction). The only options here are to spend decades to develop a Nivarox alternative (like Rolex, which spent years to make its own hairsprings) or outsource and lose part of it's 'Swiss-made' reputation. This problem rolls down to all the companies that use Nivarox hairsprings, like Patek Philippe, Nomos, Federique constant, ALS etc and many of these, switching over to an Asian counterpart would be unthinkable. The repercussions would be endless.
 

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With so many companies using ETA movements why would this be beneficial? Why would Swatch Group want to give up such an enormous market share?
 

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How will this impact service intervals for non-Swatch watches fitted with ETA movements after 2019? Will independent watchmakers still be able to source parts?
 

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I don't think this will be as devastating as most watch afficionados believe it will be.

There are already alternatives in the market for ETA, the most common being Sellita and Miyota.

I believe the micro-brands and other corporate watch companies will rely on these alternatives when the time comes ETA stops supplying the movements in 2019.
They will be able to continue to improve/enhance/fine-tune the Miyota/Sellita movements as much as the ETAs.

Besides, I really think this is a positive thing for the future of watch movements development.
It promotes the growth of the ebauche industry.
For decades, watch companies have relied too much on ETA, resulting in the stagnation of innovation of watch movements, Haute Horlogerie aside.
 

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You are asking for the hidden corporate agenda and to that we can only speculate. My guess is that it is to protect Swatch group brands, especially the entry to mid range offerings by Longines, Hamilton, Oris etc, who use exclusively ETA movements. There are competitors out there using the same movements at a lower price so they are essentially taking market share by using Swatch group's own weapon (ETA movements).

I guess when Swatch first decided to proceed with this many years ago it had not quite anticipated that Sellita (a contractor) would immediately step up and fill the void by using ETA's own movements produced on their own machines and that it would do this legally (since patents have run out) and consistently, producing a million movements a year, essentially all ETA clones, from the SW200 to the SW500. To counter this, ETA has now begun reducing parts supply to Sellita (and others) in order to retain the dominant market position is has now, pretty much forcing Sellita to outsource and lose part of its Swiss made appeal. This has a FAR great knock-on effect than cutting movement supply since pretty much 95% of the Swiss watch industry depend on ETA parts. This percentage was close to 100% a few years ago but some (most notably Rolex) have begun making their own hairsprings in anticipation of this.
With so many companies using ETA movements why would this be beneficial? Why would Swatch Group want to give up such an enormous market share?
 

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When do the patents on the various Nivarox alloys expire, or have the even expired already?

This may be bad news for Swiss microbrands and entry level luxury brands (which aren't owned by conglomerates), but using Asian movements or parts won't be as bad non-Swiss microbrands. So perhaps we'll see: American, Asian, etc. brands rise to rival the entry level swiss brands.
 

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With so many companies using ETA movements why would this be beneficial? Why would Swatch Group want to give up such an enormous market share?
1) Because they are creating competition for their own watch brands.
2) Because they can't innovate or improve the movements when doing so helps their competition equally, so they stagnate while others advance.
 

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The original patents, filled by Richard Lange in the 1930s are obviously long expired and the alloy contents are widely known. However, if you think alloy composition is the only thing you need to know to produce it you would be mistaken. It's the how the metals are alloyed together and the forming process (drawing half a ton of alloy into a long unbroken strand and them coiling them into perfectly formed hairsprings that is difficult. A bit of analogy would be like a nuclear weapon, the designs for basic nuclear weapons are widely available on the internet and elsewhere and the plutonium/uranium separation techniques are also widely available in scientific literature but how many countries have the technology and expertise to combine all that into a weapon? Very few.
When do the patents on the various Nivarox alloys expire, or have the even expired already?

This may be bad news for Swiss microbrands and entry level luxury brands (which aren't owned by conglomerates), but using Asian movements or parts won't be as bad non-Swiss microbrands. So perhaps we'll see: American, Asian, etc. brands rise to rival the entry level swiss brands.
 

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I didn't realize that the Swiss have some "body" that has some control over Swatch's business decisions. Much as I don't care for pure, unbridled capitalism, the existence of such an organization -- governmental or otherwise -- has the power to mandate how an independent business operates would for me be a good reason not to "open up shop" in Switzerland.

Clearly, one outcome of Swatch's move is that other companies will step in to fill the gap. One can only wonder if one of them won't simply become the "new ETA." I don't know that such will happen, but that it does seems a natural outcome, if the laws of economics are allowed free run. It also seems plausible that restricting ETA's movements to Swatch organization sibling companies will in the long term compromise the value of "Swiss Made" as other non-Swiss companies figure out (to the extent they having already) how to match or better ETA's movements and general consumers realize that the term has little real meaning. Huge companies like Seiko and Citizen already produce very fine movements. Will they become the "new ETA?" Will the Chinese? Will someone else? It seems quite plausible that the overall structure of the industry won't change, but rather the role of the players in it.

Also, one has to wonder if many smaller companies won't eventually be forced out of business or made easier take-over targets. Making one's own movement parts and assembling them into movements isn't an inexpensive thing. If it were, more folks would be doing it even now. I think it's quite clear to Swatch that their move is a natural means by which to force consolidation and to reduce the extent of competition in the marketplace. That will surely happen to some of the boutique brands, particularly those on the upper end of the price range. Along with their demise comes greater opportunity for Swatch (and other high-end makers) to see greater profits. With the projection we recently saw indicating that the industry expectation is for the greatest growth to occur in the high end of the market, Swatch's move seems directly tailored to force other brands into a lower end of the market or drive them out altogether.

How quickly other companies step in to pick up the demand that ETA/Swatch is making available to them will determine the effectiveness of Swatch's strategy. Regardless of how things fall out, I suspect what we'll see in the next decade is a watch industry having a makeup similar to that of food products and US banking where several large conglomerates make just about everything that's available and affordable for most consumers. Rolex won't care for a while, for they are one of the few companies who own the entirety of their manufacturing process, but many of their peers or betters will.

Side thought on "Swiss Made"
Personally, I'm already at the point of not caring if my watch is Swiss Made. ALS at the high end have shown that the Swiss have no special "thing" making their watches all that much of a big deal in a comparative sense. The Japanese and Chinese, on the middle and lower end have shown that the reliability of inexpensive movements is not the exclusive purview of ETA or any other Swiss maker. If prices for Swiss made watches rise dramatically, a great number of folks simply won't look for that labeling, rather it'll be an indicator to look for something else simply because it costs too much.
 

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It also seems plausible that restricting ETA's movements to Swatch organization sibling companies will in the long term compromise the value of "Swiss Made" as other non-Swiss companies figure out (to the extent they having already) how to match or better ETA's movements and general consumers realize that the term has little real meaning. Huge companies like Seiko and Citizen already produce very fine movements. Will they become the "new ETA?" Will the Chinese?
Not really, people pay big money for Swiss, not necessarily Citizen, Seiko, and Sea-gull. I don't think Citizen, Seiko, or Chinese brands can step in because Citizen, Seiko, Sea-Gull have already notched themselves into the realm of affordable non luxury brands, even cheap and tacky in some cases, not likely they'll step in for Swiss movements and have the consumer draw Swiss brands do.
 

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Not really, people pay big money for Swiss, not necessarily Citizen, Seiko, and Sea-gull. I don't think Citizen, Seiko, or Chinese brands can step in because Citizen, Seiko, Sea-Gull have already notched themselves into the realm of affordable non luxury brands, even cheap and tacky in some cases, not likely they'll step in for Swiss movements and have the consumer draw Swiss brands do.
Your scenario is certainly a possibility as well. What's certain is that whenever there's an opportunity to boost sales, brand recognition and profits, companies will not willingly leave that money on the table. Who would have thought initially that Toyota and Nissan could produce cars that are seen as the equal (by consumers, regardless of what the sport-preferring automotive press say) of MB and BMW? Yet, they are. I think that "Swiss Made" will always mean a certain level of quality exists in a watch; however, whether it means that to the near exclusion of all others remains to be seen.
 

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Easy for someone to set up shop in Swiss-land under another name and modify one of its movements specifically for Swiss production. Only geeks like us would know the difference.
 

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Every country has such a regulator, if Swatch was American, the FTC(Federal trade commission) or the department of Justice would exercise similar powers to decide whether an action violates antitrust laws. A similar analogy would be if Intel stopped supplying CPUs and chipsets to any non-Intel company. It doesn't matter what country you're in, if your 'independent business' sells illicit drugs, stops paying its taxes, attempts (and succeeds) in establishing a monopoly, participate in price fixing, hire illegals, dumps capital, the government will be on you. There is no such thing as free market capitalism, everything is regulated to an extent.
I didn't realize that the Swiss have some "body" that has some control over Swatch's business decisions. Much as I don't care for pure, unbridled capitalism, the existence of such an organization -- governmental or otherwise -- has the power to mandate how an independent business operates would for me be a good reason not to "open up shop" in Switzerland.
 

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Interesting thoughts above! Hard to know how this will all shake out and what all the repercussions will be, especially for things like price-sensitive boutique watches. The ETA movement train has been coming for years, the whistle has blown, so this shouldn't be a surprise to any watch maker. If they don't have a plan to accommodate the change already, their company will need one soon.

As a lover of watches, I do hope the shake-up has a bright side of some interesting movement evolution/innovation. ETA and others have some stellar workhorse movements like the 2824-2, but I speculate Swatch Group will release some unique movement offerings/tweaks just for their own watch brands. And Miyota, Sellita, etc, as the alternatives, will likely be getting more movement business from non-Swatch brands, hopefully giving them more money to innovate and improve already-great movements. At least I hope so. And of course, it follows that more watch companies might ponder going the in-house route. I try to remain optimistic that change can be a forcing function for good things. We'll see...
 

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Every country has such a regulator, if Swatch was American, the FTC(Federal trade commission) or the department of Justice would exercise similar powers to decide whether an action violates antitrust laws. A similar analogy would be if Intel stopped supplying CPUs and chipsets to any non-Intel company. It doesn't matter what country you're in, if your 'independent business' sells illicit drugs, stops paying its taxes, attempts (and succeeds) in establishing a monopoly, participate in price fixing, hire illegals, dumps capital, the government will be on you. There is no such thing as free market capitalism, everything is regulated to an extent.
Mostly I agree that things are regulated everywhere. I don't really think your Intel analogy is fitting. Intel don't also make the things into which their CPUs go, namely, they aren't a player in the assembled-computer market. In fact, I have a hard time seeing the monopoly/anti-trust argument applying to Swatch. Their move has nowhere near the reach it would need to for their play to move them toward a monopoly position. There are still far too many other sources for watch makers to go to in order to get movements. The market, even if Swatch immediately stopped accepting orders from external customers, is too diverse for that to do much but make the horological industry more of an oligopoly, but that's about all it would do. Sure the consequences of oligopolistic competition would come into play, but that's still not monopolistic. Yes, price fixing sometimes occurs in oligopolistic competition, but mostly that's because the players is such an area don't want to compete on price as they would in a commodity market.

Even having the FTC here in the US, I can't seem them forcing a company to sell product to other companies, particularly products that allow those companies to compete against them. I can see the FTC putting the kabosh on certain purchases by a company when those acquisitions will concentrate a market and leave substantively no competition. That's just the case with what Swatch are doing.
 
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Yes, this is not new news. However Swatch makes a very important point about swiss watch companies needing to be weaned from the mother. It's a first step toward healthy independence.

"The Swatch Group considers the Competition Commission's decision to be a positive, albeit a tentative, first step toward finally making it clear to all the brands and groups in the Swiss watch industry that they have to invest in their own mechanical movements and assume the associated industrial risk themselves. This is not a luxury but a step necessary for the long-term success of the Swiss watch industry."
 
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