139 years ago at the 1876 World’s Fair, the Swiss watch industry performed industrial espionage! Except it wasn’t — The American watch industry was all but fully complicit in sharing their secrets! If you don’t like history, this article is not for you. However, if you like watches and their history at all, or even if you care about how things were made 140 years ago, then you should read this article. To fully understand how dire these times were for the Swiss industry, their representative wrote “It is obvious to all that at this moment the American factories have the advantage. Their products are wanted everywhere, they manufacture and they sell, while the Swiss factory is idle and its agents are without business, many with unsold goods.” This is the story of intrigue, secrets, strategy, and serves as the launching pad for the eventual Swiss dominance of the watch industry. This is the story of 1876.
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The Significance of 1876
In 1876, the Swiss sent a delegation over to America to figure out why Swiss watch imports to the United States decreased from $18M in 1872 to less than $5M by 1875. The Swiss were completely alarmed at this drop in U.S. purchasing of Swiss watches. However, what alarmed them more was the fully mechanized production of watches that allowed the U.S. companies such as Waltham or Elgin or Springfield to produce hundreds of thousands of watches a year with just a few thousand employees. The Swiss delegation attended the 1876 Philadelphia World’s Fair and found the Waltham exhibit where the company had set up an assembly line to demonstrate watchmaking. Surprisingly, Waltham was completely open with how they produced watches. The Swiss delegation studied U.S. watchmaking methods (which many American employees, amazingly, shared freely). In this fascinating 1876 report, the Swiss delegation documented everything they saw. This report was viewed as damaging to the Swiss industry and was ordered to be kept secret. It disappeared for a century until a dusty copy was found at Longines in 1992.
The original author of the report is Jacques David, a high-level Longines employee. He was a visionary. He understood the problems facing the Swiss watch industry with the invention of mechanized production in America. His report was initially met with resistance by the Swiss, yet David persisted until he convinced Swiss watchmakers to adapt to the disruptive mechanized technology.
The Swiss watch industry is perhaps the only industry incumbent in history to effectively respond, adapt, and overcome the challenge of a successful disruptive challenge (I use the word “disruptive, though it is debatable whether it actually meets HBS’s Clay Christian’s definition). This was only possible because of David’s candor, persistence, and vision.
When applied to today’s environment, the question is: “who is the Jacques David of today’s industry?”
“It is a very significant consideration for countries who, like ours, live by the manufacture of watches. They must take the necessary steps as fast as possible to transform their manufacture in ways which cannot be avoided.” – Jacques David, from the 1876 Report
The Most Salient Points of the 1876 Report
Obviously, we all know how the story turned out with the Swiss eventually rising to prominence and the American industry fading to oblivion. You have to at least be asking yourself “how and why?” Here is a summary of some of the most fascinating aspects of the report as well as some of the notes of translator Richard Watkins:
-The Swiss watch industry was on the verge of extinction when the Swiss delegation published the report. As Richard Watkins says, “the general feeling was that, because of American competition the Swiss watch industry was facing the most critical crisis it had ever experienced.” This is simply amazing when you consider that the Swiss are now the dominant force in the watch industry with American companies only operating as micro brands. Edouard Favre-Perret of the Swiss delegation summed up the Swiss “enemy at the gates moment” in his speech:
“It is thus a matter of not wasting time and getting to work to radically change our manufacturing methods if we want to preserve the watchmaking industry in our country. We must adopt American manufacturing processes, follow their system of uniformity and benefit from their experiments; then we will achieve victory, especially as the American customer favors us.”
-By 1876, the only watch companies that were a going concern as far as competition were Waltham, Elgin, and Illinois watch companies (Hamilton was not yet on the scene). The rest of the companies were viewed as minor considerations.
-The founder of the American watchmaking system, Aaron Dennison, went to the Jura Valley in Switzerland to study the industry and figure out how to refine the processes into a mechanized production system (arguably the preceding episode of industrial espionage). He went on to found the eventual Waltham Watch Company.
-To give you an idea of the massive scale of the American watch production system by 1876, consider these numbers:
-With 40,000 workers, the Swiss were producing about 230,000 watches per year, or about 6 watches/worker.
-With about 1,600 workers, Elgin and Waltham were producing almost 200,000 watches a year, or about 125 watches/worker. In other words, the major mechanized American producers were operating almost 21X more efficiently per worker than their Swiss counterparts.
-In other words, the major mechanized American producers were operating almost 21X more efficiently per worker than their Swiss counterparts.
-Automated production is frequently associated with cheaper products. While American pocket watches were cheaper, wages for workers were significantly higher than in Switzerland. David notes that making watches in America with a factory system allowed higher wages in America, not necessarily cheaper production. He says “These factories must employ more expensive workers, all wages are higher than in Europe, which compensates over and beyond the difference of the tariffs. The American firms without their machines, which reduce labor, would be totally prevented from competing because of the daily rates of workers and the high cost of employee salaries.”
-Prior to 1876, only the Americans used standardized parts and watch sizes. This allowed movement makers such as Waltham or Elgin to be preferred by vendors because vendors could order standardized watch cases (made by third-party watch case makers). This is significant because it made vendors prefer to sell American movements over Swiss movements because they could stock standard sizes and didn’t have to special order cases for Swiss movements. This led to cheaper cases for American watches as producers could mass-produce cases, while Swiss cases were made-to-order due to unique sizes. This is the modern equivalent of a product getting better placement on the shelf or the website today simply because it’s sized better. It sounds simple but is really quite genius.
-The Americans also pioneered the “factory warranty service”. Waltham simply told vendors they would accept defective products back and they repaired watches in the factory without penalizing the vendor. Meanwhile, Swiss watches required special watchmakers to repair. This was a liability for the vendors, so selling Waltham watches simply became easier. While we take this for granted now, it was relatively novel in 1876.
-Arguably, movements produced in the late-1800’s are actually BETTER than many modern movements, or at least equivalent. We know from the report that many of the quality (luxury level) mass-produced watches by Waltham kept time within 1-4 seconds per day, which means watch movements haven’t improved much in functionality since 1876. The cheapest movements made by Waltham would be similar to cheap automatic watches today. However, the nicest American grade movements would be on par with a modern entry level Patek Philippe or Audemars Piguet. However, movements back then (and well into the 1930’s) had significantly better finishing than many movements today. For a culture of today that appreciates art and buys watches as “art for the wrist”, the older movements tend to be more beautiful and have a finishing that is not even seen in $20,000 watches today. In fact, some bespoke watchmakers today including Vortic Watch Co and RPaige still use these 100+ years-old movements in their modern creations (I have purchased many of my own and they are equally as good in their function to modern-produced watches).
-From a trade perspective, the American industry had already figured out how to supply domestic customers as well as export these mass-produced watches as far as India and Japan. We often associate wide-spread international sales with the modern era. However, the Swiss watch industry recognized how significant the American reach was, and the threat it presented to future growth. The mass-production reach of the American industry threatened the Swiss’ survivability as an industry.
-Waltham Watch Company published their watch prices publicly including the margins on watches. They did this to force vendors to adhere to pricing requirements. Any vendor who undercut these prices was swiftly released as a vendor. Waltham viewed price transparency as a critical component of controlling the supply train and to avoid undercutting vendors.
-The Swiss did not have a patent system in 1876 and the author of the report viewed this as a competitive advantage for the American industry. The patent system and intellectual property are frequently cited as one of the key reasons for the rise of the European economies, but more specifically the English and American economies. It allowed Americans to profit from their ingenuity while also preventing the sale of Swiss watches that infringed on American innovations. David recognized the motivation this protection provided to American inventors. The Swiss did not adopt these laws until much later.
Obviously, the Swiss watch industry survived and rose to prominence while the American industry eventually faded into oblivion. The 1876 report by Jacques David served as a rallying cry but wasn’t initially well received by the Swiss. However, the industry heeded the advice and banded together more or less to operate as a giant incorporated Swiss Watch Company in the sense that the manufacturers of Switzerland came together and the government also became involved. Their coordinated efforts to retool their systems ultimately resulted in the future dominance of the Swiss in the watch industry. I will leave you with David’s conclusion to the 1876 report as a foretelling of the Swiss success that would come as a result:
“Let us put to one side the bad council of our offended self-esteem and engage in the fight, benefiting
from all the advantages which we still have and from the methods that our competitors have discovered.
Let us take their tools, imitate their workmen and their methods, but especially let us group together
to obtain the kind of progress that the individual industrialist, in his tiny room with his own
efforts, cannot achieve.”