Is the 60% ‘Swissness’ Law a Watch Industry Lifeline or a Killer? A Case Study Continued

The Swiss Watch Industry at the precipice…PART 2. The laws in Switzerland used to only require a watch be 50% made in Switzerland. As of 2017, that has been increased to 60% with much controversy and criticism over whether that is the best move for the watch industry. This is a fictional narrative that will be published in two parts that outline the issues surrounding the decision. While the characters are real, this story fictionalizes their role in an otherwise real world scenario using real world facts. Enjoy this case study-style narrative discussing the difficult decisions regarding the increases to the requirements to call something “Swiss Made”.

Jura Switzerland

By Nemetonia (Own work) [Public domain], via Wikimedia Commons

If you missed Part 1, you’ll want to read that first! This is a two-part case study. Part 1 covers the context, the history of the industry and the history of the Swiss laws.

This is a joint writing by Aaron, Tom, Seunghyun, and Austin who are all MBA students studying business and international trade/investment. References will be denoted by [#] markings and sources will appear at the end of the page.


The Current State of the Swiss Watch Industry

The Setting: This is a case style narrative. It is December 2016

Structure of the Industry

The watch industry has seen extensive consolidation, taking advantage of massive economies of scale to offset the capital-intensive, marketing-heavy, and distributionally complex industry. Three major players control over 45% of the global watch market: The Swatch Group (Swatch), formed in 1983, now holds an 18.3% share; Compagnie Financière Richemont SA (Richemont), formed in 1988, commands a 15.7% share; and Rolex, remaining privately held, holds an 11.8% share of the market (note: LVMH owns a 4.7% share).[i]

Watches: a Valued Work of Art

David Liebeskind, a professor of management at NYU Stern, questioned the continued success of luxury watches, posing the question “why would otherwise economically rational people spend thousands on a watch when one that costs only $10 tells time just as accurately?”[ii] While he makes a valid economic point, the Swiss watch industry (and the luxury watch industry more generally), have been quick to market form over function, while adding increasingly more function to their watches. Marketing is used extensively to create a story behind each brand that consumers identify and interact with. As Jean-Claude Biver (CEO of TAG Heuer, President of Watches Division LVMH) noted in his 2011 speech at the Lift Conference in Geneva:

“400 years ago the innovation was to make an instrument. Today the innovation is that the watch has become a communicating tool, a dream, an emotion.”[iii]


Watches as art? (Author’s photo)

Swiss brands have certainly made their mark on the global watch market. While Swiss watches as a percentage of all units sold in 2015 were relatively low at about 3%, Swiss brands captured over 50% of the value of watches sold.[iv] This outsized share of value shows that Swiss Made watches are a treasured item worldwide. To put this in context, the Swiss exported 28 million watches in 2015, with a total export value of CHF 21.5 billion,[v] which is greater than the individual GDPs of the bottom 86 countries in terms of ranking.[vi] Despite this crowning value position, Swiss watch brands face encroaching factors on all sides.

Rolex Submariner

Rolex Submariner (Source:; licensed under CC)

Unstable Currencies

Compounding problems in Europe, including uncertainty around the future of the European Union, has led to a volatile demand for watches. Swiss watchmakers have seen short-term sales boost in 2016 from the UK after the surprise Brexit vote dramatically weakened the British Pound.[vii] With inventory awaiting sale in these countries, the watches appear cheap in the near term to tourists visiting the UK and Europe. Until Swiss watchmakers adjust prices upward to the new FX rate, tourists visiting these countries can buy watches cheaply as Richemont noted clear their benefit from UK sales in their annual report.[viii]

watch prices are too high

(Source: PixelBay [], licensed under CC)

In the long run, a strong exchange rate will make it more expensive for UK and EU customers to buy Swiss watches, dampening demand if prices are not adjusted downwards.[ix] Uncertainty in the EU has also led EU residents and tourists to spend less money on luxury items, as they are unsure of the future. Imran Amed and Helena Pike, in their recent article on fashion and luxury brands, noted that for brands that “rely on discretionary spending for purchases that are largely emotionally-driven, growing global uncertainty can have a dramatic effect on consumer psychology, limiting the desire to spend money on what are aspirational products.”[x] Some luxury watch brands such as IWC and Baume et Mercier have already started to lower their prices.[xi]

Terrorism Leads to Reduced Tourism Related Sales

Recent terrorism in Europe has also unexpectedly affected the industry, which sells one-third of its watches in the European market. In 2015-2016 alone, there were over 300 people killed due to terrorism in Europe, up from only 4 were killed in all of 2014.[xii] These incidents have called into question the previously assumed safety of traveling to Europe, causing the U.S. Embassy in France to release a statement saying “authorities believe the likelihood of terror attacks in Europe will continue” and France declaring itself in a state of emergency for the entire year of 2016.[xiii] The U.S. State Department issued a Europe-wide travel warning for most of the 2016 summer.[xiv] Travel to Europe has decreased, with the French Minister of State for Foreign Trade reporting a 10% decrease in tourists in 2016.[xv] Accordingly, European Swiss watch sales are down 9.5% in 2016.[xvi]

Chinese Legislative Changes

Mainland China and Hong Kong are critical markets for the Swiss watch industry. Credit Suisse noted “Mainland China (share of exports in 2015: 6%) is the third largest export market for the watch industry after Hong Kong (15%) and the US (11%). Hong Kong plays an important hub role: many of the timepieces destined for Hong Kong are re-exported, either directly or by being purchased by foreign customers (above all Mainland Chinese customers) from HK retailers.”[xvii] Watches used to be a lavish but acceptable gift to give high ranking officials and business leaders in Asia, but now gifting laws in China make giving a watch equivalent to giving cash. Additionally, fewer Chinese residents are traveling to Hong Kong due to the emergence of the Chinese financial crisis in the summer of 2015, with Chinese tourism to Hong Kong decreasing by 3%.[xviii] As a result, flagship stores in Hong Kong have been forced to sit on large supplies of inventory, or even in some cases, sell these inventory items back to the manufacturer.[xix]

New/Existing Entrants

The watch industry has seen a wave of new entrants in the last few decades, with many brands attempting to capture the same allure of the Swiss watchmaking heritage. These brands can be found in Britain (Bremont), Germany (rebirth of A. Lange & Söhne, Nomos), and the United States (Weiss, Niall, RGM), among others.

Niall One.M in Black Carbon

Affordable watches with mechanical movements have also become more ubiquitous. With the introduction of the crowdfunding website Kickstarter and the ease of manufacturing new products around the world using 3D printing and robotic drills, boutique watch companies are continuously entering the market. A mechanical watch, which used to be so complex that only master horologists could produce, can now be produced for just a few hundred dollars. With accessible affordable luxury that capture elements of trendy design, many of these start-up companies are meeting their crowdfunding goals and offering much cheaper mechanical watch alternatives.[xx]

straton watch co

Straton Watches, a Kickstarter company

Substitution and Shifting Preferences

Increasingly, non-Swiss companies like Daniel Wellington and Shinola (affordable category fashion watches) have tried not only to enter the market for traditional watches but also redefine the expectation that a watch must be expensive.[xxii] A 2012 survey by Pulse found that 32% of millennials always wear a watch out of the 71% of millennials who reported owning a watch,[xxiii] reinforcing the idea it is still popular to own a watch, but not the required tool it used to be. This has been made possible in recent years due to the ubiquity of the digital clock on most electronic devices including cell phones. Other inventions have found their way onto the wrists of young people: the FitBit and other similar step-counter devices, which have become increasingly advanced. Many of the step-counting watches are much more than pedometers, adding functionality such as a clock, heart rate monitoring, and even Bluetooth connections to a user’s phone for message notifications.

Photo by Freedom II Andres under CC license

Many watched in wonder when Apple released its Apple Watch in 2015. One October 2015 article title proclaimed “Apple Watch killing Swiss Watches Faster Than Expected,”[xxiv] while another article argued the opposite: “Rolex the Apple Killer.”[xxv] Ariel Adams, a watch industry expert and managing editor of website ABlogtoWatch explained that smartwatches would not impact the Swiss watch industry:

Few people are choosing to take off their $10,000 Rolex in favor of a smartwatch, but people with a $100 Swatch might. It takes a lot of passion, education, and culture (not to mention disposable income) to include luxury timepieces in your lifestyle. Just as the journey to discover your favorite luxury watches takes time, so does the opposite situation of deciding you no longer want them. People who start to wear luxury watches tend to stay wearers for a very long time. And if they take off a watch, it isn’t just to replace it with something lower-end. Only the opposite is normally true.[xxvi]

Adams also said: “that means the people who are typical buyers of luxury Swiss watches probably aren’t choosing to wear a smartwatch yet.”[xxvii] By the end of 2016, it appears maybe both parties were somewhat right. Mechanical watch sales have declined and smartwatch sales have failed to grow.[xxviii] An October 2016 Barclays Bank report stated: “It is difficult to determine the impact of the Apple Watch disruption on the Swiss Watch industry – with data inconclusive.”[xxix] Jean-Claude Biver, however, believes that smartwatches are “the best promotional tool for the mechanical watch,”[xxx] including his company TAG Heuer being among the first of the luxury brands to produce a smartwatch (the TAG Heuer Connected).[xxxi]

Apple Watch Edition

The Apple Watch Edition didn’t work as planned and is no longer produced (Photo:

Net Effect on Current Sales of Swiss Made Watches

One thing is certain: the future isn’t going to tick as smoothly as the past for Swiss watchmakers. Global demand for Swiss Made watches has dropped 11% in the first 10 months of 2016, from CHF 17.9 billion in 2015 to CHF 15.9 billion in 2016.[xxxii] In a capital-intensive industry like watchmaking, sales declines have an outsized impact on bottom line profitability, and large watchmakers are suffering in the public equity markets as a result. Swatch and Richemont, the two largest publicly traded watch companies, are trading well below the highs their stocks achieved in 2014 with Swatch down nearly 50% and Richemont down about 30%.[xxxiii]  

Expected Effects of the New Law

Although many Swiss watchmakers welcome the new law, the adoption of the new regulations is expected to be a major hurdle for low and mid-tier Swiss watchmakers producing watches below $1,000. Jack Wagner of aBlogToWatch noted:

“this new regulation should mostly affect watch brands in the sub-$1,000 market where there has traditionally been more of a balancing game when it came to managing Swiss made and “overseas sourced” parts.”[xxxvi]

Many companies producing watches above $1,000 already exceed the 60% standard (such as RAYMOND WEIL producing watches $800-$3,000).[xxxvii] Some companies such as Baume et Mercier producing watches in the $1,000-$5,000 range already claim to produce 100% of their components in Switzerland.[xxxviii] However, many watchmakers producing watches below $1,000 are dependent on imports of many parts to reduce production costs (the under $1,000 range is also where the Swiss have experienced some of the sharpest declines in sales).[xxxix]

The Affordable Segment Problem

The segment that would have the most difficulty complying with the new Swissness law was the lowest price segment category for watches less than <$1,000 where they had to maximize the use of non-Swiss parts to make an affordable watch while still calling it Swiss Made.[xl] Ronnie Bernheim, an outspoken critic of the law stated in an interview with Bloomberg: “This law would be cutting the industry into two . . . the volume business will be killed, except for the big companies. Our foreign competitors are laughing.”[xli] The lowest price categories (i.e. the volume business) would be least susceptible to economic hard times (such as the present situation), but most susceptible to global competitors and substitutes who could more easily compete if Swiss companies had to comply with more stringent requirements.[xlii]

Credit Suisse noted the reason smartwatches were a possible threat was the price category they competed in: “Although the Swiss watch industry generates less than 15% of its sales from this segment, it accounts for more than 80% of production in volume terms. Therefore, falling demand would not be without consequences for production capacity in Switzerland.”[xliii] In this price range also fell many Citizen & Seiko watches (Made in Japan), the Apple Watch, and many of the crowdfunded watches entering the market. Swiss watches in this segment already fell -11% in 2016.[xliv]

The fear of losing this sector emerged from the idea that watches in this category became a gateway for people who aspired to own a nice watch. This would be their first watch and they would eventually upgrade to nicer Swiss watches. Fortune magazine concluded, “A trendy $17,000 Apple Edition may ultimately prove to be a gateway drug for, say, an elegant $170,000 Patek Philippe.”[xlv] TAG Heuer already started using the “gateway” strategy by producing watches in the next price category of CHF 500-3,000.[xlvi] CEO Jean-Claude Biver said, “TAG Heuer must be the entry price in luxury. It must enable every young man and every young woman to enter through the door of luxury. That means it must be affordable luxury. And I need a perceived value that must be double what I see.”[xlvii] The FH president wondered: If the Swiss lost the affordable market segment or had to abandon it due to costs of production, would watch buyers become used to non-Swiss watches? If they became comfortable with non-Swiss watches, would they also be comfortable buying non-Swiss in the future? Was losing the “gateway” category a strategic misstep that would become a painful and slow killer?

Jean Claude Biver

By World Economic Forum – Flickr: Jean-Claude Biver – World Economic Forum Annual Meeting 2012, CC BY-SA 2.0,

Despite decreased sales in this price category, the new law offered advantages, including fortifying the Swiss watch as a high-quality luxury item, minimizing reputational risks to the Swiss Made name,[xlviii] and ensuring investment in equipment, education, and research within Switzerland. The modern “godfather” of the Swiss watch industry, Jean-Claude Biver said, “I don’t believe that a Swiss Made with 50% made in Switzerland or 60% is changing a lot the face of the Swiss Industry. Of course, 80, 90 or 100% would have on the contrary significant and important consequence” demonstrating few executives in the high-priced segments had any concerns.[xlix] Swatch Group also clearly had no concerns about the law and saw it as fortifying their position. Their June 2016 semi-annual letter to shareholders stated they saw the “60% Swiss made in the watch industry as of 2017 is a clear advantage for Swatch Group, with its verticalized local production base.”[l] While the new law was a strategic move, current economic conditions and decreased sales had already increased unemployment among Swiss watchmakers (which has increased to 9% in 2016).[li] The law was not going to come without consequence and there would be short term losses no matter how good the law was for the industry in the long term.


The Decision

By BSide (Own work (Own photography)) [GFDL, CC-BY-SA-3.0 or CC BY-SA 2.5-2.0-1.0], via Wikimedia Commons

By BSide (Own work (Own photography)) [GFDL, CC-BY-SA-3.0 or CC BY-SA 2.5-2.0-1.0], via Wikimedia Commons

The FH president debated what to suggest. On one hand, the new law would fortify the brand equity around what it means to be Swiss Made. Watches made in Switzerland would become higher quality and have more meaning to those buying them. On the other hand, production would be more expensive, something the industry could not afford, and economic conditions would not allow price increases without further impacting sales. In summary, the more expensive production risked exposing many of the affordable category producers to foreign competitors, potentially driving them out of business. This could have a spiraling effect leading to rising unemployment, fewer customers entering the ‘Swiss Made funnel’, and worst, making Swiss Made irrelevant to future generations. As he saw the snow continue to build outside his window, he put on his coat, shut off the light, and trudged into the snowy white on his way to the meeting to share his final thoughts.


[i] Statistic Brain, “Wrist Watch Industry Statistics,”, accessed December 2016.

[ii] David Liebeskind, “What Makes Rolex Tick?,” SternBusiness Fall/Winter 2004,, accessed November 2016.

[iii] Lift Conference, “Jean-Claude Biver: The Importance of Innovation and Thinking Different,” published February 28, 2011,, accessed November 2016.

[iv] Statistic Brain, “Wrist Watch Industry Statistics,”, accessed November 2016.

[v] “The Swiss Watchmaking Industry in 2015,” press release, on FHS website,, accessed November 2016.

[vi] (2016). GDP Ranking 2016 – [online] Available at:, accessed December 2016.

[vii] Swatch Group, Letter to Shareholders, July, 21, 2017, p. 1,, accessed December 2016.

[viii] Richemont, Interim Report 2016, p. 4,, accessed November 2016.

[ix] Deloitte Consulting LLP, “The Deloitte Swiss Watch Industry Study 2016,” page 10,, accessed November 2016

[x] Imran Amed and Helena Pike, “The Age of Uncertainy,” Business of Fashion, June 26, 2016,, accessed November 2016.

[xi] Deloitte Consulting LLP, “The Deloitte Swiss Watch Industry Study 2016,” page 10,, accessed November 2016

[xii] Tom Bachelor, “Terror in Europe MAPPED – Shocking number of deaths and injuries from attacks in 2016,” Express UK, July 27, 2016,, accessed November 2016.

[xiii] Katherine LaGrave, “Is It Safe to Travel to France Right Now?” Conde Nast Traveler, August 1, 2016,, accessed November 2016.

[xiv] Barbara Peterson, “Updated: U.S. State Department Issues Summer Travel Alert for Europe,” Conde Nast Traveler,, accessed November, 2016.

[xv] Andrew Soergel, “Europe’s Tourism Tumbles Amid Terror Attacks, Refugee Crisis,” U.S. News & World Report, August 30, 2016,, accessed November 2016.

[xvi] “World Distribution of Swiss Watch Exports by Region,” press release, on FHS website,, accessed November 2016.

[xvii] Nicole Brändle Schlegel et al, “Reverberations of the Swiss Franc Shock,” Credit Suisse Swiss Issues Industries, January 2016, p 19.

[xviii] Andrew Soergel, “For Lackluster Luxury Sales, Blame China,” U.S. News & World Report, 20, 2016,, accessed November 2016.

[xix] Ralph Atkins, “Richemont buys back and destroys stock as sales fall,” Financial Times, May 20, 2016,, accessed November 2016.

[xx] Aaron Stark, “Brief Update on Time22’s Kickstarter Campaign,” Watch Ponder Blog & News, October 14, 2016,, accessed December 2016.

[xxi] Aaron Stark wrote on this topic during the course of this research on his blog about the watch industry in the article “Tempting Choices or Tempting Fate? Current State of the Swiss Watch industry” published Nov 7, 2016 at

[xxii] Stephen Pulvirent, “How Daniel Wellington Made a $200 Million Business out of Cheap Watches,” Bloomberg Pursuits, July 14, 2015,, accessed December 2016.

[xxiii] “Watches are a Time-Less Accessory for Gen Y,” YPulse, October 4, 2012,, accessed December 2016.

[xxiv]Evan Killham, “Apple Watch is killing Swiss watches faster than expected,” Cult of Mac, October 20, 2015,, accessed November 2016.

[xxv] Ewan Spence, “Rolex the Apple Killer,” Forbes, September 11, 2016,, accessed December 2016.

[xxvi] Ariel Adams, “Are Smartwatches Really Hurting Luxury Watch Sales?” aBlogToWatch, December 6, 2015,, accessed November 2016.

[xxvii] Ibid, accessed November 2016.

[xxviii] Ellie Zolfargharifard, “Apple Watch is a FLOP: Sales of the gadget have fallen by 90% since April, report claims,” Daily Mail UK, undated,, accessed November 2016.

[xxix] Julianne Easthope et al, “September Swiss Watch Exports: -5.7%, high end -7.0%,” Barclays European Luxury Goods, October 20, 2016, p 6.

[xxx] Robin Swithinbank, “Jean-Claude Biver: The Watch Industry Is Not in Trouble, The World Is,” Business of Fashion, March 24, 2016,, accessed November 2016.

[xxxi] Ibid, accessed November 2016.

[xxxii] “World Distribution of Swiss Watch Exports by Region,” press release, on FHS website,, accessed November 2016.

[xxxiii] Based on prices reported on Google Finance – Yahoo Finance as of Nov 30, 2016.

[xxxiv] “The Swatch Group AG Bearer Shares,” Morningstar,, accessed November 2016.

[xxxv] Deloitte Consulting LLP, “The Deloitte Swiss Watch Industry Study 2016,”, accessed November 2016

[xxxvi] Jack Wagner, “Watches To Be 10% More ‘Swiss Made’ From January 01, 2017,” aBlogToWatch, December 6, 2016,, accessed December 2016.

[xxxvii] Author’s interview with Elie Bernheim, CEO RAYMOND WEIL, Skype, October 20, 2016 and Aaron Stark wrote an article on the topic during the course of this research called “Choices: Raymond Weil and What is Means to Be Swiss”, Watch Ponder Blog & News, November 14, 2016, accessed December, 2016.

[xxxviii] Author’s interview with Fred Martel, President of Baume & Mercier North America, Skype, November 21, 2016.

[xxxix] “Swiss Watchmaking Industry in October 2016,” press release, on FHS website,, accessed December 2016.

[xl] Jack Wagner, “Watches To Be 10% More ‘Swiss Made’ From January 01, 2017,” aBlogToWatch, December 6, 2016,, accessed December 2016.

[xli] Quoted in Jack Forster, “A Level Playing Field, Swiss Made Vs. Made In The USA, And Thoughts On How Much It Really Matters,” Hodinkee, June 21, 2016,, accessed December 2016.

[xlii] Ibid, accessed December 2016.

[xliii] Nicole Brändle Schlegel et al, “Reverberations of the Swiss Franc Shock,” Credit Suisse Swiss Issues Industries, January 2016, p 19.

[xliv] Julianne Easthope et al, “September Swiss Watch Exports: -5.7%, high end -7.0%,” Barclays European Luxury Goods, October 20, 2016, p 1.

[xlv] Robert Hackett,” The Apple Watch: A gateway drug for Swiss horology,” Fortune, April 3, 2015,, accessed December 2016.

[xlvi] Julianne Easthope et al, “September Swiss Watch Exports: -5.7%, high end -7.0%,” Barclays European Luxury Goods, October 20, 2016, p 1.

[xlvii] Robin Swithinbank, “Jean-Claude Biver: The Watch Industry Is Not in Trouble, The World Is,” Business of Fashion, March 24, 2016,, accessed November 2016.

[xlviii] “The criteria for strengthening the Swiss made label,” Federation of the Swiss Watch Industry FH,, accessed November 2016.

[xlix] Author’s interview with Jean-Claude Biver, CEO TAG Heuer and President of LVMH Watches Division, email, October 16, 2016.

[l] Swatch Group, Letter to Shareholders, July, 21, 2017, p. 1,, accessed December 2016.

[li] Deloitte Consulting LLP, “The Deloitte Swiss Watch Industry Study 2016,”, accessed November 2016, p 12.

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I have a passion for watches and am a collector of luxury watches. I write opinion-based articles that try to bring the business lens to my writing to provide readers with a view of the business, marketing, and strategies of the watch industry companies I look into. In addition to Watch Ponder, I do speaking, freelance writing, and publish in other watch blogs and magazines. I do this as a hobby and because of my passion for watches. I am also a member of the National Association of Watch and Clock Collectors.

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