Swatch freed from supplying rivals with parts

Some Swiss watchmakers do not make their own movements Keystone

Switzerland’s largest watch maker, Swatch, has finally been given permission to gradually stop supplying rivals with vital parts. On Friday, the Swiss Competition Commission (Comco) made a u-turn on its July decision to block Swatch’s plans.

Comco’s green light ends a 12-year saga, initiated in 2001 when Swatch said it wanted to stop making non-assembled watch movements for other companies. This announcement had sent shock waves through the industry as Swatch holds a monopoly on the business.

In the next two years Swatch will deliver only 75% of parts to rivals from its average levels between 2009 and 2011. Supplies will be dropped further to 65% in the years 2016 and 2017 and to 55% in the following two years.

From December 31, 2019, Swatch will be relieved from the obligation to sell watch parts, produced at its ETA unit, to any other company.  

In July, Comco had vetoed the plan on the grounds that other Swiss watch companies, some of whom do not have the capacity to make their own parts, would suffer.

But the Commission reversed its decision after agreeing a plan with Swatch that would cushion the blow for smaller watch makers in the case of them suffering extreme hardship. Comco also stated that it could reassess its decision if market conditions deteriorate dramatically.

Risk and reward

Swatch needed Comco’s approval as it controls around 60% of the domestic market of watch movements.

While welcoming the decision, Swatch Group chief executive Nicolas Hayek complained that rivals had themselves to blame for relying too long on ETA’s production line rather than investing in their own innovation and technology.

“They are not taking risks, they are leaving the risks with us,” Hayek told the Wall Street Journal. “For 30 years we have had this disadvantage.” Swatch will now be able to divert more of its research and development budget into other areas.

Swatch, created by the now deceased Nicolas G Hayek, was credited with saving the fabled Swiss watch industry in the 1980s with its no-frills, colourful plastic brand that swiftly became a must-have fashion accessory.

The Swiss watch industry has since grown again into being one of the most successful pillars of the Swiss economy, and is the third most successful exporter behind the pharmaceutical and machine building industries.

The watch industry’s exports are worth around CHF20 billion ($22 billion) annually. The Swatch Group delivered record sales of more than CHF8 billion in 2012.