1) Why did the Swiss domincate the global mechanical watch industry? What were the barriers to entry?

First Mover Advantage: The manufacturing of portable watches started in Europe (France,Germany, and Italy). In France, conflict between French Protestants (called Huguenots) and Catholic churches led to armed wars. Huguenots, who were traditionally clock and watchmakers, left France and took refuge in Geneva. Geneva was known for jewellery by skilled gold smiths and enamellers but wearing jewellery was declared forbidden. The combined efforts of these two communities brought about the existence of the Swiss Watch Making industry, over 300 years ago. Independent, family oriented units were set up in Geneva and later the rest of North-West Switzerland. Watch making remained a family business for along time, with skill-sets being passed on from one generation to the other. As a result theSwiss became the most skilful craftsmen in the watch making arena. Quality The transfer of skills and capabilities through generations, coupled with awarenessof the latest watch making trends and fashion, enabled the Swiss to provide unmatchable quality which was popular throughout the world. Learning Curve: Swiss watch making industry was dominated by family oriented businesses. In this craftsmanship and knowledge of making watches were transferred from one generation to the other. As a result the Swiss watchmakers were much high on the learning curve than their counterparts in other countries. Competition: For decades, there was no country which stood in direct competition with the Swiss. They were supplying in all the major markets of the world, and remained a dominantplayer in each one of them. Entry Barriers Skilled Craftsmen: The (un)availability of skilled labour remained the most important barrier for entry of many nations into the mechanical watch making industry. Brand Value: A strong brand name is another requirement for entry into the watch market.The Swiss had established Swiss made as a brand by supplying good quality watches for decades, together with the right promotional campaigns. Rolex and Omega were also well known brands throughout the world. Intellectual Capital: Swiss government made it mandatory for the watch making firms to take approval for any transfer of knowledge regarding the making of mechanised watches.This was done to avoid any increase in competition and to stop any new entry from foreignfirms into this industry. Other Regulations: Swiss government had enforced restriction on changing the structure of the watch-making industry. Firms were not allowed to acquire or sold out to other firms. This also restricted entry of foreign players in this industry 2) How did the Swiss lose this domincaiton ? What were the significant changes in the industry that negated Swiss competitive advantage? Change in Market Dynamics: Swiss Losing Market Dominance The Swiss lost their dominance over world watch market due to the following reasons: Fragmented market:

Being largely composed of family owned business units, the Swissmarket was highly fragmented. There were around a thousand firms involved in manufacturing and assembly of watches in Switzerland. This led to lower operational efficiencies and no scope for automation or mass production. Further, promotional activities were for Swiss made brand rather than individual company brands. Standardized and Low Cost Products of Competitors: the Swiss owned smaller and un-standardized production facilities. The costs of production were high leading to overall higher retail prices. On the other hand, the Japanese watch industry was consolidated with four firms occupying almost the entire market. They utilised mass production and economies of scale, resulting in lower costs, while quality was still comparable to the Swiss watches. They started exporting these products to the US watch markets, largest watch market in the world.Due to this Japan was able to jeopardise Swiss watch making interest in two ways: Japan started capturing the US markets which was also the largest market for Swiss imports. With very low home demand this was going to affect Swiss industry. Jewel-lever type watch movements and watches were five times in value to pin type for Swiss imports. Japan producing low cost jewel-lever type products was affecting Swiss business. Lack of Mass Merchandising: Timex was the pioneer of mass merchandising of watches of low and medium range. This had resulted in ubiquitous presence of watches. Swiss were notable to market their products in this manner. Their main distribution partners were jewellers.This had resulted in erosion of market share in low and medium range segment. Less Research and Development: Swiss had started two major research and development programmes in 1960s for the development of electronic watches. However,investment in these two programmes was only 0.8% of industry sales which was rather insignificant as compared to investments by the US and Japanese firms 3) Will the Japanese be able to maintain their domincaitn of the mechanical watch industry? A Snapshot of Japanese Watch industry in 1970 The Japanese watch industry has seen a steady rise from producing for its home consumers to being a major exporter of watches and components. The oligopolistic manufactures in Japan did not have to waste resources in competing internally and thus could concentrate better on their efficient and cost effective mode of production. The dramatic growth of Japanese economy, at almost twice the rate of growth in developed countries, has enabled the Japanese manufactures to further upgrade and enlarges their production facilities. This has further strengthened Japans position since the competitors in other countries have stayed away from making such large scale capital investments. Only a few major manufactures in the space as compared to a fragmented industry with over 1000 players in Switzerland Concentrated on manufacturing jeweled lever watches and left pin lever to the others Marketed jeweled lever watches at prices comparable to pin lever watches in the bottom segment At the same time had a range of expensive watches for the top segment Competed in the medium priced category Upcoming changes and sustainability in future Manufacturers have diversified into other technology product, which would facilitate joint research and development for watches and distribute the fixed cost of R&D over other products. This will not only provide for technologically superior products in the future but also keep the research budget to the minimum.The trend

suggests that the industry leaders of the future will be those firms which canmaster array of new technologies and mesh the technologies with the market place.Japanese watchmakers seem well placed in this regard and as far as mechanical watchindustry is concerned they look certain to pose a threat for their US and Swiss counterparts Powered By A ready supply of disciplined and zealous workers available at low wages Automated production techniques like the conveyor belts which enabled the productive use of unskilled labor (further reduction in cost) Few vertically integrated industry under the control of a singlemanagement to avoid conflict of interest. Mass production which facilitated further reduction in cost. Movement of production to countries with still lower wages of production like Hong Kong in response to increasing wage rates Diversification of the watch companies into other technology products which could impact the innovation in watch industry Impact: The Japanese watches had the ability to undercut their Swiss counterparts by 15% to 45% on price. Seiko and Citizen: major supplier of watch movements and components tothe US industry. 5% of all the watches in US directly from Japan 50% of all components imported into Virgin Islands coming from Japan

4) How will the advent of electric/electronic watch change the industy structure? Who could domincate and with what advantage?. Advent of Electric and Electronic Watches The advent of electric/electronic watch will change the industry structure in many ways: The low cost advantage due to labour wont last for long as labour costs account for only10% of manufacturing costs in electrical watches. The industry leader in electric watcheswill be the one who can capitalise on technological breakthrough to improve efficiency aswell as costs of their products. The watch will move from a luxury item to a utility item. As the technology for electrical watches is easily available, there will be a large number of new entrants who can produce mechanised products at low costs. They will either needto move up the value chain (which is difficult as there would be progressive pricereductions without decrease in quality) or have volumes to create profitability. When the cost and quality of electrical watches will surpass mechanical watches, it willcreate additional demand for them. This would ensure a volume game which will drivetheir prices down further. Hence electrical watches will dominate the utility space. Although the electrical watch might not dominate the market share in short and mediumterm, it will hurt the profitability of the mechanical watches to a great extent.From the above analysis it is clear that it would be quite difficult for Swiss to dominate theelectrical watch segment which in turn may dominate the whole world watch industry. Thetwo options ahead of them are to acquire companies which are investing heavily in newer technology to maintain the technology advantage. The second option they have is that theyshould capitalise on the mechanical watch segment by positioning it as a luxury item.Keeping in mind, the Swiss industry invests only

0.8% of industry sales in research anddevelopment, the second options seems plausible.The two contenders for the electrical watch segment to dominate would be Japan and theUS watch industries. US: The US companies were mainly marketing firms which had acquired foreign watchcompanies to maintain their low cost advantage. They also had advantage of high endtechnology due to government supported research and development work but were notlinked with production processes as closely as their Japanese counter parts. The UScompanies had the advantage of sourcing the technology for electrical watches through their foreign subsidiaries and promoting in the worlds biggest watch market under their ownbrand name. Japan: The Japanese watch industry has been a pioneer in the old jewel-lever watchesmainly due to low wage rates, advanced mechanised and production techniques, verticalintegrations and mass productions of standardised movements. More over Japanese watchmakers had a diversified portfolio involving high end technological products and this gavethem in-house technological know-how. One of the earliest quartz watches was developedby Seiko. Also any technological innovation would easily seep into world market as theycontrol the world market of watch movements which might help them dominate the worldwatch market in future.From the above discussion, Japan seems to dominate the industry in future as it virtuallycontrols the watch movements market and seems to be highly involved in technologicalresearch for the electrical watches