Swatch And The Global Watch Industry
Swatch Group is in a tight predicament after years of success in the global watch market and needed answers. A 14% market share worldwide, increasing net sales and gross profits, and a claim to the “Swiss Made” term proved important for the growth and advancement of the company in the past decade. Yet, internal problems were beginning to rear their ugly heads, and the repairing of these issues needed to be addressed before the company could head forward successfully. Firstly, competition was tough world-wide. Not only this, but Swatch’s product mix featured too many products, causing many consumers and suppliers to become confused. Secondly, although wanting to keep production within Switzerland, high cost of production had them wondering to outsource their factories or not, all while maintaining quality. Lastly, Swatch faced internal management issues, with many officers stepping down from their positions, all of whom stated problems with their CEO’s ability to take advice from them. These issues prove a large stepping stone that Swatch would have to cross in order to hold its large market share heading into the future.
Product Mix and Proposals
Having a large product mix, Swatch group had many options in their watches, be it high-end, tech savvy, or bargain hunting, Swatch offered a watch that would obtain to that individual. Swatch line itself seemed to be struggling for market share in the U.S. as well as the rest of the world. Targeted reasons being that the vast lineup could be a lot for the average consumer, featuring an abundance to choose from to the point where they cannot decide and resort to other brands.
To avoid the title of “fad”, Swatch group needs to slim down their product mix which shouldn’t affect them socially or ethically. This will make for a more approachable amount of watches to avoid being left in the 90’s and remain competitive into the future, all the while keeping on their highly valued quality. Groups such as Seiko, Timex, Fossil, and Guess where gaining ground and Swatch group needed to act in this way to combat it.
Heading forward, Swatch Group can look to the successes of it subsidiary Omega. Omega’s main competitor is Rolex, and being in a high end market meant little room for change in quality. Instead, Omega elected to decrease prices while keeping quality the same, streamline their processes, and most importantly, cut down the number of models they offered from 2,500 to just 130. These changes boosted Omega’s sales and made them a huge driver in sales for Swatch group as a whole. Swatch line, which focuses on low to middle cost watches, needs to complete a SWOT to see which models to cut from the line, and drastically streamline it to a handful of watches that consumers actually want, and again, maintain that quality level. This need for change can be seen in the fact that resellers dropped from roughly 3,000 to 1,200 in less than 10 years. Building on that, Swatch needs to research into the profitability of past loyal customers who may be willing to spend more on a better quality, more sophisticated watch of theirs.
A marketing plan needs to be implemented that can focus building and maintaining the two core consumers to Swatch: existing and new. One campaign to target and attract the new customers, and another to hold the existing consumers. Once attracted, these customers can then decide if they want a budget or higher-end watch, of which the product line will be much easier to choose from. Do this by launching the new drastically decreased product line and market it heavily to those new and existing customers. This will gain traction for us as well in the World stage. As well, streamlining the lineup will allow for better costs of production in this much smaller line, and will allow for better economies of scale, again, still maintaining that important aspect of quality in all lines.
Manufacturing and Proposals
Very high demand for watches has caused many of Swatch Group’s competitors to have moved processes to low labour cost countries, decreasing costs and experienced a positive effect on overall profits.
Swatch group of course would ideally remain within Switzerland, to keep true to their heritage, as well as leverage the “Swiss Made” branding, which requires minimum 50% components to be made within Switzerland. But outsourcing has been held off too long by the slow to adapt Swatch group, and needs to be looked into thoroughly. If they outsource, fixed costs could turn to variable costs, which would help greatly with varying volumes of production. Furthermore, besides concerns for costs, keeping the quality of the timepiece remains a high concern.
Geopolitical risks, cultural affinity, resource availability, infrastructure, etc, need to be considered in the move as well. Most of all they need a bottom line of if such a move will prove profitable in the end for them.
If Swatch can focus on just the assembly fragment of the watches, they will be able to keep the “Swiss Made” branding, as 50% of the process will still remain in Switzerland. Because of this, they can look to India for outsourcing. Having a large group of existing skilled workers with hands on experience will ensure the repeatable process success right away, as well as drive cost down, and provide a lower product cost overall. Titan industries, a companies whose workers have existing experience on watches, as well as that experience, already has seen large leaps in its resource procurement, as well as speedy growth and continued advancement in its technology for the future, a perfect match for Swatch group. By aligning with Titan in India, Swatch can not only keep their beloved quality, but also follow in the footsteps of the industry rivals and lower overall production costs. This move proves the best route for Swatch heading forward, checking off all of the mentioned concerns.
Issues with outsourcing arise in the form of ethical and social values for their existing employees. If they are to outsource, Swatch may have to lay off workers. Workers that could have generations of experience in watch making, or long loyalty to Swatch group. They will have to proceed carefully with the decision to outsource manufacturing, and weigh the costs of outsourcing together with the complications of laying off workers, and will need to possibly heavily provide severance for the affected employees, a cost of doing business.
Management and Proposals
Management issues have plagued Swatch from within for the last decade, and effectively removing them should be the utmost on Hayek’s list. If not acted upon, word of Hayek’s tough leadership could lead to negative publicity for Swatch Group, which could prove terrible. This move needs to come from Hayek himself, he needs to be more accommodating, which will lead to better planning of the company as a whole. He needs to ensure that when chosen, the officers that replace the now gone executives will be competent of his leadership style. As well, involving his employees should be of higher value for him, making ideas and changes come from within and naturally instead of him refusing to hear any or all ideas needs to be a higher priority for him moving forward.
A competitive global market calls for change. All changes will have risks. For Swatch, a streamlined product line, outsourcing, and management tactics overhaul will outweigh the risks. Only by completing these three strategies will Swatch be able to apply high quality and competitive costing products to the market that the consumer actually wants. This combination of ideas will lead ultimately to the continued holding of Swatches large market share, as well as help them remain competitive for the foreseeable future.