ETA Withdrawal: The Fake Revolution ?
Nicholas Hayek of the Swatch Group
In accordance with its strategic plans, ETA will withdraw the supply of blanks at the end of 2010. As the company currently has the monopoly on this market, it is reasonable to expect that many other players will be keen to jump into the gap left empty by ETA. But who really can?
To find out, we spoke to the people in the know, the movement makers themselves.
The Eight Year Withdrawal
Mr Hayek, the president of the Swatch Group, has never made a secret of his plans for ETA: ideally, in the long run, the company will not supply any component of its own creation to any company, even within the Group itself, for cost reduction reasons.
Therefore, back in 2002, Swatch made the first move to put this plan into action, starting with blanks. But the Swiss Competition Commmission (ComCo) hadn’t a different take on this entirely. In their opinion the Swatch Group’s position in the watchmaking industry was simply too important to be altered without specific conditions; otherwise, such a withdrawal could jeopardize the economic balance of the industry.
Consequently, in 2004 Swatch was forced by the ComCo to continue the provision of its blanks to third party clients outside of the Group until the end of 2010.
A time-frame which is fast drawing to a close.
Many brands use ETA movements or modified variants, like this Limes model above.
Market Dominance
With a market share estimated, according to our information,at 75% of the 3.5 to 4 million “Made in Switzerland” watches produced each year, ETA all but controls the supply of watch movments. Especially when you consider that this figure would be closer to 90% if we exclude the number of watches powered by movements that have been created exclusively in-house, such as Rolex or Patek Philippe.
Looking at it in this light it is clear to see that the withdrawal of such a big player from the market would automatically free up a huge share of the market. But is it still really free?
Not necessarily.
Preparing For The Inevitable
You see, some of ETA’s more astute competitors have been slowly but surely positionting themselves to achieve maximum market share upon ETA’s exit. One company that has already taken a big part of the cake is Sellita. The company assembles more than one million ETA pieces per year – which gives it a comfortable lead over competitors almost to the point where some might wonder if there really is enough space for other players.
Other suppliers have also taken steps in preparation of ETA ceasing the provision of blanks. The La Joux-Perret Manufacture, which has built close business relationships with Sellita both as a supplier and a client, started their transition program back in 2004.
“This withdrawal is not a surpise to anyone. Before the economic crisis of 2009, ETA had aready raised its prices by 15%, and we have all known the approximate timing of their withdrawal from the blanks market since 2004”, explains Frédéric Wenger, GM, Manufacture La Joux-Perret SA. “Sellita has been in the market for many years, and thus they are best positionned to deliver generics at the comparable prices.”
And what would happen if ETA was also allowed to stop supplying finished movements, one day ? According to Mr Wenger, this is not a likely scenario;
“I don’t believe this is a realistic option. In this case too, their dominant position would create for them the same obstacle they had with the blanks supply. It would imperil some brands, or even spell death for others, which is definitely not an option in terms of competition and market regulation.”
It seems than, at least for now, that Mr Hayek’s desire to lock out his competitors will continue to run counter to his own success!
An ETA movement in a Swatch Group owned Certina
What about the end consumer ?
As we mentionned here, the type of movement used to power a watch, especially from the high end range is critical, but we assume that this is less important for low to middle-end devices. Moreover, Sellita’s products are now the strict equivalent of ETA’s. But maybe, as a guarantee against what the future may hold, brands should start investing money into develop their own movements, in order to protect their independence?
Unforutnately whilst this sounds good, it is not really realistic. Firstly, many brands simply don’t posses the expertise and the technology required to manufacture movements in-house. Even if they did, it is likely that cost of such movements would be at least twice the price of Sellita’s, thanks to the lack of economies of scale. And, in the end, it almost guaranteed that there will be some reliability issues, especially in comparison so some of the pieces that are shipped by the millions!
***
As promised we also had a chat with Mr Miguel Garcia, the General Manager of Sellita. Thank you to those who submitted questions, we tried to ask as many of them as we could.
Please enjoy.
Exclusive interview of Miguel Garcia – General Manager, Sellita
TWL: How do you think the recent announcement of ETA will impact Sellita?
MG: This is an anticipated situation, as we were, with some other companies, at the origin of the ComCo complaint, which has led to their obligation to keep on supplying blanks until the end of 2010. To date, Sellita is the biggest client of ETA’s blanks. We started producing our own substitute blanks in 2004 / 2005.
TWL: Are the ETA and Sellita blanks interchangeable?
MG: Yes, completely interchangeable, bar a few minor differences.
TWL: Even with ETA’s older pieces?
MG: Yes, I think, but don’t forget that ETA has to provide their customers with after-sale service for their entire catalogue, even after the end of their supply.
TWL: Do you expect an increase in demand?
MG: No. We produce one million units per year, and our goal is above all to maintain this level, in association with the highest level of quality. We don’t run for quantitative objectives, only for qualitative.
TWL: How can you expect your market share to grow ?
MG: We think 20% of market share is a reasonable goal. It allows us to work on reasonable volumes closely linked with our high quality standards, while also allowing space for competitors to enter the market.
TWL: Do you think that Chinese industry will try to fill the gap?
MG: With regards to Sellita, there are no business relationships in the pipe-line with any Chinese company, however good they may be. We defend and believe in the “Swiss made” brand, and it’s important to us to keep our know-how and our expertise here, and also to have local plants. To date, 97% of our production is Swiss made. To be honest, a partnership with a Chinese company has never even crossed my mind!
TWL: What do you think about the legal project to regulate the “Swiss made” convention, supported by percentages?
MG: This is outside my scope, but personally speaking, I think it’s a measure that can only promote and protect our know-how, guarantee our quality and consequently, at the end, protect consumers.
5 Responses
to “ETA Withdrawal: The Fake Revolution ?”
|
|
search the watch lounge
enter your email to get updates in your inbox
Latest Comments
- Brenda Lehman: Today is the first I’ve heard about Rafa’s watch being stolen. Give...
- Deonte: where or how can i buy????????????
- Olivier Muller: Dear Phee, I just had Daniel on the phone this morning. He is away now and will...
Great article and interview. Thanks for posting this.
>> “the company currently has the monopoly on this market”
I don’t know that this is true. Aren’t movts. available from Selitta, Miyota, and several other sources?
The Swatch decision to sell only internally may turn out to be a brilliant business decision, or ultimately a horrid one that bankrupts the company, or something in between. But I think the larger point is that, imho, no one should have any say in the decision other than the owners of Swatch, that is the the stockholders, acting through their agent, the company’s board. I find any other act to be morally reprehensible.
>> “such a withdrawal could jeopardize the economic balance of the industry.”
I don’t know that this is /necessarily/ true, it’s possible the it could have the opposite effect. But for ComCo to claim that is nothing short of hubris.
And “jeopardizing the economic balance of an industry” is not /necessarily/ bad at all. The once nascent auto industry jeopardized the the horse carriage industry. But I think we are better off for it as consumers. There are thousands more examples.
Rant over.
Hi there,
Thanks for your comment ! The fact that blanks (not movements) are sold by different vendors doesn’t mean that one of them benefits from a monopoly situation.
In this case, we have about half a dozen of important players, not more IMHO, but one clearly stepping above the others – see market shares – of course ETA.
And here we don’t have a specific opinion on Mr Hayek’s decision – especially on the moral point of view, this is not our role. The ComCo decided to have them keep on selling their blanks, for the reason we mentionned here, and we just sticked to the facts.
Considering the fact that this withdrawal could jeopardize the economic balance of the industry, again, this is an economic fact & analysis – moreover from ComCo. This is not our personal opinion. Personaly speaking, I think this judgement by ComCo makes sense. Saying it is a bad or a good thing is another debate.
In this case, I do agree with you – pesronally speaking again. That’s nothing less than a capitalism effect, the beginning of a new era where some new competitors might enter the game, even if one seems to be in a better position than the others. I think that’s healthy.
Glad to have this discussion with you !
Oh, by the way, I do my best to answer your comments in english, but that’s not my mother tongue, so pls forgive me I don’t make myself clear here above in this comment ! But there’s one thing for sure : I didn’t get the phrase “rant over” ! Never saw it before… . What does it mean ?
Thanks !
Olivier
Olivier, your English is fine, thanks!!!
“it is likely that cost of such movements [in-house] would be at least twice the price of Sellita’s, thanks to the lack of economies of scale.”
Is this a real problem? I can go online right now and buy 10 ETA 2892-A2 movements for $176 each. I can safely assume a watch manufacturer buys them in bulk for much cheaper than that. Yet, the watch I purchased a couple of weeks ago, which contains an ETA 2892-A2, has a retail price of $10,600.
So even if the manufacturer used to pay $176 for the movement, and it is going to cost them double to make their own, will the world be truely different if the retail price of the watch rises to $10,776?