Case Analysis Swatch

1 January 2017

In 1978, when Dr. Ernst Thomke became managing director of ETA, the position of this Swiss flagship industry had changed dramatically. Especially with the presence of a strong competency (Japan and U. S). Macro-environment: (PESTEL Analysis) * Economic: Threat: The market share had fallen from 56% to a mere 20%. Opportunity: The production had grown from 61 million to 320 million pieces and movements annually.

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Opportunity: the decline of the dollar was not quite as evident. Threat: Market share loss was more pronounced in finished watches (Japan was producing 50. million Electronic watch compared to Switzerland and had 21% of market share on finished watches) Threat: The situation was aggravated by adverse exchange rate movements relative to the U. S Dollar. Swiss watches was more expensive.

Summary: The company had a great problem due to the high technologies of competitors, also their watches was more expensive so their market share had decreased. Industry Environment: 5 Forces of M. Porter: Threat of entry: * New entrants in the market of watches: Japan, Hong Kong. * Prices dropped dramatically from 1000/2000 $ in 1970 to merely 20/40 $ by the end of 70’s * In the 80’s, several competitors switched to the more sophisticated analogue models and thus created competition for the Swatch. Intensity of rivalry among existing competitors: Japan held the technological edge and created the new electronic watch to compete with Swatch.

Most of the early American digital watch producers had started to withdraw from the watch business * Ebauches entered into direct international competition with Japanese, French, German and Soviet manufacturers. Bargaining power of Suppliers: * Ebauches S. A, of which ETA was part, was the major producer and supplier of watch movements for ASUAG, the main company (the Switzerland’s largest watch corporation). Bargaining power of Buyers: The third world and newly industrialized nations offer a previously unexplored market for Swatch * The Swiss exported movements and unassembled parts to foreign customers * ETA expanded its movements sales beyond its then current customers (Switzerland, France and Germany) to Japan, Hong Kong and Brazil. Substitute Products: * The invention of “Electronic Watches” by Japan.

The new analogue watch designed by Swatch Key Success Factors: * The “Delirium” project with the objective to create the world’s thinnest analogue quartz movement. * Highly qualified labor, requiring flexibility, quality, and first-class styling at low-cost. The company adopted the strategy of differentiation and low-cost (economies of scale). * The Swiss company had their stronghold in assembly. * ETA and its parent company ASUAG have a long history of high quality watch design and manufacture. * As part of Switzerland’s largest watch company, ETA had the resources to mount a turnaround effort. * ETA claimed more control over its distribution channels and increased authority in formulating its strategy.

The Swatch is produced in one single operation, which means that the production costs are lower. Attractive distributor margins and extensive training of the retailers sales personnel combined with innovative advertising ensure the unique positioning of the product. * The Swatch’s innovative design and production technology led to the creation of a low-cost, highly reliable watch; giving ETA a clear competitive advantage. * Strong brand and customer loyalty: • Repositioning into in the fashion market.

A wide range of products with different designs across all price points Mission, Goals, Objectives, Social Responsibility and Ethics: Objectives: Price: Quartz-analogue watch, retailing for no more than 50 Franc Suisse * Sales target: 10 million pieces during the first three years. * Manufacturing costs: Initially 15 SFr – less than those of any competitor. At a cumulative volume of 5 million pieces, learning and scale economies would reduce costs to 10 SFr or less. Continued expansion would yield long-term estimated costs per watch of less than 7 SFr. * Quality: High quality, waterproof, shock resistant, no repair possible, battery only replaceable element, all parts standardized, free choice of material, model variations only in dial and hands.

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