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Swiss
Watch- A Blend of Dream, Emotion
& Innovation
But In India, Heavy
Taxes Hamper
Market Growth
By Jean-Daniel Pasche,
President, FH
The FH is the top level association
of the Swiss watch industry. It
was founded in its present form
in 1982 following the merger of
pre-existing associations, the oldest
of which dates back to 1876.
The FH has its headquarters at Bienne,
in the heart of the Swiss watchmaking
region, between Geneva and Basel.
It has permanent offices in Hong
Kong, Tokyo and Asuncion in Paraguay
and employs about 40 persons.
Our association has over 520 members,
made up of watch brands, sectoral
and regional associations and component
manufacturers.
It pursues activities in the legal,
commercial, economic and technical
fields to defend Swiss watchmaking
interests by promoting free trade,
facilitating access to world markets,
improving background conditions,
supporting companies in their export
endeavours, engaging in public relations
for the benefit of the branch, taking
responsibility for standardisation
in the watchmaking field and fighting
counterfeit products.
Historically, the Swiss watch industry
has been built around a specialised
horizontal structure in which suppliers
and subcontractors deliver component
parts (movements, cases, dials etc.)
to the watch manufacturers which
then go on to make or sell the watch
itself.
On the other hand, the Swiss watch
industry has also developed on a
vertical model with a structure
in which the watch is entirely made
within the same company known as
a "manufacture". Today,
very few manufactures of this kind
exist, but they all enjoy a very
strong identity created by their
brands and their own particular
products.
The process of verticalisation has
gathered pace in recent years. The
acquisition of some prestigious
brands has enabled major watch groups
to grow or become established in
order to bring together all the
necessary competences within a single
unit. All the products and brands
both upstream (development, production)
and downstream (distribution, sales)
benefit from the synergies created
in this way.
The average workforce of the watchmaking
and micro-technical companies has
showed an increase for the last
30 years. By now about 48,000 people
are working in the Swiss watch industry.
Without going back too far in time,
our industry has, interestingly
enough, experienced permanent growth
for the past 30 years. Sales have
risen, resulting in higher exports.
There have of course been slower
periods, but the long-term trend
remains positive.
More recently, the balance sheet
for the past 10 years has been positive.
After the difficult year experienced
by us in 2003, the trend was reversed
at the beginning of 2004 with new
records year after year.
Last year, the value of Swiss watch
exports stood at nearly 16 billion
Swiss francs, representing 16.2
percent growth on 2006. The number
of timepieces exported also came
as good news with a 4.2 percent
rise. In other words, about 26 million
Swiss watches were exported in 2007.
As far as 2008 is concerned, we
expect a further growth versus 2007.
We guess that we could go far beyond
the value of 16 billion Swiss francs.
The Swiss watch industry uses two
parallel technologies: on the one
hand, the analogue quartz electronic
watch and on the other more traditional
watches with a mechanical movement.
Almost 83 percent of Swiss watch
production in volume terms currently
consists of electronic pieces with
mechanical watches accounting for
just 17 percent. But in value terms,
the proportions are different, i.e.
30 percent for electronic watches
and 70 percent for their mechanical
counterparts.
Among the different materials, gold
and steel have done well. You will
not be surprised to learn that 85
percent of our sales in value are
made up of high end products, unlike
the offer available from our competitors.
On the other hand, in terms of the
number of timepieces, high end items
represent just 17 percent of all
exported Swiss watches. As a result,
the average price of our watches
is far higher than that of our competitors.
Our positioning is also clearly
apparent when the types of exterior
parts are compared. Precious metal
watches account for 2.0 percent
in volume, but 36 percent in value.
Steel remains the leading material
and is present in all the market
ranges.
More than nine out of 10 watches
made in Switzerland are exported
and go to every continent. However,
the geographical distribution is
uneven. Asia comes in first place
(47 percent) ahead of Europe (32
percent), America (19 percent),
Oceania (1.0 percent) and Africa
(1.0 percent). At the more specific
level of the markets, Hong Kong
leads the field, ahead of the United
States, Japan, France, Italy and
China.
The Swiss watch industry can rely
on strong brands which partly explain
its success. Brands constitute a
kind of warranty labels on which
consumers may rely. I would say
that our industry is a branded industry
to a large extent.
Further, the development of new
designs, of news models also contributes
to the success. Our industry is
a mix of technology and art. The
technological evolution is illustrated
by the application of patents. Switzerland
has applied for patents in the watch
industry as much as the total of
the other watch countries for the
last 10 years.
Besides the brands, the indication
Swiss made is another distinguishing
feature and a garantee label. This
issue is subject to a lot of discussions
within the industry and it is sure
a challenge for it. We are convinced
that this label is of tremendous
benefit to the Swiss watch industry.
This indication has been regulated
by a decree of the Swiss government
dated 1971. The use of this indication
is subject of three conditions to
be fulfilled with.
It therefore requires that the assembly
work on the movement (the motor
of the watch) and on the watch itself
(fitting the movement with the dial,
hands and the various parts of the
case) should be carried out in Switzerland,
along with the final testing of
the watch. It also requires that
at least 50 percent of the components
of the movement should be manufactured
in Switzerland.
In order to safeguard the value
and the credibility of the label
on the long term, our federation
has issued a draft in order to reinforce
the Swiss made. We propose among
other criteria to require a minimum
share of Swiss value on the watch
itself. But it will be up to the
Swiss government to reach a final
decision on the matter.
The Swiss watch industry has been
present in India for many years.
India is one of the emerging markets
with huge development potential.
Swiss watch exports to India were
worth 68.4 million Swiss francs
in 2007, up 13.2 percent on 2006.
This growth is continuing in 2008
and has reached as much as 44.2
percent after the first nine months
in 2008. The establishment of our
branch in India is also contributing
to the development of local activity.
Distribution and sales must be organised
throughout the country, making use
of qualified personnel. The staff
concerned must be able to advise
customers and present high technology
mechanical or electronic products.
Swiss watches are used for many
years. That is why service and repair
facilities must be assured if the
need arises, once again calling
upon skilled personnel.
The Swiss watch industry is keen
to develop its business in India
for the benefit of Indian consumers.
However, as yet India is only the
26th market for our branch. One
obstacle to its development is the
very high level of tax which is
still levied on Swiss watches in
India. Even after deducting VAT
and local taxes, the amount payable
by the brand is 46 percent of the
CIF price (Duties, CENVAT, Education
Cess, Special Additional Duty).
Our Federation is working closely
with the All India Federation of
Horological Industries in an endeavour
to resolve this problem and bring
taxation down to a reasonable level.
The Indian State would also benefit
from such a reduction to the extent
that it would be a way of combating
parallel trade and smuggling. After
all, high taxes favour that type
of activity.
A further significant point is that
Switzerland itself imports Indian
horological products. These imports
are also rising - by 39 percent
in 2007 and 16 percent in the first
nine months of 2008.
Our respective Indian and Swiss
watch industries have common interests
to defend, especially in the field
of standardisation. ISO standards
must be developed to harmonise technical
rules at global level and so facilitate
production and trade in watch and
clock products. Convergent interests
may also exist in other areas of
interest to the branch, such as
free trade or the prevention of
counterfeiting. Representatives
of the Federation of the Swiss Watch
Industry and the All India Federation
of Horological Industries meet regularly,
especially at the Watch and Jewellery
Show Baselworld, for exchanges of
views on general subjects affecting
their industry.
So we are confident in the future
of our industry in India. It is
through the diversity of its product
and the promotion of authenticity
that Swiss watchmaking will continue
on the path of success in India.
Our brands are committed to meet
the expectations of all consumers,
because each one considers himself
unique. They offer more than simply
a means of telling the time. They
offer a dream, emotion, innovation.
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