Outlook Bright

Record Swiss watch exportsin '05 earn $10 bn
By Dev Varam

The art of fine watch-making is a Swiss tradition. It is a combination of quality, precision, modern technology, aesthetics and above all, the Swiss way of making things. "Swiss Made" speaks for every feature of a watch but is inimitable. The leading Swiss watch companies have a strong competitive edge worldwide. There is a sharp increase global interest for select Switch watches, which assures consistent growth potential for their exports. Swiss watch exports did extremely well in 2005,earning 12.3 billion francs (about $10 bn) and are posed for an equally good performance in 2006. Emerging markets such as China and India figure prominently in the marketing strategies of Swiss watch exporters.

Watch exports from Switzerland have grown by an average of 3.6 percent per annum since 1990, thus outstripping total exports (+2.8 percent). In recent years, the Swiss watch industry has made increasing inroads into the higher price segment, where more money is to be earned. Thanks to their long-standing tradition, high-precision craftsmanship, good reputation and successful marketing, Swiss manufacturers now account for more than 50 percent of the global market in value terms. The US (18 percent), Hong Kong (14 percent) and Japan (9 percent) are the key markets for Swiss watchmakers.

Emerging Markets
However, the strongest growth of late has been in sales to certain emerging markets, such as China and Russia, where exports rose by an average of 98 percent and 15 percent per annum respectively between 2001 and 2004. Together these two countries now account for a sizeable 4.1 percent of sales, up from 1.4 percent. These are also the markets of the future, as the watchmaking Industry is set to be among those that profit the most from the rapidly rising standard of living in many emerging markets.

Luxury Watches
Although there are several hundred watch-making facilities in Switzerland, the lucrative Swiss luxury watch business is dominated by a few renowned, globally active companies. Following numerous acquisitions of reputable high-class brands, it is these firms that now essentially set the pace for the sector. They ultimately have the necessary financial strength, and not just to continually bring more refined, more luxurious and often more expensive watch models to the market. They can also afford costly international marketing campaigns and use a dense distribution network to secure their visual presence in the world's most important luxury shopping areas.

2005- A Year of Records
Strong demand in all the major sales regions contributed to the very pleasing results during the year. Thanks to the still booming economy of the US, exports to that country rose sharply by 13.8 percent, followed by Asia (11.4 percent). . Even in the European Union, where the economy is consistently sluggish, Swiss watch exports posted a growth of very pleasing (+7.1 percent).
The fact that 2005 was an exceptionally good year is also reflected in a survey of 59 companies. Some 68 percent of the participating firms reported an increase in sales year-on-year and 49 percent improved profitability, while just 21 percent and 24 percent respectively posted declines. This is the best set of results in 15 years.

Bright Outlook for 2006
The assessment of the business outlook remains favourable for 2006. Many Swiss watch-makers have worked intensively on their operating efficiency in recent years, adopting a global focus at an early stage and investing heavily in a convincing brand image, and are already well positioned in growth markets such as China and India. They, therefore, seem well poised to participate in this rapidly growing market going forward. Their consistent quality-based culture ultimately also secures the high margins that manufacturers of everyday consumer goods can mostly only dream of. All in all, companies expect to see further sales and earnings growth in 2006.

Exports in 2005
Swiss watch exports broke through the 12-billion franc mark in 2005 to post record earnings worth 12.3 billion francs, up 10.9 percent over 2004. Despite the fact that the base of comparison will be very high, the year 2006 augers extremely well and the final result could exceed that of 2005 by as much as 5-6 percent.
Outstripping forecasts made during the past year, the Swiss watch industry reaffirmed its strength in international markets by setting the bar very high. The rate of variation over twelve months fluctuated very little in 2005, holding steady at around +10 percent.
The trend, therefore, has solid foundations, and this is true of all continents. Propelled forward by the luxury segment, Swiss watch products were thus able to avoid the pitfalls of a less than favourable economic situation, particularly in Europe.
The rise in Swiss watch exports in December 2005 was even steeper than in the preceding 11 months of the year. In the final month of the year the total value of was 1,203.7 million francs, an increase of 23.1 percent, compared to December 2004.

Products
In December, exports of finished watches saw their value increase by 24.5%, to 1.1 billion francs. Steel (+23.1%), bimetallic (+64.4%) and 18-carat gold (+13.5%), timepieces being largely responsible part for this rise. The number of exported pieces rose by 130,000 units (+7.4%), due exclusively to steel (+23.3%).
For the year as a whole, the record is more uniform for the different materials used in watch manufacture. The total value recorded a level of 11.4 billion francs, an increase of 12.0%. While 18-carat gold (+17.0%), steel (+10.3%) and bimetallic (+13.3%) pieces contributed the most in terms of value, platinum and aluminium, for example, registered an increase on a par with the average for other materials. Despite the positive result achieved by steel timepieces (+230,000 units), total volumes failed to buck the long-term trend and declined by 840,000 pieces (-3.3%) over twelve months.
Besides watches, other products exported by Switzerland also recorded positive results. Movements saw their value increase by 4.9%, to 142.8 million francs. Larger watch industry articles (clocks and clock components) fared slightly better than average with +11.0%, at 76.1 million. Exports of cases and replacement parts declined however by 13.2% and 3.7% respectively.

Markets
During the year 2005, the 15 main markets showed the following trend (total value in million francs and % variation by comparison with 2004):
The leading 10 markets for the Swiss watch industry registered two-digit growth in December, indeed the figure was greater than 50% for Singapore and China. Over the year as a whole, the United States achieved a remarkable performance, despite a very unfavourable base effect. Hong Kong slowed its pace, while Japan continued its forward momentum.
Europe (4.1 billion, +8.1%) ended the year with a very satisfactory record. Its main markets, namely Italy, France, Germany, the United Kingdom and Spain performed well for Swiss watch manufacturers.
China moved confidently into tenth place by achieving one of the highest rates of growth. Russia, also a promising market, recorded a slower rate of growth. Although smaller, Australia, Mexico, Austria, Turkey and South Korea are situated above the average.

Scope in India, a growing economy
India is one of the fastest growing economies of the world and one among the BRIC countries (Brazil, Russia, India, China), referred to as the emerging superpowers of the future. According to the Asian Development Bank, that out of the 20 future mega-cities of Asia, six will be from India. The Far Eastern Economic Review forecasts that out of the 11 mega-cities of the world, three will be from India. Economists believe that India has reached a point where a 7.0 per cent GDP growth has become the base. In 2006, the GDP can continue to grow at around 7.0 per cent without the aide of any significant reform initiatives
The consuming middle class is estimated to be around 300 million and foreign exchange reserves have crossed the $100 billion mark. India has consolidated its position as the world's fourth largest economy in purchasing power parity behind the US, China and Japan. It is also estimated that by 2033, the active age group 25-45 years is expected to be around one third of the population. Over one million households earn the equivalent of $60,000 (in terms of purchasing power parity) annually.

Indian Watch Market
Following the liberalized export-import policies announced by the Indian Government, many international brands, especially the Swiss ones, have become eager to grasp the plethora of opportunities afforded - some have already made inroads into the market.
Amongst the Swiss and other brands, which are already present in India, include the Swatch Group (Omega, Rado, Tissot, Swatch, Balmain, Blancpain). LVMH Group's TAG Heuer and Dior are present whereas Zenith will be launching in 2006. The other brands are Piaget, Chopard, Vacheron Constantin, Corum, Baume & Mercier, Panerai, Maurice Lacroix, Cartier, Rolex, Titoni, Raymond Weil, Bucherer, Gucci, Esprit, Carerra, Breitling, Movado, Ebel, Giordano, Triumph, Beverley Hills Polo, Romanson, Chanel, Van Cleef & Arpels, Montblanc, Dunhill, Jaeger- LeCoultre, Bovet, Follie Follie amongst others. All the brands mentioned above are imported directly into India from abroad. Most of the Switch watch makers are busy stepping up their retail facilities by opening new outlets.
The overall size of the Indian watch market is estimated to be around 40-45 million wristwatches with a double-digit annual growth of around 10 percent.. However, the 'organized' segment accounts for 33 percent and the grey market the rest! It is estimated that 20-25 watches are sold for every 1,000 citizens. More than 90 percent of the watches sold in the country cost less than 20 euros. The major chunk of potential buyers for watches priced between 800-1,000 Euros could come from 100 million people (9.0 percent of the population) in the country. For watches priced at 2,000 euros onwards, 7 million Indians (0.5 per cent of the population) could be targeted. The annual market size of the Indian watch market is estimated to be around US$ 195 million. The estimated demand for 2006-07 is as high as 70 million. The fact remains that India's penetration of watches is amongst the lowest in the world.