International Competitiveness

Product Chosen: Swiss Watch

Introduction: Switzerland officially the Swiss Confederation, is a country of

roughly 7.6 million people with an area of 41,285 km². Switzerland consists of 26 states
called cantons. Berne is the seat of the federal authorities, while the country's economic
centers are its three global cities, Geneva, Basel and especially Zürich.
Switzerland is one of the richest countries in the world by per capita gross domestic
product. Zürich and Geneva have respectively been ranked as having the first and second
highest quality of life in the world.

Country Overview
• Full name: Swiss Confederation
• Population: 7.4 million (UN, 2007)
• Capital: Bern
• Major religion: Christianity
• Life expectancy: 79 years (men), 84 years (women) (UN)
• Monetary unit: Swiss Franc
• Main exports: Machinery and electronics, chemicals, precision instruments,
watches
• National languages: German (63.7 per cent), French (20.4 per cent), Italian (6.5
per cent), Romansh (0.5 per cent)

Economical Condition: Currently the following sectors are contributing

in Swiss economy

1. Manufacturing
2. Engineering
3. Pharmaceuticals and Chemicals

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 4. Watches
5. Labor Force

 GNI per capita: US $59,880 (World Bank, 2007)

 GDP: $367.6 billion (2005) or SFr455.6 billion
GDP per person: $49,012 (2005) or SFr60,746

Government and Politics: Switzerland’s political structures can be traced

to the first federal constitution of 1848.But the roots go back even further to 1291 when,
according to legend, peasants in central Switzerland pledged to form an everlasting
alliance bringing together Uri, Schwyz and Unterwalden, the first three cantons.
Historians see the Swiss defeat in the 1515 Battle of Marignano in northern Italy as the
culmination of Swiss territorial aspirations, if not achievements. This period marks the
beginning of de facto Swiss neutrality, which was subsequently underwritten by the great
powers at the Congress of Vienna in 1815. Reformation and Counter-Reformation had
before then swept across the country, ultimately leading to a brief civil war in 1847.

That conflict between the seven conservative Catholic cantons and the dozen or so liberal
Protestant cantons included urban areas and those where the Napoleonic occupation at the
beginning of the 19th century had triggered democratic reforms.

Country’s Infrastructure: Switzerland is one of the world's most

attractive locations for creating and developing a business, providing a liberal and
extremely competitive environment. Proof of this is the fact that Switzerland always
scores high when countries are ranked according to their economic appeal.

Here are the main reasons and the scopes of competitive advantage

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a) Location, communications and infrastructures: Switzerland is
located at the heart of Europe. It is a vital communications hub for industrial Europe with
a modern and extremely reliable infrastructure. Switzerland is one of the front runners in
terms of new technology and, despite everything; the realty prices remain relatively
competitive.

b) A very buoyant and competitive economic environment:

Overall, the Swiss economy is highly successful, providing your business with an
extremely stimulating growth environment. Switzerland's economy is very open onto the
world, giving the country valued experience in international business transactions. Your
business will also benefit from one of the most effective banking systems, founded on a
strong currency and relatively low interest rates.

c) By setting up business in Switzerland, investor will find a

labor market featuring the following advantages:

• Reasonable level of salaries and moderate social security taxes

• Multilingual employees who are comfortable in a multicultural environment

d) Outstanding training system: The Swiss economy specializes in products

with high added value. Swiss know-how is handed down to new generations by renowned
specialists working within an impressive education system.

• Brainpower: the basic Swiss material

• Excellent education system
• The greatest number of Nobel Prize winners per capita

The Swiss Luxury Watch making Industry

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Industry History Overview: The watch and clock industry, Switzerland's
third largest exporter after the machine and chemical industries, has only one market: The
World. Swiss made timepieces are to be found in all the countries of the globe. And, what
is no less surprising, to suit all pockets, or almost so : from quartz fashion watches for a
modest price to mechanical masterpieces, made of gold and decorated with precious
stones, costing several million francs. It is this wide variety and its worldwide vocation
which together have ensured the survival of the industry over the course of centuries.

The Swiss watch making industry is concentrated in western Switzerland, in the arc
formed by the Jura Mountains which stretch from Geneva in the south to Basel in the
north, an area which the tourism authorities have named Watch Valley.

We can categorize this industry in these different phases which are combination of both
location and other factors:

a) In Geneva: Clock and watch making first appeared in Geneva in the middle of
the 16th century. In 1541, reforms implemented by Jean Calvin which a ban on wearing
jewels, forced the goldsmiths and other jewellers to turn into a new, independent craft:
watch making.

Furthermore, Calvin himself was a stickler for timekeeping, and in 1541 issued an edict
imposing fines on anyone who turned up late for church - or left early. In 1561 clocks
were installed at a number of strategic points in the city, so that no-one should have an
excuse for not being punctual.

By the end of the century, Geneva watches were already reputed for their high quality,
and watchmakers created in 1601 the Watchmakers' Guild of Geneva.

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Watch making their received a further boost in 1685, when Louis XIV of France revoked
the Edict of Nantes, thereby severely restricting the freedoms of French Protestants.
Thousands of them left the country, and many settled in the nearby Protestant stronghold

Of Geneva, bringing their skills with them, including watch and clock making - a craft
which was just entering a new stage of development.

Among the watch making families of Geneva were the great-grandfather, grandfather and
father of the enlightenment philosopher Jean-Jacques Rousseau, who were descended
from French Protestant refugees.

b) Home working in the Vallée de Joux: From Geneva watch making

spread north and east. The first watch making workshop was established in the Vallée de
Joux in 1740.
This area, situated at about 1000 meters (3,300 ft) above sea level, was largely cut off
from the rest of the world in the winter time, and watch making provided a source of
income to farmers when there was little or nothing to do in the fields.
In the days before industrialization, home working was a well-established practice.
Textiles in particular were manufactured in this way. Agents would bring raw materials
to workers in their own homes, and collect the finished products. It was just the same
with watch making, and since the raw materials and finished product were of small size,
easily transportable and highly profitable, it quickly replaced lace making, the previous
mainstay of the long winters.

c) Machine tools: Not only watch making, but a number of machine-tool factories
for the industry provided work in Watch Valley - and still do.
As is typical of the Swiss engineering industry, some of these factories are world leaders
in the production of niche products. Vallorbe prides itself on being the world capital of

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precision files; Moutier for cam-controlled automatic screw-cutting lathes with adjustable
headstocks, which revolutionized watch making in the 1880s.

d) Structures: Historically, the Swiss watch and clock industry has always had a
specialized horizontal structure in which suppliers, craftsmen and sub-contractors supply
movements and external parts to assemblers called "établisseurs", who put the final
product together. However, to a lesser extent, the industry has also developed a vertically
integrated structure in which watches and clocks are sometimes made entirely by the
same company, in this case called a "manufacture".

During the 1970s and early 1980s, technological upheavals (appearance of the quartz
technology) and the difficult economic situation resulted in a reduction in the size of the
industry: the number of employees fell from some 90,000 in 1970 to a little over 30,000
in 1984, a figure which has remained stable over the last thirteen years (40,000
employees in 2004) while the number of companies decreased from about 1,600 in 1970
to about 600 now.

The average number of employees per company has remained constant, at just under 70
people per company in 2004, as in 1970. The great majority of watch companies are
small sized companies (employing less than 100 people) while a very little number (less
than 10) are each employing over 500 people.

e) Products: One of the great strengths of the Swiss watch and clock industry, by
comparison with its foreign competitors, is its ability to offer the consumer a genuinely
comprehensive choice of products.

f) Markets and Competition: While the Swiss watch industry is present all
over the world (it exports nearly 95% of its production), it does not carry equal weight
everywhere. Asia and Oceania take 44% of Swiss watch exports in value, Europe 34%,
Americas 21% and Africa 1%.and the top fifteen countries represent over 82 % of these
exports.

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With their worldwide reputation for quality and styling, Swiss watches are not however
the only ones to compete for the favours of customers. They have many competitors in
the markets, the most serious of these being the Japanese and Hong Kong producers.

A watch contains a large number of parts, which also have to be manufactured. The Ajoie
area around Porrentruy, towards the northern end of the watch making area, specialized
in making the jewels which act as ball-bearings. This very complex process was spread
over a number of different specialized workshops, culminating in the drilling.

With few exceptions, this remained in the hands of small home workers until the advent
of laser drilling in the 1970s, which put an end to the industry.

Exporting Review: About 95% of Switzerland's watch production is exported, and in

terms of value it is the world's biggest watch exporter: the total value of Swiss watch
exports in 2006 was 13.7 billion francs. This reflects the fact that expensive luxury
watches represent a large proportion of Swiss production in comparison with other major
exporting countries. Not surprisingly, in terms of the number of watches exported,
Switzerland (24.9 million in 2006) lags far behind China, with 691.6 million, or even
Hong Kong, with 521.1 million.

The average export price of a Chinese watch in 2006 was one dollar, while in Hong Kong
it was eight dollars. Switzerland stands at the other extreme, with an average of 410
dollars, the highest in the world.

The market for Swiss watches is concentrated in three continents. The two biggest
customers are the US and Hong Kong. (Hong Kong is a major hub: many of its imports
are re-exported). Italy, Germany and France are the leading customers in Europe.

Switzerland owes it success not only to the high-quality of its output, but also to the wide
range of the watches it produces, in terms of both technology and appearance. Nearly
90% of the watches made in Switzerland are electronic, but mechanical watches, the

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remaining 10%, account for over half the exports in terms of value. Some of the watches
at the upper price range are among the most complex in the world.

As for appearance, this ranges from sober classic, through diamond-studded, to cheap and
cheerful.

Key points of Swiss industry history:

• For missing out this electrical revolution and for facing tough competition from
Japanese watches on 1970, 1000 companies and 55000 place of work disappeare
• Currently watch industry is Switzerland’s third largest exporter after the machine
and the chemical industry
• The average export price for Swiss watches is much more higher than other
countries such as Hong Kong, France or French watches
• Export of watches including precious metal represents only 5% in units, but 46%
in value.
Here we have distinguished four different segments which are exclusive luxury,
accessible luxury, mid price and low price. Any time this report refers to “luxury watch
industry”, it includes both the exclusive and the accessible luxury segment.

According to a number of economic analysts, the Swiss watch industry was moribund in
the middle of the 1970s, having missed out the electronic revolution and being strongly
affected by the economic crisis.

Having successfully completed its structural recon version, the watch industry is today, as
it was yesterday, one of the brightest stars in the Swiss economic firmament. Better still,
during the last five or six years, it has taken the leading position amongst the country's
most successful industries, breaking its own records in exporting each year and going
from 4.3 billion francs in 1986 to 13.7 billion in 2006.

Competitive Strategy

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Industry Structure: Swatch watch was originally intended to re-capture entry
level market share lost by Swiss manufacturers during the aggressive growth of Japanese
companies such as Seiko in the 1960s and 1970s, and to re-popularize analog watches at
the time when digital watches had achieved wide popularity. The launch of the new
Swatch brand in 1983 was marked by bold new styling and design. The quartz watch was
redesign for manufacturing efficiency and fewer parts. This combination of marketing
and manufacturing expertise restored Switzerland as the major player in the world
wristwatch market.

Primary reasons of getting competitiveness:

The primary reasons of the success of Swatch is the

A) Perfect marketing strategy of the company along with superior quality

B) The design of each and every watch they are launching. The company has different
variety of watch for different age of their target customer. And because of the quality of
the product, Swiss watch is no longer just a simple everyday watch but one of the hot
collectible items in the world.

C) They also make sure that they have series of watches for every season, every special
occasion and every event in the world.

D) The design of the watch is also remarkable, because of the talented designer the
company hired. A customer can choose from a variety of designs that fits his/ her moods
and even culture. That is the reason why Swatch watch is not only popular in the United
State but in the whole world. The artists are making sure that every design of every series
will meet the expectation of the customer.

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 Different brand of luxury watches and their positioning within the
industry

(Figure: shows a chart displaying the most important brands in the watch industry.
They are grouped into five different profiles resulting from their consumer image.)

The categories are the following:

• Connoisseurs/specialists
• Sport
• Fashion
• Lifestyle
• Jewellery

What is more, the chart is divided into four regions using three criteria: the price (low
price –accessible luxury – exclusive luxury), the type of movement (mechanical and
complication versus quartz) and the technology grade (technical content versus design
content).

The brands that will be studied in more details have the following positioning: Omega is
considered as a connoisseurs/specialist and lifestyle watch.

 Rolex is seen as a jewellery and lifestyle watch.

 Tag Heuer is positioned in the sport segment.

Figure: 1.0
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  Finally, Cartier is positioned in the jewellery segment.

Porter’s Five Forces to the Luxury Swiss watch Industry

Porter's 5 forces analysis is a framework for the industry analysis and business strategy
development developed by Michael E. Porter of Harvard Business School in 1979.

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It uses concepts developed in Industrial Organization (IO) economics to derive 5 forces
that determine the competitive intensity and therefore attractiveness of a market.
Attractiveness in this context refers to the overall industry profitability. An "unattractive"
industry is one where the combination of forces acts to drive down overall profitability.

From our analysis here is the detail of Porter’s Five Forces analysis on Luxury Swiss
Watch Industry:

1. Threat of new Entrants:

Outsiders Threats: At first, this improvement in the manufacture of machine

made watches in the 1860s did not threaten the Swiss. The Europeans did not believe that
anyone would want to buy a machine made watch, especially after the European failures
at such attempts in the 1830s and 1840s. This is a classic case of those inside an industry
not understanding the threat from outside entrants using new technologies. History would
repeat itself nearly a century later when the Swiss failed to realize the significance of
quartz technology. The impact to Swiss industry from the U.S. emergence was
staggering; exports dropped from a peak of 18.3 million francs in the 1860s to 4.8 million
francs in 1876, a decrease of 74%. In response the Swiss sent Eduard Favre-Perrot to the
U.S. to investigate this new technology4. Upon arriving in the U.S. Mr. Favre-Perrot
found low cost, easy to repair watches, with interchangeable parts. This was a major
shock to the Swiss who did not believe that watches could be anything but hand made,
much less have interchangeable parts. Having learned their lesson, the Swiss now set out
to modernize their factories and gain back market share with precision machining of their
own. Unfortunately for the Swiss, their timepieces now had a very bad reputation for
accuracy and quality in the U.S. marketplace. It would take many years for the Swiss to
gain back their good name in watch manufacture in the U.S. market. In order to penetrate
the U.S. market and confuse consumers of the Swiss origin, the Swiss used fake
American company names such as New York Central Watch, the Ohio Watch Co., and
the Pennsylvania Watch to sell their watches. This is a humorous anecdote when one

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considers the meaning of a "Swiss fake" was entirely different from what it means today.
The Dingley Tariff Act of 18885 was passed to create truth in origin labeling of watches
imported into the U.S. At the end of the century the Swiss were down but not out and
were working hard to improve the quality of their products.

Inside Threats: The world of luxury watch making possesses different barriers that
are not easy to over come. Those are:

Strong Capital Base: As the luxury market is totally focused on the upper class
group it needs a strong capital to start up the business. Without strong capital base a firm
which would like to like compete internally will loose its position in long run. In order to
spend in advertising and a new firm also needs to have a huge amount of budget because
already the Swiss luxury watch industry is constrained with various other firms.
Permanent financing needed for the normal operation of a business; that is, the long-term
and working capital should be also an amount focusing the long run business of a firm.

Also the firm which would like to enter newly in this luxurious watch industry needs to
focus on appraised investment in fixed assets and normal working capital like patents,
rights, and contracts.

So for a new firm which wants to compete here should be more careful before entering,
without strong capital base it will incur loss.

Create Brand Awareness: Most of the larger luxuries watch making

companies has recognized the value of brand recognition. It is not easy for a new
company which enters in a luxury watch industry to create brand. Brand recognition will

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help people lean toward the watch when given the choice between a new firm’s product
and one they have never heard of.

At the same time, though remember that competitors are also working on brand
recognition, which means their brand could be more recognizable. Continue to
differentiate and be sure to add value to product in order to get to the next stage is very
tough for a newly entered company in Swiss luxury industry.

Selective and Intensive distribution: A newly entered firm’s distribution

objectives will ultimately be highly related—some will enhance each other while others
will compete.

The extent to which a newly entered firm in luxury watch industry should seek narrow
(exclusive) vs. wide (intense) distribution depends on a number of factors. One issue is
the consumer’s likelihood of switching and willingness to search. For example, most

Consumers will switch soft drink brands rather than walking from a vending machine to a
convenience store several blocks away, so intensity of distribution is essential here.

An old firm is already having this facility of distribution but not a newly entered firm. In
fact, the established in Swiss luxurious watch industry these brands are already so famous
that they don’t represent a serious financial danger for the distributor. No matter what the
price and the design are, there is surely is a market for these brands that can already count
on years of marketing and communication of the brand name. What is more, the financial
capacity of leading groups in the luxury industry represents, psychologically, a non
negligible security

A strict distribution strategy and an increasingly closer partnership with the brand’s
retailers represent the main marketing priorities.
The brand is currently represented in 50 countries and two-thirds of sales are achieved by
its own sales teams and subsidiaries.

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2. Bargaining power of buyers: In the Swiss luxury watch industry,
even though companies tend to open more and more of their own point of sales (POS),
jewelers are still the main buyers. Luxury watches brands try to be present in top
jewellery stores in the best locations all over the world.

But on the other hand, top jewellers also need to present top brands in their stores.
Therefore, their bargaining power can be separated into two very distinct cases: the watch
brand is an established player in the industry or the watch brand is a new entrant, still
unknown by the final customer.

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Separately, thanks to growing popularity of Information Technology, getting on-line on
the Internet has become the next development stage for the watches and clock industry.

Cyber Shopping: On retailing, cyber shopping is rapidly becoming a vibrant business

concept. The forerunner is, of course, the US, where the backbone of the Internet is
located. Indeed, there are a growing number of timepiece retailers and dealers setting up
web pages not only for promotion and cataloguing, but also on-line sales. This facilitated
by the fact that timepiece sales in general do not involve much technical detail and bulky
delivery, making them suitable for sales in the cyber world. While some of the large
retailers have on-line sales for a period of time, a large number of smaller retailers and
Internet-based companies are catching up. Examples include Wristwatch.com, Adiva
Watch and AAA Watch Connection, and some timepiece chains like Swatch have also set
up their web pages to accept orders from consumers directly. Although on-line sales in
Europe are still some way behind the US, they are expected to surge rapidly. Swiss
watchmakers should take heed of the wider use of on-line sales in overseas markets. In all
likelihood, overseas buyers will continue to demand more and more from their suppliers
in terms of quick response and delivery.

This means that Swiss watch manufacturers will increasingly be required to handle more
orders of smaller quantities but wider varieties, along with shorter delivery lead times.
Increasingly, the Internet is also used by overseas buyers to search for sourcing
information, as it is considered as one of the cheapest and effective channels. In response,
many Swiss watchmakers have established their web sites for promotion purposes.
Moreover, some manufacturers and exported have placed their homepages at certain
portal sites, or have hyper-links with some popular hosts, in order to facilitate access by
potential buyers.

3. Threat of substitute products: In Porter's model, substitute products

refer to products in other industries. To the economist, a threat of substitutes exists when
a product's demand is affected by the price change of a substitute product. A product's

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price elasticity is affected by substitute products - as more substitutes become available,
the demand becomes more elastic since customers have more alternatives. A close
substitute product constrains the ability of firms in an industry to raise prices.
Nevertheless, counterfeit is a phenomenon that needs to be mentioned because it
represents a non negligible threat for the luxury watch industry. Secondly, in a larger
sense, other luxury products can also be considered as a substitute. These two elements
are succinctly presented hereafter.

A counterfeit watch is an illegal copy of an authentic watch bearing the name of its
brand. According to estimates by the Swiss Customs Service there are some 30 to 40
million counterfeit watches put into circulation each year. [For example, the number and
value of Customs’ seizures rose from CHF 400,000 and 18 seizures in 1995 to CHF10,
300,000 and 572 seizures in 2005. Counterfeits cause considerable losses to watch
making industry.

Trademark violations: Counterfeit watches are divided into two groups. The first
group comprises low-priced timekeeping imitations. A cheap counterfeit watch features
the name of a prestigious brand, but lacks its design and functions.

Trade-dress or Design Violations: The second group involves counterfeit watches

designed to resemble the original (a trade dress violation). Some high-priced counterfeit
watches are produced from better materials and have golden parts and leather straps.

Counterfeit Rolex watches

Rolex counterfeits are illegally manufactured replicas of Rolex watches. Like many
high-priced, luxury brand-name watches (Cartier, Bvlgari); Rolex watches are frequently
counterfeited and illegally sold on the street and the Internet. These counterfeits are
mainly produced in Asia (EU figures show that 54% of fakes seized in 2004 originated in
China),[and retail anywhere from $5 upwards to $1,000, the latter for high-end replicas
with portions fabricated from solid karat gold [although most gold Rolex fakes will
utilize gold electroplating]. Such watches have been nicknamed "Foolex," "Frolex" or

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"Fauxlex.[The fake Rolex trade, in fact, has become segmented and sophisticatedly
marketed replete with glossy, full-color brochures and catalogues of counterfeited wares
produced in China and offered for sale to retail vendors throughout Asia.

4. Intensity of rivalry among existing competitors:

The Competitors of Swiss watch industries are:

• Audemarspiguet
• Breguet
• Bulgari
• Cartier
• Eterna
• Gucci
• Longines
• Mondaine
• Mont Blanc
• Movado
• Omega
• Oris
• Patek Philippe
• Piaget
• Porsche Design

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 • Rado
• Raymond Weil
• Revue Thommen
• Rolex
• Swatch Group
• Tag Heuer
• Tissot
• Wester
• Romanson

We have categorized the intensity of rivalry into these categories:

a) The structure of competition - for example, rivalry is more intense where there
are many small or equally sized competitors; rivalry is less when an industry has a clear
market leader.

In Swiss luxury watch market rivalry is more intense because there are leading players in
the Switch watch industry such as Rolex, Omega, Tag Hewer, Park Philippe, Tissot,
Westar, Romanson, Parmigiani, Schwarz Etienne etc.

b) The structure of industry costs - for example, industries with high fixed costs
encourage competitors to fill unused capacity by price cutting.

Swiss luxurious watch industry has a high fixed cost as we have discussed earlier and this
encourage competitors to fill unused capacity by price cutting.

c) Switching costs - Rivalry is reduced where buyers have high switching costs - i.e.
there is a significant cost associated with the decision to buy a product from an
alternative supplier.

In case of luxurious Swiss watch industry the switching costs are high.

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d) Strategic objectives- when competitors are pursuing aggressive growth strategies,
rivalry is more intense. Where competitors are "milking" profits in a mature industry, the
degree of rivalry is less.

The competitors of Swiss luxury watches are pursuing aggressive growth strategies so the
rivalry is high.

e) Exit barriers - when barriers to leaving an industry are high (e.g. the cost of
closing down factories) - then competitors tend to exhibit greater rivalry.

Because of high investment in luxury watch industries barrier to leaving industry is high
and it causes greater rivalry.

Porter’s Diamond Model of Swiss Watch Industry:

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The Diamond model of Michael Porter for the Competitive Advantage of Nations offers a
model that can help understand the competitive position of a nation in global competition.

From our learning here we are discussing this model in term of Swiss watch industry.

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 Factor Conditions

1. Quality: The quality of Swiss watch is belongs to the highest class. "Swiss made"
embodies a concept of quality that has been forged over the years. It includes the
technical quality of watches (accuracy, reliability, water-resistance and shock-resistance),
as well as their aesthetic quality (elegance and originality of design). It covers both
traditional manufacturing and new technologies (micro-electronics).

The Swiss are not the only watchmakers to manufacture high-quality timepieces and are
consequently faced with strong competition. However, thanks to their unique
infrastructure and to their know-how and spirit of innovation, they have succeeded in
maintaining their leading position.

2. Physical Resources: Switzerland's mineral resources are limited. There are small
iron and manganese deposits in the Jura but no known deposits of coal. A variety of
materials is worthy of commercial exploitation. Among them are lime, salt, sand, gravel,
clay, and marble.

3. Knowledge Resources: For several hundred years, Switzerland dominated the

watch making industry. Swiss watches were the epitome of style, status and reliability.
The mechanical engineering and precision of the Swiss watch was unrivalled anywhere in
the world. The specialized knowledge on making watch of Swiss people is really
praiseworthy.

4. Capital Resources:
a) Amount of capital: The amount of capital is not becoming a minor factors for
globalization. Besides Swiss Bank is there for giving support to new investors who likes
to invest in this sector of luxury watch industry.

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b) Cost of capital: Even the foreign banks did not have a new capital import which
would be extremely undesirable from point of view of currency policy but oppositely
they transferred inland money abroad.

At the same time Swiss Bank hope to profit from the possibilities Switzerland offers as a
capital collections center and specially to obtain direct access to the money which always
flows from foreign countries like Switzerland.

5. Infrastructure of Switzerland: Geneva offers all the advantages of a small

metropolitan area with the benefits of the top-quality facilities and services normally
found in much larger places - an infrastructure that is among the most extensive and
efficient in Europe.
The city provides the largest hotel and catering capacity in Switzerland, with over 14,000
beds and 1,100 restaurants. Hotels range from five-star luxury establishments to tourist-
style accommodations. All are well managed, combine modern efficiency with old-world
charm, and have multilingual staff offering the time-honored Swiss tradition of
personalized service. Most are equipped for conferences and banquets.

A comprehensive network of air, rail and road services links the city to the world, and
guarantees that goods - and people - can get to and from other places fast.

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Airport:
Geneva's International Airport handles 6,000,000 passengers and nearly 150,000 flights a
year, with 40 carriers providing direct links to continental and intercontinental
destinations. Paris, London, Frankfurt, Munich, Vienna, Milan, Rome and Barcelona are
not much more than an hour's flight away.

The airport, 3 miles from downtown Geneva, has its own rail station - a short walk from
plane to train - and the center of the city is only six minutes away by train.

Geneva has one of the fastest baggage collection times in Europe, and, with more than 50
shops, offers an extensive selection of duty-free and other goods.
The Skycom Business Center provides full working facilities and communications links
for international travelers.

The World Trade Center and Palexpo exhibition hall are only a short walk away.

Road and rail links:

Excellent road and rail facilities provide rapid access between Geneva and the rest of
Europe.

New road-building in Switzerland and in neighboring countries has turned Geneva into a
highway intersection for Europe, at the crossroads of the major highway systems linking
France and Italy, Germany and Spain.

Geneva's size and own smooth-running road system mean that the average commuting
times between home, office, city center and airport are the shortest of any of the major
cities in Europe. It is just a 15-minute drive between the center of the city and the airport.
More than 200 trains a day pass through Geneva, including the high-speed TGV to Paris
and the Pendulant to Milan.

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Fast, comfortable 'intercity' trains link both the airport and the city center directly to all
Switzerland's main towns and cities. Many international routes pass through Geneva to
provide convenient connections with other major cities in France, Italy, Spain and
Germany. Paris is only 3 ½ hours away by the TGV. A round trip to Milan can be
accomplished by train in a day.

Conferences and congresses:

Geneva ranks third in the world for the number of annual congresses, meetings and fairs
held there - testimony to its ideal location, excellent environment, stability, security and
reliability, superb meeting facilities and accommodations. The city hosts many major
exhibitions and conferences - including the annual Auto Show (Europe's biggest),
Telecom, the largest event on the world's IT calendar, and the European Incentive &
Business Travel & Meetings Exhibition (E.I.B.T.M.) which attracts over 100 countries.
Geneva has developed a high-class infrastructure of exhibition and conference facilities,
catering to groups of 20 to 6,500 people. Palexpo offers 90,000 square meters (961,000
square feet) of space in seven halls, just a few minutes walk from the airport and rail
station, right off the highway and 15 minutes from the city center by car or bus. The
nearby Geneva Arena has a capacity of over 6,000. In downtown Geneva, the
International Congress Center can accommodate 1,800 people, and features ultra-modern
technical equipment.

Support services:

International companies need reliable support in their business operations, and, as a long-
standing center of international business and trade, Geneva provides an unrivaled
portfolio of top-class back-up services, thoroughly experienced in managing the demands
of multinational companies.

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They include:

• an elaborate and sophisticated banking system and infrastructure - with US banks

well represented - in asset management, international trading finance, commercial
credits and corporate financing
• a large network of specialized business lawyers, providing a full range of legal
and administrative services - including subsidiaries of several renowned US law
firms
• the world's major auditing and accounting firms, plus a myriad of smaller
fiduciaries and auditors, providing financial support services
• the leading international headhunter/recruitment firms and major advertising
agencies
• and a network of subcontractors geared to meeting the requirements of an
extremely quality-conscious industry.

Telecommunications:
Geneva is one of the most active sites in the world in the field of telecommunications -
ideal for companies needing a modern communications network with guaranteed
efficiency and reliability at competitive prices.

Via the World Partners network, the city is in touch with 90 percent of the world's top
2,500 multinational companies in 26 countries.

More than 25 operators provide a high quality of service, covering every corporate and
personal need from new phone installations, mobile communications, radio call pagers,
prepaid cards and intelligent networks, to private leased circuits, global virtual private
networks, videoconferencing, teleworking and teleteaching, microwave, packet
switching, ISDN, ATM networks, EDI, Internet and satellite links (PAMA, DAMA). All
equipment is state-of-the-art.

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Export environment:

The city provides an established and dynamic export environment - from export packing
to freight forwarding, and from documentation to banks and transport companies, all
geared to meeting the needs of companies doing business anywhere in the world.

Free Port

Geneva offers special facilities for the tax-free storage of goods in the heart of Europe.
The free port facilities - covering 140,000 square meters on the outskirts of the city, with
easy access by road and rail, and another 10,000 square meters at the international airport
can store any kind of goods, including cereals, wine, cars and, increasingly, diamonds,
precious metals, works of art and other commercial precious goods in totally secure
conditions and the ideal, controlled environment. Companies can rent just the floor space
they need for an average level of stock, plus additional warehousing for temporary
overflows - a combination that offers considerable cost savings. Offices can be rented on
the spot, next to the warehouse space. The free port takes care of everything: from
organizing and furnishing the space (special walls and doors, carpeting, lighting, etc.);
packing, cleaning, sorting, maintaining and labeling goods; stock management, and
weighing, shipping and customs formalities. The imported goods are physically stored in
the heart of Europe, yet companies pay VAT and customs duties on their imported goods
only when they leave the premises, not while they are being stored. This offers the
advantage of buying raw materials at the lowest price, without paying taxes on them.
Goods can be cleared through customs at the company's discretion, with preferential
customs duties on limited quantities. European Union companies enjoy particular
advantages: delivery to Geneva's free port (outside the EU) constitutes an export - a
necessary condition for VAT exemption or earlier refunding of the tax. Intra-union trade
can therefore transit through the free port and continue to benefit from the advantages of

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bonded storage, generally for up to three years. There are no restrictions on the
transfer/disposal of goods stored with extra-territorial status.

Demand Conditions

Segment Structure of home demand: The overall segment structure of Swiss

watch is divided into these groups:

 Sport
 Fashion
 Lifestyle
All Swiss watch companies make their products according to these categories to satisfy
the customer.

Sophisticated and Demanding Buyers: In 2004, Rolex attracted demanding

buyers with further development of its popular watch collection. These mechanical
watches epitomize watch making perfection as well as purism and timelessness of design.
Watches, clocks and alarm clocks manufactured in Switzerland bear the designation
"Swiss made" (or its abbreviation "Swiss") as well as the logo of the producer or
distributor. This label ("place of origin" in legal terms) enjoys a solid reputation
throughout the world.

The people of Switzerland is always looking and pressurize the companies to come up
with new designs and innovations.

Anticipatory Buyer Needs: When the famous Swiss companies figure that their
watch are doing very well in home country, this trend allow them to predict the world
demand and as a result they start to export the watches in various regions of the world.

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Size of home demand: Switzerland has approximately 7.4 million people. But the
Swiss watches are focusing on upper class and al though it is not a big size compared to
the entire population but still the demand of luxurious Swiss watch never declines in this
segment of market. It is because of the quality of Swiss watch, they are so sophisticated
that the smaller size of the market is paying high rate.

Rate of growth of home demand: The Swiss watch making industry, which
accounts for the bulk of global luxury watch sales, is expected to see its growth slow to
around 10 percent this year from 16 percent in 2007 and slip into low to mid-single-digit
territory in 2009.

Swiss watch export data have shown that demand for luxury watches has softened so far
in 2008 versus 2007, with exports rising 13 percent in the first eight months of the year
compared with 17 percent in the same period in 2007.

August's export data showed that demand for watches costing more than 3,000 Swiss
francs, or $2,757, rose 6.4 percent in terms of volume and 14.7 percent by value, while
demand for those costing less fell 3.4 percent in terms of volume.

Relating and supporting industries

Swiss watch has high Integration and Corporation within the industry and among related
industries as well.

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1. Close Relationship: All the famous Swiss companies have close relationship with
other supporting industries. This is because of sophisticated demand of the buyers.

2. Joint Innovation with suppliers: Swiss manufacturing companies sometimes

jointly innovate with their suppliers.

Models like Omega Seamaster, Speed Master etc are jointly innovated.

3. Sharing same technology: In an analog quartz watch, the heart of the watch is
the integrated circuit, made up of a large number of electronic components grouped
together on a base of only a few square millimeters. So manufacturers share the
technology and knowledge with the supporting industries.

Firm Strategy, Structure and Rivalry

Technology cycles in modern world are so short that there is simply no time to wait for
vital clusters to develop only due to market forces.

Swiss watch clusters both took centuries to grow into international size and fame.
Globalization and technological progress mean that no nation can wait for so long any
more.

For an industry like Swiss watch to flourish internationally, domestic rivalry is nearly
always necessary. It will not only increase the product quality but also a good

P a g e | 30
competition will ultimately benefit the domestic customer which will ultimately lead to
international competitiveness.

Sources for creating competitive advantage

New Technology: The mass production of watches began at the turn of the 20th
century, thanks to the researches and new technologies introduced by reputed
watchmakers such as Frédéric Ingold and Georges Léchot. The increase of the
productivity, the interchangeability of parts and the standardization progressively led the
Swiss watch industry to its world supremacy.

The end of World War I corresponds to the introduction of the wristwatch which soon
became very popular. Its traditional round shape was generally adopted in 1960. In 1926,
the first self-winding wristwatch was produced in Grenchen, the first electrical watches
being introduced later in 1952.

In 1967, the Centre Electronique Horloger (CEH) in Neuchâtel developed the world first
quartz wristwatch - the famous Beta 21. Since then, major technical developments
followed without interruption: LED and LCD displays, Swatch, quartz wristwatch
without battery, etc.

Since more than four centuries now, tradition, craftmanship, high technologies and
permanent innovation have allowed Swiss watch making industry to keep its leadership
in the world watch market.

Research and developments: The competitiveness of Switzerland is due to

the considerable investment into research. Switzerland spend on R & D on percentage
basis of their GDP. The Swiss National Science Foundation which was set up in 1952
supports scientific research at Swiss tertiary education institutions and independent
research institutes.

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Joint Activities: Switzerland is involved in multilateral cooperation in the field of
education with the OECD (Education Committee and CERI), the Council of Europe
(Education Committee) and UNESCO (Council of the International Bureau of
Education). These bodies are concerned with the formation of educational policy, as
consultants, analysts and developers. Swiss participation in international projects in the
framework of annual and medium-term planning depends on national needs, objectives
and priorities.

SWOT Analysis of the Swiss Watch Industry

Strengths:
1. Qualified market size
2. Committed local people accelerates home demand
3. Good Financial Resources giving backup to the industry
4. Good infrastructure necessary
5. Strong technological base comes from technological knowledge
6. Industry is able to crate good brand awareness throughout the entire world
7. Good Ambassador and events endorsement

Weakness:
1. Quality Consciousness-it is not always easy to catch the customer only focusing
on quality
2. Poor Money Management of overall industry like South Korean Chaebouls

Opportunities:

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 1. Swiss watch can enter in New market consisting of different segments
2. Product modification and new innovation will create another new opportunity for
the industry
3. Economy of scale is an another opportunity for Swiss watch industry to use
4. Change in government policy also can bring some new opportunities for Swiss
Watch Industry

Threats:
1. Fierce competition might bring unhealthy competition among the existing
competitors of Swiss Watch, as a result other companies might get the chance to
capture market share

2. Global and government legislation is an another threat

3. Geographical limitation is an another problem for Swiss watch industry, as a

result this industry can not create new market

4. Technical obsolescence is an another problem and threat for Swiss Watch

Industry

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 PEST Analysis of the Swiss Watch Industry

Political Environment:
Switzerland has a stable government and a diverse society. Quadrennial national elections
typically produce only marginal changes in party representation. In recent years,
Switzerland has seen a gradual shift in the party landscape. The rightist Swiss People's
Party (SVP), traditionally the junior partner in the four-party coalition government, has
almost tripled its share of the popular vote from 11% in 1987 to 22.5% in 1999, to 26.6%
in 2003, and finally to 29% in October 2007, thus overtaking its three major rivals.

Extremists: `Political extremism is not a widespread phenomenon in Switzerland,

although far-right extremism has increased slightly since the turn of the century: the
Swiss federal police counted 111 right extremist incidents in 2005, estimating that the
number of members of the "right extremist scene" grew by 20% to some 1,200 (including
loosely associated sympathisants reaching some 2,000, or 0.03% of the total population)
in 2005. The emergence of the völkisch Partei National Orientierter Schweizer in 2000
has resulted in improved organization of the far right, but it has no noticeable impact on
parliamentary or direct democracy. Far-right activists briefly won the attention of
mainstream media for disrupting the 2005 celebration of the Swiss national holiday on

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the Rütli Meadow. Conversely, far left activism has shown a slight decrease, although an
increasing tendency towards violence was observed. The federal police further recognizes
some activity by extremist Islamist groups as well as extremist or violent ethnic
Albanian, Turkish Kurdish and Tamil groups which mostly remain under-cover and aim
at funding their activities abroad

Economical Environment:

Despite a dearth of natural resources, the Swiss economy is among the world's most
advanced and prosperous. Per capita income is virtually the highest in the world, as are
wages. Trade has been the key to prosperity in Switzerland. The country is dependent
upon export markets to generate income while dependent upon imports for raw materials
and to expand the range of goods and services available in the country. Switzerland has
liberal investment and trade policies, notwithstanding agriculture, and a conservative
fiscal policy. The Swiss legal system is highly developed, commercial law is well
defined, and solid laws and policies protect investments.

The Swiss franc is one of the world's soundest currencies, and the country is known for
its high standard of banking and financial services. Switzerland is a member of a number
of international economic organizations, including the World Trade Organization (WTO),
the International Monetary Fund, the World Bank, and the Organization for Economic
Cooperation and Development (OECD).

Socio-logical Environment: While taxes have traditionally been a major criterion

for establishing and investing in Switzerland, the relative importance of other factors is
becoming ever more preponderant. One of the main reasons Switzerland achieves such a
high score is the excellent quality of life, which was considered very attractive by 71% of
managers questioned. 75% of persons surveyed also mentioned Switzerland’s clear and
stable political, legislative and administrative environment as extremely attractive and
65% rated the stable social environment very highly. Other particularly strong features
include the flexible labor laws and the favorable tax environment or tax incentives, with
56% of those surveyed giving each of these factors the highest rating.

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Technological Environment:

The Swiss technological industry is highly automated. Each step requires sophisticated
capital machineries to operate the functions. Switzerland is very much developed in this
technological side along with R & D, the economy and the environment can adopt new
technology very soon. It is also helping the Swiss watch industry.

Sustaining Competitive Advantage

By simply creating competitive advantage on luxurious Swiss watch industry,
Switzerland will not be able to get the full potential of its economy. Switzerland has to
sustain this competitive advantage.

Here are some of the recommendations for sustaining competitive advantage:

1. Creation of flexibility and adaptability: Swiss watch companies needs to Create

flexibility and adaptability so that different watch products change with the customers.

2. Creates flexibility and alternatives in the sources and means of production: This is seen
in Nissan’s production structure. Examining Nissan’s operations in Japan, the US and
Mexico, we see it operating systems that rely heavily on robotics in Japan, moderately on
robotics in the US, and mainly labor in Mexico. Nissan gains the ability to shift
production based on factor costs while also maintaining knowledge of different
production systems.
Swiss watch companies should take this type of initiatives.

3. Maintain systems that monitor the environment for change

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4. Swiss watch companies need to develop internal systems that adapt to change quickly
and effectively

5.Swiss luxurious watch companies need to work at protecting, expanding, and building
upon the unique assets and strengths of the company

6. Emphasize on higher order advantage (Patent, Strong Brand Name) rather than lower
order advantage (cheap labor, cheap source of raw materials.

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 Recommendation and Conclusion

Recommendations

As the Swiss luxury watch industry is still using technological way to design their
product they are not upgraded on that extent. But in the mean time there are many others
country like Japan and Korea who are coming towards this segment and they can be a
threat to the competitive advantage of
Switzerland.

So we have made some

recommendation regarding their
improvement of technology, making
the labour more skill and maintain a
good relationship with the suppliers.
Besides Switzerland should focus on
higher order advantage.

 Implementation of modern manufacturing methods, i.e. design/ CAD, production

planning and control, quality management, world class manufacturing methods,
benchmarking and modern production technologies. For example Swiss watch
needs to receive information from the internet for the business class.
 Transforming Swiss luxury watch industry into a modern manufacturing
community will allow stopping the reduction of jobs due to delocalization of
production to European countries.
 Swiss luxury watch industry should introduce modern marketing methods, i.e. E-
commerce, desktop-publishing (brochures), lap-top based product presentations.
 Switzerland should go for extensive training in modern manufacturing on co
operation with Japan

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  Companies can invent watch with Bluetooth that can alert users by means of
vibrations and flashing lights that they have received a cell-phone call.

 Counterfeiting of product is one of the major problems In Switzerland. This can

impede the brand image of original product sometimes. So Swiss government and
the industry should take some steps to stop counterfeiting. For that they can go for
promoting of their product.

 They should improve in design, with combinations of precious and costume

watches and come up with new markets for pre-teens, children.

Conclusion

World of stylish and branded watch industry has got a status in every people’s mind. In
Switzerland these watch companies can make its competitiveness more relevant by
continuous upgradation.

As long as the exiting companies can continue to build awareness for their other brands,
expand internationally, and better manage product introduction in existing watch market,
they will continue to be number one. These processes will help Swiss luxury watch
industry to achieve competitive advantage and incarcerate a divergent place in the patrons
mind.

Bibliography
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1. http://www.fhs.ch

2. www.swissworld.org/en/switzerland/swiss_specials/

swiss_watches/the_swiss_watch_industry/
3. www.swisstime.ch/

4. http://google.com
5. http://www.europeanceo.com/news/home/commen

taries/article112.html
6. http://www.allbusiness.com/crime-law-

enforcement-corrections/criminal-
offenses/6315863-1.html
7. www.highbeam.com/doc/1P2-13262356.html

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