Swatch Strategic Analysis

The Swatch watch was basically launched to re-capture the entry level market share lost by Swiss Manufacturers during the explosive growth of Japanese watch companies, such as Seiko in the 1960s and 1970s, and also in order to re-popularize analogue watches in a time when digital watches had reached wide popularity. The first steps of the new Swatch brand in 1983 were marked by bold new styling and design. The quartz watch was redesigned for manufacturing efficiency and fewer parts. This combination of marketing and manufacturing expertise restored Switzerland as a major player in the world wristwatch market.

I-MACRO-ENVIRONMENT:

Technological :
The Swiss watch industry dealt with huge losses due to the use of old and outdated production processes whereas competitors incorporated latest technologies in their products. However, the CEO of ETA, Ernst Thomke, managed to turn things around by having the idea of bonding watch parts to the case which resulted in creating the world’s thinnest watch. This innovation helped swatch to regain technological edge over its competitors.

Threats:
Other manufacturers incorporated advanced technologies in their products whereas swiss watch manufacturers continued to use out-dated tech. Introduction of the electronic watch by other manufacturers.

Strengths:
Long history of high quality watches.
Delirium project provided innovations that leaded to swatch’s development. Reduction of production costs due to using molded cases.
Management team composed of talented and innovative members Innovative design and low-cost production

Weakness:
Poorly suited structure for absorbing new electronic technologies.

Economic :
The Swiss watch industry suffered from competition due to the arrival of Asians in the market. As a result, the Swiss watch industry had to adopt several changes in order to survive.

Opportunities:
Domination of segments based on older technologies.
Third world countries and newly industrialized nations offer unexplored markets. Extension of sales outside of the European market.

Threats:
Adverse dollar exchange rates caused Swiss watches to be more expensive in the United States. Increase in sales of electronic watches.
Massive loss of market shares to other watch manufacturers. Arrival of Asian manufacturers.

Weakness:
Declining financial reserves and risk of debt.

Social :
Due to the intense competition, the Swiss watch industry faced its misfortune which resulted in large scale layoffs and bankruptcies, job losses led to regional unemployment rates unknown in Switzerland since 1930.

Threats:
Large-scale layoffs and bankruptcies caused by the industry’s misfortune.

II- INDUSTRY ENVIRONMENT

Threat of new entrants :
High threat of Asian manufacturers entering the market due to rapid market growth and increasing demand, also, technological barriers might stop new companies from entering the market; however that is not the case for Asian companies since they have the required technology to enter the market.

Bargaining power of buyers :
Buyers have moderate bargaining power since there are a lot of brands to choose from, they are mainly composed of retailers and consumers.

Bargaining power of suppliers :
Suppliers have medium bargaining power because the customers (watch manufactures) have high negotiation power; therefore they are important to suppliers.

Rivalry among existing firms :
Rivalry among firms is high in the watch industry, because the market is rapidly growing demand is rapidly increasing and there isn’t much brand differentiation either. The watch industry attracts many new companies especially Asians, since they have low production costs. Also companies set attractive prices to their products while still keeping generous profit margins.

Pressure of substitute products :
The pressure of substitute products is moderate because it’s relatively easy and cheap to switch from brand to brand.

III MISSION AND GOALS

Mission :
Swatch’s mission is to offer high quality, fashionable, reliable and affordable watches. The company’ main target are people aged between 18 and 30 that favour high fashion accessories.

Goals :
The company’s main goal is to become a leading company in product innovation and to establish a strong brand image.

IV-BUSINESS UNIT STRATEGIES

The company’s strategy is to offer high quality products at competitive prices while maintaining a high profit margin, this strategy allows for spontaneous purchases. To achieve low production costs, production facilities are established in low cost countries such as China and India. Also, swatch products are sold through specialized shops and chic boutiques to convince the consumers that swatch product are high fashion accessories. Swatch products were also associated with a certain lifestyle which created a unique brand identity that distinguished it from other products on the market.

V- STRATEGY IMPLEMENTATION

The Swiss watch industry was characterized by a strong fragmentation, up to thirty independent companies were involved in the production of a single watch, and several craftsmen supplied different parts of the watch to an “etablisseur” who put the entire watch together. However, the difficult economic situation resulted in the reduction of the number of the industry: the number of companies decreased from 1600 to 600. However, after the success of the delirium project, the entire organizational structure was reworked in order to improve creativity and to encourage employees to express their ideas. Bureaucracy was reduced to a minimum and communications across hierarchical levels was improved.

VI- STRATEGIC CONTROL

In 1984, SMH had gross sales of 1,665 million SFR, this number increased to 2,146 million in 1989. There is also a drastic increase in operating costs in 1989, these went from 1,663 million in 1988 to 1.865, and this is due to recruiting more personnel in 1989 and buying more materials than usual, however, the net revenue increased greatly even with the increase of operating costs, this is due to an increase amount of sales over the years. The number of assets owned by the company also increased in order to face increasing demand. As for debts, short term debts decreased from 500 million SFR to 367 million while long term debts decreased from 898 million to 295 million. All of these numbers translate into one thing: The Company is doing better over the years, and that is due to better manufacturing procedures that reduced production costs and improved product quality.