Swatch Armenian

Global Sourcing Strategy

Presentation by: Jake Goshert,

Elizabeth Hogan,

Karine Joseph,

& Josephine Michelle Wong

July 20, 2006

The Swatch Group

Formed in 1983 with the merger of SSIH and ASUAG becoming Societe Micromecanique et Horogere (SMH)

Introduction of the Swatch [Swiss + watch] watch in 1983

Huge success

SMH renamed The Swatch Group in 1998

The Swatch Group Brands

SOURCE: www.swatchgroup.com

Brand Distribution

High EndBreguet · Blancpain · Glashutte-Original

Mass Market

Swatch · Flick Flack

Mid Range

Tissot·Ck Calvin Klein·Certina·Mido· Hamilton· Pierre Balmain

Luxury

Leon Hatot · Jaquet-Droz · Omega · Longines · Rado · Union

SOURCE: www.swatchgroup.com

History

Traditionally a highly skilled industry

A watch was a lifetime investment, handed down through generations

Changed with

• Introduction of the Timex

• Invention of quartz analogue watches

Swiss watch industry synonymous with quality

Jura Mountains’ Watchmaking Centers

Swiss Watch Industry

Dominant until late 1800sExtremely fragmented and dispersed 1920s Consolidation into the Federation of the Swiss Watch Industry (FH), Ebauches SA and Group des Branches Annexes de l’Horlogerie (UBAH)Further consolidation into two groups; • 1931 ASUAG • 1981 Societe Suisse pour L’Industrie Horlogere

(SSIH)In near bankruptcy, bought and combined by Nicolas Hayek to form SMH i.e. Swatch in 1983

Swatch’s SuccessesInexpensiveGood QualityWater and shock resistant1 year guaranteeLowered cost substantially by reducing number of individual parts required. • In 1985, 130 people needed to assemble 8 million

Swatch models vs. 350 people required to assemble 700,000 Omega watches

Marketing• Lifestyle symbol and fashion accessory• Trendy and colorful designs for every occasion

Current Position

Swiss market concentrated in the high end and luxury pieces (1997)• 7% of market in terms of finished pieces• 51% of market in terms of value

Competition from cheaper manufacturing in Asia push to reduce costs• Apart from Swatch, every competitor had

established manufacturing plants in Asia

Issues

Difficulty establishing a foothold in the US• Timex, Casio, Seiko, Citizen

Swatch sales plateaued• Increased competition from Fossil and Guess

Marketing• Too large a range and product mix• Swatch wearers grow up!

Cost• Very difficult to reduce cost domestically

Swiss Brands

PIAGETΩ

OMEGA

ROLEX

MOVADO

US Brands

BulovaHAMILTON

http://www.timex.com/index.html

Japanese Brands

CASIO Worldwide

CITIZEN

http://www.casio.com/home/

World Map

United StatesSwitzerlan

d

India

Japan

9,631,420 sq km41,290 sq

km

3,287,590 sq km

377,835 sq km

SOURCE: Encarta.MSN.com

Populations (July 2006 est.)

United States298,444,215

Switzerland

7,523,934

India1,095,351,9

95

Japan127,463,61

1

SOURCE: The World Factbook

Exchange Rates as of 07/20/2006

USD-JPY 116.8630

USD-INR 46.7870

USD-CHF 1.2445

SOURCE: www.bloomberg.com S

Natural Resources – United States

Copper Gold

IronNatural gas

Timber

Coal

Petroleum


Natural Resources – Switzerland

Hydropower potential Timber

Salt


Natural Resources – Japan

Fish


Natural Resources – India

Coal

Iron Ore

Natural Gas

Diamonds

Petroleum


GDP in USD (2005 est.)

$12,360,000,000,000

$241,800,000,000

$4,018,000,000,000

$3,611,000,000,000

United States

Switzerland

Japan

India

United States

Japan

India


GDP – Per Capita in USD (2005 est.)

$41,800$32,300 $31,500

$3,300

UnitedStates

Switzerland Japan IndiaUnited States

Switzerland Japan India

SOURCE: The World FactBook

Languages

United States

English 82.1%Spanish 10.7%Other Indo-European

3.8%Asian & Pacific island

2.7%Other 0.7%

Japan

Japanese

India

English, associate status

Hindi 30.0%BengaliTeluguMarathiTamilUrduGujartiMalayalamKannadaOriyaPunjabi

Switzerland

German 63.7%French 20.4%Italian 6.5%Serbo-Croatian 1.5%Albanian 1.3%Portugese 1.2%Spanish 1.1%English 1%Romansch 0.5%Other 2.8%


India, 496,400,000

United States, 144,315,935

Japan, 66,400,000

Switzerland, 3,800,000

Labor Force (2005 est.)

*includes unemployed


GDP – Real Growth Rate (2005 est.)

3.50%

1.80%

2.70%

7.60%


Main Watch Exporting Countries 2005Countries Units in

MillionsChange in %

China 884.6 -15%

Hong Kong 627.3 -15%

Switzerland 24.3 -3%

Germany 10.8 +2%

USA 10.7 -7%

UK 7/7 +86%

France 6.3 +5%

International Value Chain

Companies can find value by breaking apart their value chains• Companies’ individual competitive

advantages• Host countries’ absolute advantages

Global Sourcing Strategy

Identify segments of value chain• Design, movement, case, battery, assembly,

market distribution

Identify company’s competitive advantages

Quantify transaction costs

Identify country advantages

Be flexible

Internal vs. External Sourcing

Intra-firm sourcing– Domestic

• Domestic in house sourcing

– Abroad• Offshore subsidiary

sourcing

Outsourcing– Domestic

• Domestic purchase agreement

– Abroad• Offshore off-sourcing

Pros to Partnering Internationally

Access to markets with limited investments

Increased knowledge of foreign market and culture

Speed of entry

Access to technical knowledge or skill

Cost-cutting through synergies or lower costs

Cons to Collaboration

Synergies can be difficult to manage across bordersObtaining information about partnering company is more difficultGovernment rules and regulations can challenge foreign ownership/investmentEmployees in home country could fear job lossesCulture clashesPossible loss of intellectual property

Sourcing OptionsMaintain Swatch’s current in-house Swiss operations• Facing rising costs• Loss of competitive pricing• Struggle to grow mass/middle market

segments

Sourcing Options

Focus on mid/mass market growth with Swiss operations• Swiss labor market offers no cost savings• Lower end of market has lower margins

Sourcing OptionsOutsource entire mid/mass market operations to Asia• Cost savings can boost margins• Gain access to mid/mass markets in Asia• Loose “Swiss-made” designation• Possible loss of quality control• Exposure to counterfeit operations• Alienate Swiss employees and customers

Sourcing OptionsEstablish joint venture with Asian partner, keeping part of production in Switzerland• Cost effective, partner can help Swatch gain

local access quickly• Maintains “Swiss-made” designation by

splitting value chain• Reduces control over quality, counterfeiting,

knowledge transfer• Increases coordination costs• Possible culture clash as Swiss may see

Asian peers as inferior

Sourcing OptionsEstablish subsidiary in Asia, while keeping part of production in Switzerland• Lowers production and coordination costs

while maintaining “Swiss-made” designation• Increases access to Asian markets• Can include R&D and marketing function to

keep tabs on customer demands and technology advancements

• Capital intensive at first• Management has no experience working with

cultural differences

Country Options

US Switzerland Japan India

Labor availability 3 3 3 3

Labor quality/knowledge 3 3 3 2

Watchmaking skill centers 2 3 2 2

Labor costs 1 1 1 3

Common language usage 3 3 1 3

Natural resources availability 3 2 1 3

Government/cultural barriers 2 3 2 2

Home market growing 2 1 2 3

Easy access to other good markets 1 1 2 3

Existance of local competition 1 2 1 3

Available land/space 3 1 1 3

Currency risk 2 3 2 1

TOTALS 26 26 21 31

India’s Comparative Advantage

Technical “knowledge center” focused on watch industry

Cost-effective, trained labor force

Natural resource accessibility

Growing Indian economy and market

Geographical proximity to other Asian markets

Government liberalization

Methods of EntryLicensing• No protection of “Swiss-made” designation• Possible loss of intellectual property

Joint-venture• Will face perceived quality disparity

Direct investment• Riskiest, but greatest span of control• Will include steep learning curve• Purchase of existing property less costly

Implementation

Cultural issues• Alienation of Swiss workers• Acclimation of local and ex-pats to

collaboration• Possible product adjustments to local tastes

Implementation

Finding a seller• Cost/financing• Securing propriety information• Does Swatch know what it is buying?

Implementation

Future concerns• Building a distribution network• Poached local employees

Questions and Answers

Swatch Armenian

Documents

Transcript of Swatch Armenian