Porter's 5 forces model

Porter's 5 forces is an important tool to understand the the $60 billion-a-year watch market and the competition.

The watchmaking industry is very secretive and the Swiss watch industry remains the number one even if the most watches are made in the Middle Empire.

Threat of New Entry:

The treat of new entrants in this maket is quite high.

For swiss-made watch, there are high cost entry and Swatch can increase them even more y cutting down watch part supply. But for watches made in China, costs are low. New rivals can easily produce their watches in low-labor-cost countries which means that they can easily produce and sell watch and make great margins. The design is easy to imitate as Ice Watch did with the Swatch watches. The only thing that can save the existing brands are brand equity and customer loyalty.

Threat of Substitution:

Nowadays, we can't live without our phone which is multitasking. We are constantly with our phone and looking at him. Mobile phone dependence is a reality, there is even a name for the phobia of being without a phone: Nomophobia. People do not really need a watch to have the time, a watch a now more associated with social status. Even if you don't need a watch, you need it to express your personnality, your social status; your success... A watch is also a fashion accessory. Watch have subsitutes in smartphones, MP3, tablets or any electronic device but watch are more than a giving time advice.

“People buy watches for a variety of very complicated emotional reasons, of which telling time is often just a precept or an alibi,” says Bill Geiser, a former executive at Fossil and currently the CEO of smartwatch startup Metawatch.“ (Quartz )

 

Buyer Power:

The number of groups and brands of watches is so huge that buyers have no power over watch manufacturers. consumers have different criteria when buying a swatch:

• price: from a $70 Swatch to a $50,000 Patek Philippe
• reputation
• quality
• longevity
• style: classic with leather bracelet or stainless-steel , original like the one in plastic or unique solid-gold watch ...
• Complication: few or no complication at all (annual calendar or a stopwatch, moon-phase indicator)
• options: water resistant, Swiss-made...

 

Competitve Rivalry:

Competition is fierce in this sector.

Swatch group, by owning a company named ETA, is the world largest manufacturer of watch movement and balance springs.

Watch movement is the internal mechanism of a watch and the Swatch group manufacture 70% of all the swiss watch movement sold to the world. Swatch group also control 90% of the market of balance spring, a watch component produce by its Nivarox FAR company. This situation of monopoly has been permitted by the government for years. But it is really a ideal situation for the group ? In fact no, Swatch Group is supplying his competitors with essential parts they can not manufacture by themselves. That is why Swatch is trying to stop its supply to other watchmakers, which will certainly increase the costs and cut down the margin of its competitors and even push some rivals out of business. The Swiss competition commission allowed Swatch to reduce its supply over the year, leading to supply storage and a huge change in the watch market.

                                                                                    Watch movement made by ETA

The three major groups in this market are Swatch Group, Richemont and Rolex with 43.1% of the world watch market.

Supplier Power:

For the Swiss-made watches, the major supplier of most watch manufacturers for some components are ETA and Nivarox, two units owned by the Swatch Group along with 156 production factories. Swatch has no problem of bargain with supplier as this group has done vertical integration and is the larger watch producer. For the other brands of swiss-made watches, the supplier power is very high and a huge amount of investment in R&D has been made to counter the strategy of the Swatch group.

So, Swatch is the supplier of the watch market for most of the brands of Swiss watch manufacturers. Given this fact, supplier of other parts of watches are no power.

But this is another story for the other watches. Indeed while a swiss watch price is around $600, a Chine one is only $2. In 2011, 1.2 billion watches were made worldwide when Switzerland made only 31 millions watches. Worldwide, suppliers are easy to find with very low cost product. In this case suppliers have few power.

Elodie Soudan

Source pictures:

http://online.wsj.com/news/articles/SB10001424127887323820304578410710485921932
http://www.swatchgroup.com/en/brands_and_companies/production/eta

http://www.wthejournal.com/en/pages/swiss-watch-industry-figures

Source:
http://swisswatchwire.com/2013/02/how-the-swatch-group-dominates-the-swiss-watch-industry.html
w.ijcm.org.in/article.asp?issn=0970 0218;year=2010;volume=35;issue=2;spage=339;epage=341;aulast=Dixit
http://www.gq.com/how-to/fashion/200704/gq-guide-buy-a-watch-slideshow#ixzz2lEeLZeOdh
http://www.wthejournal.com/en/pages/swiss-watch-industry-figures
http://qz.com/147199/apple-and-samsungs-smartwatches-are-going-to-be-way-too-cheap/