Strategic Management Case Analysis of the SWATCH

Ecole Nationale de Commerce et de Gestion - Settat

THE SWATCH Case analysis Nabil MAAROUF 2422 Finance2

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Overview of the situation of the Swiss watch industry before and after 1970 When you think perfume it’s French, when you think shoes it’s Italian, when you think cigars it’s Cuban, but when you think watches it’s certainly Swiss. Switzerland has always dominated the watch market especially the luxury segment. But what push the Swiss to restructure their industry is the middle segment with the apparition of new technologies of the electronic watch that costs less to produce. The Swiss market position changed dramatically with the apparition of many manufactures in the USA, Japan & Hong Kong that begin to gain share market especially with the electronic watch. 

1967: The Swiss were the first to introduce a model of an electronic watch but they dismiss this technology because all the industry were programmed on the mechanical model.

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1978: The begin of crisis in the Swiss watch industry causes by the competitiveness from the Far East.

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1980: The market share of the Swiss company fallen from 56% in 1952 to 20% in 1980.

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The Swiss dominated the watch segments based on older technologies, their market shares were lower for watches incorporating recently developed technologies, at the same time the electronic watch gained widespread acceptance, making the Far East leader in the electronic watches.

1. Macro environment analysis: 

Political-Legal: No information.

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Technological:

1. Threat: The Far East concurrency by developing their own technology in electronic watches that allows them to low the costs production with quality. 2. Threat: Investment of the Far East in research & development for electronic watches.

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Economic:

Threats: Adverse exchange relative to the US dollar made Swiss watches more expensive. 

Social:

Threats: Swiss is synonym of luxury & expensive product The industry structure & environment 

The Swiss watch industry is characterized by extreme degree of fragmentation. One single watch needs 30 companies. Structure of this industry:

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Highly fragmented.

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Highly specialized

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Large number of watches models.

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Highly dominated by engineers.

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Absence of the marketing department.

The 5 industry Forces: 

Threat of entry: High level of technology, Scale economies.

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Intensity of rivalry among existing competitors: The electronic watch produced in the US & Far East. ( Aggressivity of the market)

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Pressure of the Substitute product: With the development of the technology the time measurement is integrated to the communication system.

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Bargaining power of buyers: Customers are always claiming high quality& cheap watches.

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Bargaining power of suppliers: the swiss still leader in non assembles watch what make them still important in the market.

The mission, goals & objectives of the company: Our case it’s about ASUAG and SSIH too big company of watches in Swiss that suffer of the crises : they were create in 1931 in the first period of consolidation of

the industry of largest Switzerland corporation and was known for a long history of quality watch design and manufacture they both suffer of : Declining profitability Negative cash flow Poor liquidity Rising long term delt Demotivation of engineers Dismissals of personal 

The mission : becoming leader also in the middle segment

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Goals: restructure their industry; developing a new technology of electronic watches.

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Objectives: concentrate the production, motivate the staff, innovate and developing new process of production, developing the communication, new product with high quality and low price, investment in research and development .

The business unit & the functional strategies of the company The project delirium: 

Objectives : Step 1: boost the morale of employees Change the strategy of ETA Step 2: change the organizational culture and structure Encourage idea of employees Communication across departments Stress hierarchical levels Step 3: defining a revolutionary product in the medium and low price category Control 50% instead of 10 % of the market share Sales target: 10 million pieces in 3 years Control costs with high quality: shock water- resistant Step 4: developing marketing, built new marketing team.

Creation of the Swatch: The product: high quality, low price, fashion design, fully mounting automatic process The price: >50 dollars The promotion: massive advertising, no sales at drugstores but at chic boutiques and jewelry shops The

positioning:

associating

the

brand

name

with

positive

emotions

as

“fun”;”vacation”, high fashion accessory, for people between 18 and 30 , The strategy implementation: organizational structure & culture, Leadership & Power Characteristics: No marketing departments High levels of hierarchy Rigidity of the process of the fabrication Traditional perception of engineers that avoid innovation Industry dominated by engineers Style of leadership: Mr thomke was known to be autocratic : because he tooks very important decisions himself , and he had different vision than other engineers but he : Encourage innovation Develop a marketing team Consults professionals Reduce the hierarchical levels Encourage the employees to participate Strategy control After the creation of the Swatch Mr. thomke think of a possibility to develop a range of swatch accessory to associate the product at a life style and to create a brand identity => they have to control the risk of failed ( failure of the positioning and misunderstanding of the positioning by the consumers )

The watch market is still a market where grow competitiveness day by day : many producers propose product of high quality trendy design and low price => the control of the communication and the positioning still necessary . The ETA needs obligatory a department of economic intelligence to spy on the concurrency. Recommendation for future action -To look always for the concurrency to be aware of what is in the market. -To still encouraging the innovation and the research in new production technologies to control costs. - Develop the concept of the digital watch -Guard their brand recognition, enforce their name position and brand market. -Because of the fragility of the technological advantage in that market: the positioning of the brand of swatch should become a life style, fashion phenomena. -To reinforce the image of exclusivity madden by a historical success of Switzerland, madding it a must have like the famous knife. -To collaborate with fashion designers, artists, sportive, and other brand: example a watch in collaboration with Nike or sharapova. - To develop the accessory line and sunglasses. -To make the swatch a consummation product : one swatch per day per style per situation . To make it a classic. -Work with new materials and new colors, to communicate around the vitality and energy.