The History of ETA The Swiss Movement Maker The name ETA SA Manufacture Horlogère Suisse is omnipresent in the Swiss watch industry. The humongous success of the Swiss watch industry and its continued survival in the global watch market can be traced to the formation of ETA. There is no complete and continuous historical record about the formation of ETA. The origins of ETA dates back to the latter half of the 18th century, when Swiss watch making consisted of assembling of a number of independently made parts or movements. The history of ETA is intertwined with at least three of the oldest watch manufacturers from the Neuchatel region. These are the Fabrique d'horlogerie de Fontainemelon (FHF), Dr. Girard & Schild in Grenchen (Solothurn), Adolf Schild AG (AS) and AD. Michel SA, Grenchen. By 1920s, Fabrique d'horlogerie de Fontainemelon , Adolf Schild AG, and AD. Michel SA together accounted for over 75% of Swiss movements/ebauches. The firm A. Schild, for example employed over 2100 people. The origins of ETA dates back to the latter half of the 18th century, when Swiss watch making consisted of assembling of a number of independently made parts or movements. The traditional watch makers were concentrated on the Jura arc region of the Switzerland. The Swiss gave emphasis to education, training and innovation in the watch industry from as early as the 18th century, which paid huge dividends. Villages in Jura were dependent on agriculture for their primary income. But the long, harsh winters and poor quality of soil made them look for alternate sources of income. The earliest form of cottage industry-style production of watch parts evolved against this backdrop. During the long winters, contractors would bring materials to the farmer, who in turn would work on the watch parts (movements). The farmer would receive payment for the watch parts production. This was how the movements (ebauches) production evolved. The intense, handwork production of the watch movements refined the skills of the local population. The Swiss watch industry is based on innovation and 2
craftsmanship, both of which flourished in the 18th century.
Fabrique d'horlogerie de Fontainemelon (FHF) The early development of industrialization also helped in the development of precision machining of parts at a very low cost. The first watch movement blank- factory was established in Fontainemelon, Neuchâtel by Isaac and David Benguerel along with Julien and François Humbert-Droz in 1793. It was called Fabrique d’ébauches de Fontainemelon. The adoption of mechanization and mass production techniques allowed the Fabrique d’ebauches to flourish. By 1876, the partnership became a public limited company Fabrique d'horlogerie de Fontainemelon (FHF). By 1876, FHF was producing 240,000 ebauches per year with 400 employees. The Neuchâtel region became the hub for the manufacturing of watch parts and movements industry. Thus by the early 20th century, the Swiss watch industry was made of the large manufacturers (etablisseurs) who were producing watches by assembling together the movements from workshops (ateliers) which specialized in either making different parts or ebauches. There were individual companies producing different parts of watches such as cylinder, pin lever and jeweled-lever mechanical movements. The Swiss industry started using machines very early on and the industry evolved from a cottage to a protoindustrial system of production. Soon the ebauche makers were unable to keep up with the demand, thus leading to the setting up of factories for manufacture of ebauches.
Eterna In 1856, Dr. Joseph Girard and a school teacher Urs Schild set up the ebauche factory “Dr. Girard & Schild” in Grenchen (Solothurn). The new company had tough competition from the French Japy Frères Ebauchesherstellers. In 1864, Adolph Schild-Hugi, brother of Urs Schild joined the company. By 1866, Girard retired and left the entire company to Urs Schild. The company’s name was changed to “PräzisionsuhrenFabrik Gebrüder Schild” (Precision Watches Factory Brothers Schild). In 1888, Urs Schild died and the company was under the ownership of Urs Schild’s widow and two sons (Max and Theodore) and Adolph SchildHugi. Max Schild was not successful at the company helm and by late 1890s, he quit leaving his brother Theodore in control over the company. 3
Theodore successfully led the company for the next 30 years under the name "Gebr. Schild & Co." By 1896, Adolf Schild-Hugi left the company and started his own factory in Grenchen under the name "Adolph Schild SA." Theodore Schild modernized the company, introducing electrification. The company from its origin as Dr. Girard & Schild had come a long way and was very successful in the export of watch movements. The company had started producing its own in- house watches also. In 1906, the limited partnership Eterna was formed. The watches were marketed under the brand names "S.F.G" (Schild Freres & Co., Grenchen) or "IXL" (1891) quite successfully. The focus were on wrist watches and by 1908, the company received a patent for the first alarm wrist watch.
Adolph Schild SA Adolph Schild-Hugi was the brother of Urs Schild –Rust, one of the founders of Dr. Girard & Schild. Adolf Schild had joined his brother’s company in 1864. He left the company in 1896 and started another factory called Adolph Schild SA in Grenchen. It was an ebauche and movement manufacturing factory. The factory produced manual-wind calibers in all sizes and quickly became one of the largest movement makers in Switzerland. In the 1920s, the factory was employing around 2000 people.
Formation of Ebauches SA Ebauches SA was formed in 1926 by Adolf Schild, along with AD Michel SA in Grenchen and FHF in Fontainmelon. By the early 20th century there were around two dozen or more movement makers or watch parts manufacturers who were supplying to the top and middle rung of manufacturers both within and outside the country. The small and independent ebauche units tended to be insular and individualistic often isolated from the market realities. When crisis’s happened each one of them tried to solve it on their own. During the First World War, Swiss manufacturers tried to keep up with the increased demand for the military watches. The watch manufacturers in the region went on an overdrive to meet the increased demands for both watches and ammunition for the war. Banks started paying out money to keep the profits coming in. The period from 1914 to 1918 saw 4
feverish production activity among the watch and the movement manufacturers. But the end of the war saw a sudden slump in the demand for watches, watch movements and ammunition. After the end of the First World War, the great depression set in and the 1920s saw massive fall in the profits of the Swiss watch makers. Many manufacturers, especially the small production units of ebauches or movements were forced to close. By the spring of 1921, the export figures had halved to the pre-war period and unemployment had risen to 25,000 from zero. In 1921, the export figures had slumped to 7.8 million units from 16.8 million in 1919. The watch industry owed around 200million Swiss francs to its lenders by the mid 1920s. The ebauche manufacturers tried to combat it out by chablonnage—the practice of exporting all the unassembled parts of a movement, avoiding all federal laws and taxation. The increased smuggling of ebauches and watches to the United States also resulted in an embargo on the Swiss watches in the US. They also tried to finish off the surplus stock by selling at discounted prices. The branded manufacturers like Omega, Zenith, Longines, etc. had increased production of their branded watches. The branded manufacturers had begun to feel the heat of the unfair trade practice of chablonnage. The branded manufacturers tried to make the ebauche manufacturers toe the line by forming the Federation of Swiss watch manufacturers or the Federation Suisse des Associations de Fabricants d'Horlogerie, (the precursor of FH) in 1924. The eminent manufacturers wanted some protectionist laws enforced like ban on export of special machine tools, ban export of blanks and unfinished movements, establish hallmarks for quality and provenance to fight against junk and lower quality watches, etc. In order to bring in a semblance of order among the movement makers and other watch parts makers, the “Union of the Annex Branches of the Horological industry “UBAH” was formed in 1927. The focus was on self-discipline, improving quality and maintaining a balance in costs and prices. Meanwhile the ebauche makers were struggling with massive financial burdens, bankruptcies and slowdown in production. They tried to unite among themselves and in 1925, 26 ebauche makers came together to form a loose sort of union. Not much came out of this effort as one year 5
later one among them unilaterally lowered prices and offered initiatives. Now the ebauche makers sought the help of bankers and with their blessings Ebauches SA was formed in 1926, in Neuchatel. Three predominant manufacturers came together for the formation of Debauches SA. • AD. MICHEL SA, Gretchen • A. SCHILD SA, also in Gretchen • Barbeque d’Horlogerie de Fontainemelon SA(FHF), Fontainemelon The Ebauches SA was formed as a corporate trust with the intervention, mediation and strong financial support of some powerful Swiss banks. A set of unique and basic laws were formed to ensure the success of this new corporate entity. The founders made sure that the management of the individual companies remained independent with common pricing to ensure that none of the movement makers competed with each other. Next, they standardized the specifications of movements to optimize manufacturing and lower the costs of production. The most important step was the strong opposition to selling watch movements to foreign companies. Ebauches SA started negotiating with small firms offering them good money for merging with them. One after the other, the small firms started yielding and in 1927, nine companies were bought off. These included Hora, Sonceboz and Charles Hahn, the manufacturer of the “Landeron” stop watches’ movements. This was followed by ten new companies in 1928 which included Felsa, Venus, Root, Bovet, Optima. Another eight companies (which included Urania and Postala) joined Ebauches SA in 1929. By 1928, the three groups --- Fédération horlogère (FH), Ebauches SA and Union des branches annexes de l’horlogerie (UBAH) signed a series of agreements known as the watch making conventions. With these agreements the Swiss watch cartel undertook to do business exclusively with each other and to adopt a minimum price for purchase of the watch components. These conventions prohibited the members from engaging in chablonnage.
Formation of SSIH and ASUAG Societé Suisse de l'Industrie Horlogère (SSIH) was formed in 1930, a year 6
ahead of the formation of ASUAG. It was formed by the merger of two stalwarts of the Swiss watch industry – Omega and Tissot. The main aim behind the formation of SSIH was to sell high end Swiss luxury watches. The merger between Omega and Tissot was successful and SSIH continued to acquire more than 50 companies within a short span of time. Thus SSIH became a force to be reckoned with in the Swiss watch industry. The SSIH group included watch companies which were at least 150-200 years old. Like ASUAG, SSIH was also formed to combat the economic crisis. SSIH brought Lemania Watch Company in 1932. The acquisitions continued with the addition of companies like Marc Favre & Co. (specializing in high-calibre women’s watches), Marke Lanco (focusing on the mid-price segment), Aetos Watch Co. in Geneva (concentrating on the lower price segment), and finally Economic Suisse Time Groupe (whose brands AGON, Ferex, Continental and Buler rounded out the inexpensive price class).
Formation of ASUAG The main export market of the Swiss watches was USA. But by 1930, following the great depression, USA imposed heavy tariffs and taxes on Swiss watches. The exports were severely affected as the custom duties on Swiss watches rose from 19% to 30%. This impacted the real prices of the watches on an average from 40% to 185%. The American Prohibition Act and the heavy customs duties led to the increase of sophisticated smuggling organizations. These circumstances led some breakaway firms to indulge in chablonnage again by taking advantage of legal loopholes in the convention-based system. This necessitated the intervention of the Swiss government with some much needed legislation to save the Swiss watch industry. Thus in 1931, a super holding company known as the Allgemeine Schweizerische Uhrenindustrie AG (ASUAG) is formed. The super holding was formed as a limited private company and its first president was Mr. Hermann Obrecht. The main aims of ASUAG were • Creation of a Super Holding Company with equal financial participation between the Watch Industry and the related Swiss Banks. 7
• Acquisition of the majority of the shares of Ebauches S.A. by the super holding. • Financial participation of the Swiss Confederation. • Concentration of the other essential movement parts, i.e., lever assortment, balance wheels, balance-springs and acquisition by the super holding of the majority of the shares of all related companies. The shareholders of ASUAG were watch making industrialists, banks and the Federal Government. The share capital of ASUAG came to SF 10,006,000. The share capital of watch making industrialists was SF 5 million, that of banks SF 5 million and that of the Federal Government was SF 6,000 of shares in return for the payment of SF 6 million for support. An additional interest-free loan of SF 7.5 million was obtained from the State with another credit from the banks to the tune of SF 15.5 million, both of which were paid back in full by early 1940s. Thus ASUAG had the economic tooth to attain its goals. Despite all these measures, there were still firms who managed to continue with export of chablons. The state intervened again with a federal decree in 1934, extending legal recognition of the convention based- regime of 1928. A federal law called the “Decrees of the Federal Council tending to protect the Swiss Watch Industry” is published and enacted. This law prohibited the starting of any new watch making company without a license and also the export of “chablons” outside of the prevailing legal agreements. By 1932, ASUAG had amalgamated and consolidated with several manufacturers of movement parts under its subsidiaries of Fabrique d'Assortiments Réunies SA (FAR) and Fabrique de Balanciers Réunis SA (FBR) responsible for lever assortments and balance wheels, respectively. The global economic situation had also improved helping in the recovery of the Swiss watch industry also. Thus ASUAG managed to have control over the Swiss watch industry and was able to give directions for its future growth. In effect ASUAG was the super holding company of the holding company Ebauches SA, though they were allowed to function independently.
Eterna AG and ETA AG Under the leadership of Theodore Schild, “Schild Freres & C” had prospered. Theodore Schild, a mechanical engineer had taken over from 8
his brother in 1899. He was in charge for the next 33years. The name Eterna first appeared on the dial of a pocket watch in 1889. The company changed its name to Eterna in 1905. Eterna under the leadership of Theodore Schild was at the leading edge of innovations and had won many patents and was feted for its many models of watches and wrist alarm watches. The decade of 1920 saw Eterna producing 1 million movements in a single year while continuing with the production of the in house watches. In the late 1920s, Theodore Schild was contemplating about joining the Ebauches SA on account of the economic crises happening around him. He was concerned about the future of his company and felt great responsibility towards the firm that his father had founded. He could see the advantages in joining Ebauches SA, but was unsure of how much freedom his company will have once Eterna joined Ebauches SA. Ebauches SA was a union meant for movement manufacturers only and this was one of the reasons why Eterna was split into two divisions. Theodore Schild knew that if his firm joined Ebauches SA, it made better sense to divide the movement section and the precision watches into two separate entities. It became clear to Theodore Schild that separating the two production lines were essential for enhanced quality and differentiation. Thus in 1932, the company split into two joint stock companies ETA AG which manufactured movements and Eterna AG, manufacturer of precision watches. Once the division of Eterna was completed, ETA AG merged into Ebauches SA in 1932. After the division, Theodore Schild retired leaving his nephew Rudolf Schild in charge of Eterna. Rudolf Schild was the son of his brother Max Schild. Theodore Schild continued to be on the board of directors till his death. Inside the super holding company ASUAG, there were three clear divisions along the type of work undertaken by different firms. 1. Hand wound movements manufacturing were in a separate division. This section included manufacturers like FHF, Fleurier, Unitas, etc. 2. Chronograph manufacturing division which included firms like Valjoux and Venus. 9
3. Manufacturing of automatic watches were carried out by ETA and others. In 1978, ETA AG merged with Adolf Schild (which was a founding partner of Ebauches SA). ETA has been through several mergers which resulted in its restructuring time and again. After the quartz crisis, ETA took over all the ebauches subsidiary firms from ASUAG completely by 1982. It has become synonymous with Swiss watch movements and watch parts. ETA SA has monopoly over production and supply of the same. The present day ETA is a wholly owned subsidiary of the Swatch group, with its headquarters in Grenchen, Switzerland.
Final words Swiss watch industry has been through several ups and downs which threatened to completely annihilate it time and again. But the industry has managed to rise up phoenix-like from each of those crises and come out strong. The innovative and resilient nature coupled with timely intervention from the banks and consolidation of the industry, putting the interests of the industry as a whole before them rather than that of individual brands or interests were the key factors which helped the Swiss industry to become world leaders.
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