A Brief History of ETA: THE Swiss Watch Movement Maker NOVEMBER 26, 2013
ETA is one of the most prevalent and powerful companies in the modern watch industry. It is Switzerland's largest movement maker with countless small and major brands relying on the products they make. Its story has, as we will learn, defined the watch industry of today. However, despite all its previous and present roles in horology, for many, ETA remains a relatively unknown manufacture, or worse: a three-letter word that scarcely means more than the fact that the movement inside their watch was not made by the company whose name is on the dial. One of the reasons for this can be found in the marketing practices of the industry. We see retail brands tirelessly looking for yet another way of exploiting their history so as to convince the pondering buyer. ETA
however, unlike retail brands, does not want to sell directly to the public. Consequently, they will never publicly advertise their technical achievements to make you or I buy a movement or two from them. What they do instead is sell ĂŠbauches (semi-assembled movements) and complete movements in vast quantities to watch brands, who will then dress them up in accordance with their own brand's DNA. The other reason why it might be difficult for the masses to learn more about the manufacture is that in-house movements have become a major selling point for most mid- to high-end brands. Therefore, when it comes to a watch without a proprietary movement, the general method is to rename the ETA (or any other supplied) movement to a different code chosen by the brand. Surely, sometimes the base ETA/Sellita/Soprod, etc. movement is modified by the company that purchased it, but oftentimes the only thing "custom" about one of these calibers is the rotor with the particular brand's name on it. As a result, for those relatively unfamiliar with the world of watch making, ETA might appear as if it was some sort of an objectionable, undesirable name in the industry, something that should be avoided. But that could not be further from the truth. ETA is an indispensable element and something without which Swiss watch making would never be what it is today. In this article we will discuss the history of ETA through reliving the incredible ups and downs of not just a manufacture, but an entire industry as well.
Click to expand: Our summary of important dates for an easier understanding of this complex story Before we get into the details, please allow me to note that there is no one complete source of information, no one place where all relevant data is easily available. At times, controversial data can be found, primarily because getting exact statistics regarding the earlier years is very difficult. Having said that, we will closely follow the history of the Swiss watch making industry to see how ETA not only managed to fit into it, but also
how it made a major difference just when it was most sorely needed. We begin with looking at the watch industry of the early 1900s to see where and how it all began for the company.
Prologue By the early 20th century, the Swiss watch industry was comprised of larger manufactures (etablisseurs) which were assembling complete watches mostly from purchased parts and movement kits and workshops (ateliers) which specialized in either making different parts or building ébauches. In practice, this meant that a number of ateliers were making very specific components (such as the balance spring, mainspring and other parts that demanded great precision and expertise) while other workshops were building semi-assembled watch movements (ébauches). Ébauches are movements that contain most basic structural elements but are not equipped with a mainspring or the escapement. You might rightfully ask, "If everyone had been making parts and unfinished movements, then who built watches?" The answer is that the blank movements, as well as all other components, were sold by these independent workshops to watch assembling firms (etablisseurs) who then modified, decorated, fully assembled and regulated them for their own timepieces. However... The beginning of World War I turned the industry inside out as most supplier firms quit making watches or other components and started using their machines and human resources to produce and sell ammunition. Since demand had been much greater for ammo than for fine watches, this was a rather obvious decision. Once the war was over though there was no need for such immense amounts of bullets and all these firms wanted to return to their normal activity to make ébauches and components again. And so they did, causing a sudden oversupply of their products. They all acted independently of one another as there were no powerful groups or authorities to control them. Consequently, it was much too late when they realized that the demand from watch making companies for such a vast amount of parts or ébauches was greatly insufficient. The workshops were desperate to stay alive and to achieve that they had to get rid of their piled up stocks - at any price. In a vicious pricing competition, they sold all redundant parts to Swiss companies and - to make things worse - to non-Swiss competitor watchmakers as well! These (mainly American) companies bought these high quality Swiss movements and used them in their lower priced watches. This way they could provide much more reasonably priced timepieces than their Swiss counterparts while using just about the same movements! In essence, Swiss workshops were selling components at great losses when the companies who they wanted to buy from them were going under because non-Swiss brands were selling comparable watches at much lower prices. These seriously daunting circumstances were topped off with heedless crediting by some of the Swiss banks. In summary, the industry had to face steeply decreasing turnover, strong foreigner competition gaining momentum, and an unremittingly increasing debt. The result? By the mid 1920s the industry owed about 200 million Swiss francs to its lenders.
The Gears Line Up for Partnership It was obvious that strong corrective measures were necessary as the companies themselves, separately, never had the power to make a difference and to turn things around. The first step in an effort to break these unnerving trends was the 1924 founding of the Swiss Watch Federation (FH, for short), uniting some three quarters of the industry. Two years later, as a second stage, with strong financial support from some powerful Swiss banks, the corporate trust Ébauches SA was created by the three largest movement makers - Schild SA (ASSA), Fabrique d'horlogerie de Fontainemelon (FHF), and A. Michel SA (AM). The three basic rules that these companies set for themselves made this a unique co-operation and one of great importance. First, all three founders maintained the right to run their management as they deemed best while they agreed on setting the same prices. This removed the threat of competing against each other by cutting prices to dangerous levels. Secondly, they standardized the specifications of some of the movement parts to optimize manufacturing and lower the related costs. Finally, in December of 1928, they strongly regulated the export of unassembled movement parts (chablons) with the "convention de chablonnage" in an attempt to eliminate the threat of any of the participants selling components to foreigner companies. This did sound very promising and so by the early 1930s more than 90% of all ébauche-makers had joined this holding. As most ébauche workshops have gathered under the virtual roof of Ébauches SA, the companies assembling and selling complete watches saw the benefits of such a move as well and so they began looking for a way to join their forces. Soon enough, in 1930, the group SSIH was established by the merger of the houses Louis Brandt, Omega and Tissot. In 1932 they were accompanied by Lemania, now enabling the group to create chronographs.
Despite all the clever co-operations between the Swiss companies, they had no chance to avoid the next crisis coming their way. Closely following the internal pricing issues of the 1920s is the financial crisis stemming from 1929. The Great Depression, of course, hindered the entire industry causing some 20,000 watch makers to lose their jobs. While uniting the majority of movement makers under Ébauches SA had been an important step, the extended managerial freedom meant that the corporate trust lost its abilities of defining a singular direction which participants could follow collectively. There was an obvious need for another organization, one with the power to overview and regulate Swiss movement making as a whole. Consequently, in 1931, the General Swiss Watch Industry AG (ASUAG) was established. It was partially funded by the Swiss Confederation with a hefty sum of 13,5 Million francs (out of the total 50 Million franc budget that was required to create ASUAG). All that money was to serve one clear intention: to create a super holding that would amalgamate and subsequently direct the industry. With its massive financial backing, ASUAG advanced accordingly. By 1932 it united several manufacturers of movement parts under its subsidiaries of FAR and FBR, responsible for lever assortments and balance wheels, respectively.
Dr. Joseph Girard and the 28-year old school teacher Urs Schild founded the ébauche factory "Dr. Girard & Schild“, the company that was renamed to Eterna in 1905
The Beginning of ETA Missing from the participants of any of these giants was Eterna - and with this we really are getting closer to understanding how ETA SA came to be as we presently know it. Eterna was originally founded as the ébauche factory "Dr. Girard & Schild" in 1856 and was renamed to Eterna later on, in 1905. Regardless of the name changes and one heir following the other in leading the company, by the crisis of 1929, Eterna had already employed more than 800 people and produced about two million parts annually. At the time, the firm had been managed by Theodor Schild, the founder's son. He felt great responsibility for the company his father had created, but he also had to see that Eterna was affected by the economical meltdown no less than any other company around it. Theodor saw the possible advantages the merger with ASUAG/Ébauches SA could bring in such a problematic situation, but he remained reluctant to actually join them. First of all, he
wanted to make sure that his firm's freedom in decision-making remained intact after they united. Secondly, Ébauches SA - as its name suggests - was exclusively for ébauche-makers and not for watch assemblers. This meant that Eterna had to be split into two parts: one to join the holding and one to manufacture complete watches. Once he eventually came to an agreement with the super holdings, the company was split into two indeed. Eterna remained a company assembling watches while it created its new movement maker division that was called ETA SA. As we can see, ETA could never have come to existence had it not been for the countless ups and downs of the industry and all the crises that needed urgent solutions. And despite the relatively "recent" date of 1932, when ETA was officially established, we have to note that the manufacture had been making ébauches and movements as "Dr. Girard & Schild" and then as Eterna since 1856. It is just that legally, this movement-maker facility was separated from the mother company of Eterna in 1932 and started its new life as ETA SA. Once the merger was completed, Theodor Schild retired and Rudolf Schild took the helm of ETA.
Vintage Eterna Automatic watch advertisement The complex tasks of movement manufacturing had been split up into three large segments within ASUAG. Manufactures like FHF, Fleurier, Unitas and others were responsible for building hand-wound movements, chronographs were created by Valjoux and Venus, while ETA and some others were in the business of building automatic ones - something fairly new on the market. By 1948 ETA established its watch making school that allowed it to recruit and train craftsmen as the industry rapidly expanded during the ‘50s and early ‘60s. Furthermore, ETA had been busy developing new movements that incorporated ball-bearings in the automatic winding mechanism.
In 1948, their efforts came to fruition as they announced the Eterna-matic, the first automatic wristwatch with this innovation. This new technology proved to be so successful that a formation of five ball bearings have made up the logo of Eterna ever since. Finally, they also tested high-frequency movements and in the midseventies even managed to break into what would later mostly remain Zenith-territory: 36,000 vibrations per hour. Unfortunately, these models were discontinued for some startling reasons, reasons which we are just about to discover. Rounding out the list of crises are not one, but two major downturns actually. Both stemming from the middle of the 1970s. At the time, in 1974 to be exact, the industry was at its best, producing about 84 million watches a year! Clearly, the oil- and quartz- crises could not have come at a worse time or be any more painful of a hit for the Swiss. In a nutshell, the primary issue was with relative value as, Swiss watches became horrendously expensive as a cumulative result of these two crises...
A Time of Crisis Ignorance is bliss, as they say, but this one time that could not be further from the truth - as any one who knows what the quartz-crisis did to the Swiss watch industry will tell you. We will go ahead and say this. The Swiss remained fairly ignorant when it came to quartz technology. The problem was that while they had their quartz movements developed relatively early from the market's perspective, they reacted much too late when it came to industrializing the concept. The result? They couldn't keep up with the pricing cuts performed by the Asian competition. To be fair it has to be noted that ETA did get into quartz movement manufacturing, and it is something they do presently as well. They even managed to make the slimmest quartz watch of the time, called the Delirium. Announced in 1978, it was a watch with a thickness of just 1.98 mm - a truly stunning achievement! What allowed them to create a wristwatch so extraordinarily thin was neglecting the main plate and placing the movement’s components on the case back itself. But no technological developments could have been powerful enough to subdue the effects of the second "problem" they had to face. In 1973-1974 the first oil crisis and the consequent economic recession resulted in the strong appreciation of the Swiss franc against other currencies. This had been making exported Swiss watches more expensive year after year and this went on for almost an entire decade. In essence, the Swiss were losing just about all their markets to Asian competitors for two main reasons. For one, the franc's appreciation was making their exported watches ever more expensive abroad. For the second, the technology necessary to greatly reduce manufacturing costs had not been developed soon enough. Any one of these circumstances would have been enough to make Swiss watches "bad value" compared to others, but with both of these effects striking simultaneously... there was nothing good to come out of this.
The ETA (Concord) Delirium was the thinnest wristwatch of the time with at only 1.98 mm Before we move on, let's see some basic statistics just so that we can understand the scale of the problem the Swiss had to face. Sales figures of more than 80 million watches per year dropped to a mere 30 million in less than ten years' time. The market share of Swiss watches worldwide dropped from more than 80% in 1970 to 58% in 1975, and all the way to no more than 15% in 1983! This inevitably resulted in a steep and ceaseless decline in employment, from 89,000 in 1970 to a shockingly low 33,000 in 1985. Counter-measures were required immediately. The mega-groups began excessively rationalizing their operations while tens of thousands have become unemployed and hundreds of factories have diminished. By 1980 - despite all the efforts and sacrifices - ASUAG's losses had exceeded 44 million francs and Ébauches SA had severely cut the number of manufactured movement types from more than 130 to only 40.
ETA and The Swatch Group The story of ETA sort of ends - or rather is given a new beginning - with a series of mergers in 1982-1984. As they say, history repeats itself, and that’s exactly the case here too. By 1982, much like in the 1920s, measures of rationalization were of vital importance as even the giant groups themselves couldn't survive much longer. By this time, ASUAG's cumulative losses were in excess of 150 million Swiss francs, and SSIH was on the brink of collapse with the volume of sales dropping from 12.4 million (1974) to 1.9 million watches (1982). All this called for some lightning fast moves before it all went under for good. Ébauches SA decided to move all the ébauches manufacturing companies of ASUAG into ETA SA, despite the fact that negotiations regarding the merger between ASUAG and SSIH had already been in process. As a result, all of a sudden, ETA SA contained all the small and large manufactures that ever joined ASUAG and hence it became a melting pot for hundreds of years worth of diverse watch making heritage and know-how. In 1983 the two giants, ASUAG and SSIH finally joined forces as well, and they first turned into profitability by 1984. That though, didn't satisfy the banks who had been funding all this pandemonium. UBS, Credit Suisse and Swiss Bank Corporation have poured more than 900 million francs into ASUAG and SSIH only to keep them going. They had every reason by now to consider the Swiss watch making doomed and that sentiment was only enforced by the Japanese who approached them with a generous offer for both ASUAG and SSIH. Had the Japanese managed to purchase these two major groups, they would have owned nearly all major Swiss manufactures, patents and brands. But that did not bother the banks and so they asked the prestigious consultancy firm called Hayek Engineering AG to prepare the sale... but the president of the company, Nicolas G. Hayek, was outraged by the concept of Swiss watch making practically getting sold under his supervision. I
assume most of you know where this is going. As the Wall Street Journal quotes Mr. Hayek: “The watch industry of Switzerland sells, in fact, the message of the culture of Switzerland, of everything you have heard about, our chalets, our fields, our mountains. One day, the president of a Japanese watch company in America said to me, "You cannot manufacture watches. Switzerland can make cheese, but not watches! Why don't you sell us Omega for 400 million francs?" I told him, "Only after I'm dead!�
"The
watch industry of Switzerland sells, in fact, the message of the culture of Switzerland, of everything you have heard about: our chalets, our fields, our mountains. One day, the president of a Japanese watch company in America said to me, 'You cannot manufacture watches. Switzerland can make cheese, but not watches! Why don’t you sell us Omega for 400 million francs?' I told him, 'Only after I'm dead!'" - Nicolas G. Hayek, Wall Street Journal He decided to fight back. However, he chose to do that not with luxury watches, but with the result of a revolutionary idea of something cheap, simple, fun... and Swiss. The Swatch watch. Launched in 1983 with prices below $50, the quartz Swatch was intended to be a second watch with which one could still express his or her personality, lifestyle or mood. Swatch, however, could not have existed had it not been for a movement design by two ETA engineers, Elmar Mock and Jacques Müller. The movement was based on the aforementioned layout developed for the ultra-slim Delirium quartz watch of 1978: the parts were installed on the back panel of the watch and not on a main plate. They have also managed to decrease the number of parts from about 150 (as done by Japanese competitors) to a mere 51, hence further reducing the manufacturing costs. In no time Swatch watches began turning a hefty profit with sales sky-rocketing from 1.1 million the first full year to the 100 millionth piece sold in less than 10 years, in 1992. In 1985 Hayek repurchased 51% of the ASUAG-SSIH duo and created the Swiss Corporation for Microelectronics and Watchmaking Industries Ltd. (SMH) - which was renamed in 1998 to Swatch Group Ltd. By now, we have become more familiar with the details of how ETA came to be and what incredible difficulties it had to face. But in order to get the complete picture of the manufacture we must not stop just here. Instead, we should go on and discover the company's place in the last three decades of Swiss watch making. Our primary reason to do this is that it will help us better understand how ETA practically became the dominant power in the industry.
Based on data from Fédération de l'industrie Horlogère Suisse statistics, fhs.ch
Around the mid 1980s it finally appeared as though the industry might find its way out of its previously discussed - and utterly miserable - situation. Actually, by 1986 it all started happening and before long, Swiss watch making had set itself a very different trajectory indeed. One where only the sky was the limit. What you see above is an extract from several reports by the Federation of the Swiss Watch Industry (FH), showing how the industry performed between 1986 and 2012. In blue is the total export value (in millions of francs), indicating a solid growth with exports nearly doubling between '86 and '94. A truly heart-warming sight for sure, but it would not have been possible without some serious strategic planning going on behind the scenes. We have already seen that whenever this industry is hit by a crisis, the established custom is to try and reduce costs through the centralization and rationalization of production. The code of conduct was no different this time around either. As we know, from 1985 onwards there were no more ASUAG or SSIH - they were all united in Nicolas Hayek's SMH group. Consequently, ETA now belonged to SMH as well, but its story was very far from over as the aforementioned approach remained perfectly intact after SMH took over. What matters from our perspective is that movement production was centralized in ETA in order to control and ultimately lower manufacturing and research related costs. In practice this meant that several big names within SMH (such as Longines, Omega and others) had to either stop entirely, or at least cut back severely on the production of their proprietary movements and use ones purchased from ETA instead. This allowed - well, it forced - the affected brands to rearrange their spending and emphasize marketing instead of research and development. That is not to say that Nicolas Hayek and SMH wanted to cease investing in the manufacturing of movements. On the very contrary: they decided to dedicate most of their available resources to a single company instead of enabling several separate brands to develop on their own. What SMH did in practice is invest extremely heavily into the expansion of ETA. This primarily happened by establishing or buying out several specialized manufacturers. Over the course of a couple of years the group took over movement and component manufacturers, dial, case and crown makers as well as assemblers to make ETA as versatile as possible.
The Nivarox-FAR headquarters
Supplier to an Entire Industry This put ETA on a new path, one that was leading it to become "the most powerful manufacture in the Swiss watch industry." But this transition from a manufacture to the manufacture did not happen overnight. As part of SMH's previously mentioned massive investment strategy, the group brought component and movement manufacturers Régis Mainier SA (1987), Marc Vuilleumier (1990), Pforzheimer Uhrenwerke PORTA GmbH (1990) and Frésard Composants SA (1991) under the roof of ETA along with others such as case, dial and crown makers. But perhaps none of these played as important of a role as did another ETA subsidiary called: Nivarox-FAR. Nivarox SA and Fabriques d'Assortiments Réunis (FAR) were two separate companies and they both were part of ASUAG. They merged to become Nivarox-FAR in 1984. Some time ago Ariel had the unique opportunity to visit the company and this is how he described it in his article: "The term [Nivarox-FAR] allows you to understand the industrial nature of the group's goal. Comprised of about four plant locations around Switzerland, Nivarox is a contraction of »ni variable, ni oxydable." In other words, "neither variable nor oxidizing." FAR roughly translates into an acronym for "Affiliated Assortments Manufacturers." So what is not supposed to be, variable or oxidized? Balance springs, of course (also called hair springs). These little necessary parts are at the heart of what Nivarox has historically produced, and the primary component they are known for today." In essence then Nivarox is the one and only company in all of Swiss watch making that is able to overcome all the immense difficulties of mass-producing balance springs. What is more is that they also make balance wheels, anchors, pallets, escapements, main springs and other tiny parts such as screws and small gears. Concisely, the group spent vast amounts of money to purchase or create specialized subsidiaries for ETA to enable it to function in just about all fields of watch making. Through these companies the group also financed the research and development of these components and the industrialization of their production. In line with these priorities Nivarox-FAR developed unparalleled capabilities in mass-producing extremely delicate and complex components. So even if there are brands that invested in manufacturing their proprietary in-house movements, nearly all of them have to buy some components from Nivarox to use in their own movements as only an extremely small number of manufactures are able to make hairsprings and other incredibly fine components for themselves. The result of all this? ETA became the sole supplier of movements for all Swatch Group brands as well as for most others in the industry. Its dominance had never been stronger.
Based on data from Swatch Group annual reports, swatchgroup.com To illustrate what this strength resulted in, I put together an extract from Swatch Group annual reports. The chart above shows how the group performed between 1983 and 2012 in terms of gross sales in millions of Swiss francs (in blue) and net profit (in red). What we see is an incredible growth over the course of years with relatively minor drops throughout. To give you an idea about ETA's role in all that, let me show you a noteworthy excerpt from one of these reports. In 2001 the Swiss watch industry exported 10.517 billion Swiss francs worth of watches as per data from the Federation of the Swiss Watch Industry FH. In that same year, the Swatch Group's gross sales of complete watches accounted for 3.034 billion Swiss francs (these are all the watches made by all the brands within Swatch Group). The group's production unit (ETA and all its subsidiaries) reached sales of nearly 1.392 billion francs (as per Swatch's annual report). This means that ETA's output was more than 10% of the value of the industry's cumulative exports! And since Switzerland is a negligible market compared to all the others, we can say that ETA's output in value was around one tenth of that of the entire industry. This, without doubt, is an incredible performance. Here is an example for a more practical interpretation of these mind-boggling figures. If a company buys an ébauche for 100 francs it then has to finish the movement, manufacture or buy the case, the dial, the strap, spend on marketing, develop and maintain the distribution system, finance research and development - and the list goes on and on. The point is that all of these expenses are to be amortized and hence are added to the cost of purchasing a blank movement. Ultimately all these expenses and the company's profit margin sets the export price of the finished watch. Going from a 100 franc ébauche to a 1000 franc export price is easy! Okay, so ETA sold 0.767 billion francs worth of parts, ébauches and movements to non-Swatch companies. These companies then exported 7.5 billion francs worth of watches. This still gives us that previously mentioned 10% level, and considering all those different costs we just mentioned above, it is safe to say that during the late '90s and early 2000s, the entire industry relied more or less on ETA
A Reason to Reduce Supply As the industry was growing, more and more brands were "revived" or created from scratch and - quite obviously - they all needed movements to equip their watches with. So why didn't newcomers develop their own movements in the first place? Firstly, because ETA was there to supply high-quality, reliable, easily customizable movements any time of the day. Secondly, the problem is with cost and time. Developing a movement from scratch can take five years or more and might require an investment of up to 10 million francs. It requires a more reasonable investment to come up with a design, create the case, the dial, the marketing campaign and buy a finished movement from ETA, than to spend years without selling anything only to start your brand with a proprietary movement. Last but not least, an in-house movement all by itself will never be a guarantee for success. If any one of the aforementioned factors are flawed (the design, the marketing, the distribution) you can boast about your 10 million franc movement, but the watch will never sell. What you do instead is buy tried and proven ĂŠbauches or finished movements from ETA and slightly modify them to suit your requirements. For those not familiar with them, the most ubiquitous ETA movements are the hand-wound 6497, the automatic 2824-2, the automatic chronograph 2894-2 (a modular chronograph, produced since 1996) and the 7750 (an automatic, integrated cam/lever chronograph produced since 1973). These all have several different variations and there are several other calibers as well, but the history of the movements deserves a dedicated article. What we must mention though is that ETA calibers come in four different "grades" that correspond to different levels of finish, quality of execution and - unsurprisingly - different prices as well. Standard is the cheap and cheerful solution with an accuracy of +/- 12 seconds per day and 30 seconds maximum positional variation. ElaborĂŠ is a step up with a performance of +/- 7 and 20 seconds in those fields. Top Grade has the finest finish and higher quality components overall than the previous two grades with an accuracy of 4 and 10 seconds. Finally, there is the Chronometer grade which is a Top Grade movement with COSC certification. This clearly shows just how superb ETA's selection is and how well-catered to external brands are when it comes to choosing what movement to use. So what's the problem? The problem for ETA and Swatch was that they simply had to sell movements to any Swiss watch company regardless if it belonged to the Swatch group, was an established manufacture with centuries of history, or was a new fashion brand created two months ago. Switzerland's Competition Commission (or Comco, as it is frequently called) ruled that since ETA (and Nivarox-FAR) were in a monopoly position, they had no freedom in deciding who they would supply with ĂŠbauches, movements and components and who they would not. The authorities' reasoning is that there hardly were any alternatives to ETA and if ETA stopped supplying parts and movements to others, then those affected would be practically out of business because they have nowhere else to go. All this is more or less true. In two stages ETA had absorbed a vast number of smaller and larger workshops and companies. Firstly when it took over all manufactures within ASUAG and secondly when it underwent Swatch's expansion craze. In the eyes of the authorities, ETA was the movement supplier in Switzerland. Hence, if they decided not to sell to external companies they risked anti-trust violations with stratospheric fines. The Swatch Group, ETA and Nicolas Hayek became the prisoner of the industry that would never have survived without them.
A customized ETA 2824-2 by Christopher Ward. Source: christopherward.co.uk All this was not so much of a problem for Swatch during the early '90s when there were fewer brands to cater to. But as Mr. Hayek put it, by the early 2000s ETA became a supermarket for watch brands. Just about anyone could have created a brand and ETA was bound to sell movements to them. To give you an example: if you wanted to create your very own watch company but preferred to start out without investing millions into manufacturing, what you did is go to an établisseur company (much like an OEM manufacturer, these are firms that purchase movements or ébauches in huge volumes from ETA and will build watches for just about anyone), you tell them what design you want, they'll make it and print your name on the dial. ETA, as I just mentioned, was unable to decide which company they would or would not supply with movements and so they had to sell blanks and complete movements to these établisseurs too. By 2001 Nicolas Hayek had had enough of this. His, and hence the Swatch Group's view on the situation is as follows.
What he saw is that the Group spent billions of francs on expanding ETA, improving its manufacturing abilities and developing better movements, only to be bound to sell these to big and small brands alike who would then directly compete with Swatch group brands. As the New York Times quotes Nick Hayek, CEO of Swatch Group and son of Nicolas Hayek: "We are in a ridiculous situation that would be like having BMW supply all the engines for Audi and Mercedes. In no other industry do you have one company supply all the critical parts to the people who then compete directly with it." To top it all off, Swatch was not allowed to raise its prices without Swiss authorities immediately investigating the move. Therefore not only was Swatch bound to sell movements but they were prohibited to raise profit margins either (ETA did increase its prices a few times over the years but the raise was always strictly moderated by the authorities). What was told by many was perfectly summarized by Jean-Claude Biver (Chairman of Hublot) for the NYT: "Thanks to Swatch, there is no other industry with such cheap entry costs." Well, Nicolas Hayek wanted this to be over once and for all. To be fair, we have to note that Hayek Sr. did began warning all brands to start investing into their own manufacturing facilities as early as the end of the 1980s. From 2002 however, he was determined to make ETA perform serious cuts for all three of its main profiles: manufacturing ébauches, movements and key components. It all began with ébauches in 2002. A plausible reason for this is that the ébauches-issue starkly signified just what was driving Nicolas Hayek to be so furious. These semi-assembled movements were purchased by établisseurs (that I previously mentioned) as well as external watch brands and were often built into movements that would later on go into high-quality counterfeit watches, or were completed by Swiss brands who would then communicate that these were their proprietary, in-house movements. Needless to say, none of these trends made Hayek or ETA particularly happy. What is more is that ébauches accounted for a microscopic amount of profit of the Swatch Group. Hence, in August 2002, the Group announced that it wants to drastically reduce the amount of supplied ébauches to external companies and to completely stop such operations by 2005. This, of course, caused major upheaval in the industry and Comco immediately intervened. To keep a long story short, ETA agreed to keep on supplying ébauches until 2008 without reducing quantities and to not stop altogether before 2011. Then it was the case of supplying complete movements (made by ETA) and components (from Nivarox-FAR). In 2011, Swatch sought Comco's permission to decrease the number of movements and components it sold to competitors. It is important to bear in mind that the availability of movements and that of parts are taken into different consideration by Comco. We already mentioned just how much of a task it is for small and major brands alike to develop their own movements, but creating the infrastructure that allows one to produce key components in-house is even more demanding than that. Most patents have long expired on many ETA movements so it's relatively easy to clone them (like Sellita did when designing several of its most popular calibers), but it is borderline impossible to gain access to the know-how that allows Nivarox-FAR or Rolex to make their own springs. This resulted in two different rulings by the competition authority.
I created a montage from the official charts for the Sellita SW300 (on the left) and the ETA 2892 on which it is based on (to the right). For the ultimate watch nerdery experience compare the base assemblies of the two and see how remarkably similar they are. It allowed the Group to cut back on the supplies of completed movements. And although nine companies (including Sellita, FrÊdÊrique Constant, Louis Érard and others) separately challenged the ruling in court, in December, 2011 the Federal Administrative Court rejected their appeal against the Federal Competition Commission's (Comco) decision. This practically allowed Swatch to reduce the amount of supplied complete movements by the end of 2012 to 85% of 2010 levels. As Watchtime.com reports, "The reduction was extended through 2013. ComCo announced on July 12 [2013] another 10-percentage-point reduction in 2014, bringing the amount to 75 percent of the 2010 quantities. Having said that, authorities were not so allowing when it came to Nivarox-FAR cutting back on assortment supplies (such as levers and pallets, balance wheels and springs, escape wheels, etc). They ruled that it would be 'premature' to allow them to withhold deliveries of such parts to non-Swatch companies." As told by Watchtime, "In 2011, it [the Competition Commission) allowed provisional cuts in assortments of five percent of 2010 quantities, which it extended for 2012 and 2013. Those cuts apply until the end of 2013, ComCo said. It said nothing about 2014, presumably supplies of assortments will return to 2010 levels." To try and make sense of all this bureaucracy let's see what the reactions were within the industry. Essentially, there are two very different approaches to this issue. Some say that what is happening now might (and as they say, most likely will) eventually result in a crisis that is of similar significance to the quartz crisis. Their reasoning is that if small brands will not be able to receive movements from ETA (and more importantly hairsprings and other indispensable components from Nivarox), then these brands will simply "cease to exist." Others say that in the long run, this will serve the industry by eliminating those who have exploited it by relying
on the comfort of its infrastructure, purposefully avoiding making any serious investments and spending on advertising and marketing instead. Surely, not everyone is able to make a 5-10 million franc investment, but then again the Group's intentions had been made clear long ago. Politics aside, the actual managerial/strategical reactions are as diverse as the brands in the Swiss watch industry themselves. Several small and large companies have decided to start developing their own movements with more or less success. These brands often work together. Some belong to the same luxury-group and so the group's management orders one brand in the portfolio to "help" another. We will also see some independent brands unite their forces to share the related costs while others will look for other major suppliers such as Sellita, Soprod, Vaucher Manufacture or try and purchase movements from watch brands who make their own (like Zenith, Jaeger-LeCoultre, Girard-Perregaux, etc). Finally, there is a mixture of these realized through obtaining a solid base movement and modifying that to suit unique needs with the use of different modules from Dubois-Depraz (read about Ariel's visit to the manufacture here), Vaucher Manufacture, Fleuier (and here's my visit to the VMF manufacture) and others.
ETA Today In conclusion, we can say that the late Nicolas Hayek wanted to give the Swatch Group the right to decide whom it would or would not supply with movements and components. He believed that this would serve the long-term interest of his group and the entire industry as well. He articulated his intentions (that he wanted to quit selling everyone everything) many times and he advised brands to start focusing on manufacturing their own parts and calibers instead of financing marketing campaigns and ambassadors. Having said that, not everyone would be out of the ETA "circle of trust." As Watchtime magazine quotes him in its 2010 August issue: "We will keep our promise to sell movements to our traditional watchmaker clients. But the development of the industry in the wrong direction over the last few years forced us to react now against delivery to all others." This means that the Group will continue selling parts to several external companies (a majority of those that have invested into making their own movements will receive supplies in the future, such as Patek Philippe will continue to receive hairsprings from Nivarox and Rolex's Tudor will still get movements from ETA). But the Group will not be selling to everyone and anyone from now on. One of the alternative solutions is the use of movement modules. Pictured is the VMF5000, a perpetual calendar module by Vaucher Manufacture Fleurier. Looks fantastic! I feel that a primary reason for the deafening outcry we have been hearing from the industry is to be found in the level of comfort it enjoyed for the last 25-30 years. A great number of non-Swatch brands relied exclusively on ETA/Nivarox without seriously investing into their independence. However, what used to appear as nothing more than an improbable turn of events, suddenly (in such a technologically sophisticated industry 1-3 years is "sudden") became harsh reality. Affected brands will have to leave the well-worn path of constantly relying on a single external supplier and go down either one of the following two routes. The first option for them is to work together to create new matrices of companies in order to re-allocate the responsibilities linked to the supply of movements and different components. The second option for each is to fight on their own and invest extremely heavily into their own manufacturing capabilities - but this will cost them an even greater amount of resources and time. Further, former suppliers to ETA such as Sellita are proving extremely capable in the mass production of ETA movement clones. Because patent protection no longer applies, anyone with the industrial skill can technically
copy any of the older ETA movements whose patent rights have expired. So while it isn't clear whether Sellita (also Swiss) and companies like it will innovate, they should be able to meet at least a large chunk of the demand for ETA movement clones. Having said all that, I still believe that this will not be yet another end for the industry. On the contrary. Everything is given to make for a future that is more sustainable and that is with more genuine inner values. I am greatly excited to see what the next 5-10 years will bring because the present situation will inevitably force luxury groups, major and minor companies, high-end and more fashion-oriented brands alike to either invest into technology and develop their own movements and parts or purchase from new companies who have done it for them. It will force the industry to think more. With ETA out of the equation I am eager to see what the coming years will bring us on the level of mass-produced movements that go into luxury watches. This is not about ETA anymore, it is about an entire industry. And I feel that - in part - is what Nicolas Hayek wanted to achieve. Since the 1856 establishment of its origins as "Dr. Girard & Schild," ETA has fused with a nearly infinite amount of smaller and larger Swiss manufactures. This unique past allowed the company to obtain the priceless know-how and experience of these participants and transform them into a group which was ultimately responsible for saving and revitalizing the Swiss watch industry. Despite the several key roles it played during the 1900s, for the coming years it is destined to give more and more room for others to develop and to ultimately create a more versatile world of watch making. There are several unique watch manufacturers with great heritage and tradition, but if anything, ETA SA has a history of dizzying heights and drops, flecked with great success stories and some of the most severe crises of the 20th century.