News Friday, July 20th 2012
The Federal Competition Commission has reached a preliminary agreement with the Swatch Group concerning its plan to reduce its deliveries of movements and components to third-party watchmakers. The consultation document has now been issued and is already provoking strong reactions.
In 2014-2015 the Swatch Group will supply only 70% of the volume it delivered in 2010 (illustration: calibre ETA 2896) © ETA
There has been a lot of talk about this matter for some time. In fact, it began as soon as the Swatch Group informed the Federal Competition Commission (COMCO) of its plans to steadily reduce its supply of movements and components to other companies. Inevitably, such a proposal led, one year later, to an enquiry by COMCO into possible abuse of a market-dominant position and the introduction of provisional measures. Meanwhile, according to recent reports on the internet, things have been moving rapidly with the Swatch Group and COMCO reaching a preliminary agreement that is currently being discussed with the companies concerned. These are only preliminary proposals that can still be amended, but at least the broad principles have been put down on paper.
The document has been partially revealed on the Business Montres website. It indicates that in 2014-2015 the Swatch Group will supply only 70% of the volume it delivered in 2010, 50% in the following two years, and 30% after that. An even more drastic reduction is planned for calibres bought and modified by the group’s customers: volume cut by 50% in 2014 and by 75% in the following year. The assortments, mainly regulating organs of mechanical watches, would be reduced by 10%-20% every two years for a total reduction of 70% by 2022. The group’s prices for these components would be allowed to rise by 5% in the 2014-2018 period and afterwards the increase would be fixed at 10%. The document also states that the price of movements could rise with no limit being fixed.
The anger mounts
Swatch will not be treating all its customers equally. It has already announced that it will continue to supply those brands that have been faithful to the Group over a long period. These are also the brands that have already invested in their production equipment, as Swatch has been requesting for many years. The group has long taken the view that it should not be the only entity to make production investments for the whole industry. Yet despite this, the preliminary agreement came as a serious blow to many people since very few watchmaking companies could do without sourcing some or all of their mechanical movements from Swatch. As COMCO has explained, the over-arching objective of this process is to foster the development of alternatives to the Bienne-based group.
However there is evident anger across the industry and some companies have announced their intention to appeal to the Federal Tribunal if necessary. “This proposal does not allow enough time for the mid-priced brands to arrange new sources of supply. Their growth prospects will be seriously damaged,” claimed Alain Spinedi, director of Louis Erard in an interview on RTS, Swiss Radio and Television. “Buying in these components is their optimum business model. Without it, the costs of production will mean that there will be no more watches priced at 750 - 2,500 francs on the market. There are currently eight or nine companies strongly opposed to this agreement.” Interested parties have until the end of August to make their positions known. ■