“Without Senior Hayek there would not be a Swiss watch industry anymore.”

Swiss Watch Industry
by Massimo Dreifuss

1. Foreword
“Without Senior Hayek there would not be a Swiss watch industry anymore.” This statement has been made many times and by a great number of people. You will also find this statement in the Swatch Group customer report.

Yet, is it possible that a single man could single-handedly have saved the entire Swiss watch industry?

How did Nicolas Hayek even get into the Swiss watch industry? How did he become the main shareholder and president of the Swatch Group? What is the market value of his company? Why is the Swatch Group so successful? And finally, was Nicolas Hayek alone responsible for these achievements?

Before these questions can be adequately addressed, it is necessary to describe the historical situation of the Swiss watch industry, which first made it possible for Senior Hayek to save it.

2. The Swiss Watch Industry from 1960-1980
In 1960, the market share of the Swiss watch producers was between 35-44%. The demand for the watches was greater than the supply, thus eventually leading to an over-demand for the Swiss timepieces.

In order to meet the demand, the watch manufacturers bought up large inventories of individual components, for a mechanical watch consists of 300-350 parts. It was assumed that the demand for individual components would increase, thus it would no longer be cost-effective to have each part individually manufactured. This is how the large inventories came to be.

At this point, the Swiss watch industry was quite proud of their achievement and dominance of the world watch market. After the crisis of the 1930s, the branch of the Swiss watch industry was finally doing better.

“The striving toward perfection (…) cultivated the sales, which only served to further reinforce the watch manufactures’ belief that only Switzerland could produce such qualitatively high quality watches.”

The confidence and pride for the Swiss watch industry led to self-praise and an over-estimation of its abilities. The Swiss watch-barons became increasingly powerful and started paying less and less attention to the competition: the foreign markets. Research into the development of new and innovative watches fell by the wayside. Only a few brands tested electronic watches in order to try and put them out into the market. They were, however, considered traitors. In the eyes of the other Swiss manufacturers, these electronic watches had nothing in common with traditional Swiss mechanical watches.
However, as history has shown, it was a grave mistake to not have taken these watches (and the technology behind them) more seriously, for in 1969 the Japanese manufacturer Seiko introduced a world premier: the first quartz wristwatch (Image 2.2). The Swiss simply smiled, because they already had a reliable and inexpensive watch, i.e. the Roskopf watch. In 1860 Georges Frédérik Roskopf dedicated himself to the development of an inexpensive watch movement. As the result of various changes to the movement, the watch became thinner and less-expensive to produce: as low as 20 Francs per movement. The Swiss companies were thus convinced that they could compete with the competition from abroad. However, this turned out to be a form of self-deception. The demand for mechanical watches changed almost overnight, and the Swiss manufacturers quickly felt the effects.

Soon thereafter Japan, closely followed by China, flooded the European market with inexpensive, electronic quartz watches. The quartz watches were less expensive, much more accurate and lighter as the mechanical watches. The price for such watches sank almost daily, thus allowing anyone to be able to afford one. The Swiss watch industry watched helplessly as their sales fell drastically. Only a handful of prestigious brands, for example, Rolex, Patek Philippe or Jaeger-LeCoultre, were able to hold their own.
Nevertheless, in the middle and lower price segments, the quartz watches began to take over. And because the watch industry is the third largest source of revenue in Switzerland, something had to be done quickly. Making matters worse, the Swiss-franc was becoming stronger compared to the U.S. dollar, thus making the watches even more expensive abroad and leading to a further reduction in exports.

The Allgemeine Schweizer Uhrenindustrie AG, which had been the backbone of the Swiss watch industry, as well as the Société Suisse pour l’industrie Horlogère SA demanded support from the federal government, since their profits threatened to decline. As such, the crisis had exposed the fundamental weak spot of the branch: they had no clear strategy as to how to deal with the crisis, even though they were the ones who should have helped the industry safely navigate through this crisis.

3. The Société suisse pour l’industrie Horlogère SA (SSIH) and the Allgemeine Schweizer Uhrenindustrie AG (ASUAG)
On February 24th, 1930, Omega (Louis Brandt & Frère SA) and Tissot (Charles Tissot & Fils SA), along with several other watch companies, merged to become SSIH. Together the two subsidiaries held an influential position within the industry. They had 7 of the 10 directors and presided over 100% of the share capital. The fusion made it possible to raise product quality, while at the same time, expand the product line. In order to complement the existing range with high-quality products, SSIH bought Lemania Watch Co. in 1932.

Companies such as 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) were all eventually incorporated into the SSIH.

The ASUAG was founded one year after SSIH was established, and was supported both financially and organizationally from the federal government. Ebauches SA (Société anonyme) represented the core of the organization. All ebauche manufacturers were forced to join the ASUAG. This SA was responsible for “coordinating the sales of ebauche-blanks, trimming down the product line, as well as fostering specialization and useful new developments”.

In the statutes ASUAG was obligated to deliver parts, components, and movement blanks to all of the watch manufacturers. Furthermore, this holding was established in order to retain control over the key technologies. This meant that it was forbidden to export, for example, templates, components, watch machines and tools to other countries. This was done to insure the inviolability of Swiss watches.

“Via share-transfer ASUAG created in 1971 the watch conglomerate General Watch Co. (GWC) to which brands such as Certina, Diantus, Edox/Era, Endura, Eterna, Longines, Mido, Rado, Rotary and Technos belonged”.

Both SSIH and ASUAG were run like family businesses. As such, “the holding company wanted to preserve the long-standing experience and maintain the traditional ideas and attitudes regarding production processes and marketing”.

4. The Causes of the Quartz-Crisis
Since the crisis in the 1930s, the Swiss watch industry had been living in an ivory tower, free from the pressure of foreign competition. As such, the watch barons did not realize the profound changes that were taking place on the world market.

As has already been mentioned, the great demand for Swiss watches only served to reinforce the watch barons’ belief that they were indeed the best. However, this situation was about to change quickly.

When it came to technical sophistication, the Swiss watch industry was able to hold its own. In 1969, before Seiko presented its quartz watch, the quartz watch Beta 1 was developed in Neuenburg. However, both the implementation and marketing of the watch were grossly inadequate.

The consequences of the quartz crisis were quite severe. The warehouses were increasingly being filled with unsold watches and components. The result of the diminishing demand meant that production had to be decreased and the workforce reduced. The number of employees was decreased by two-thirds (from 90,000 down to 30,000). Approximately 1200 manufactures were either closed or bought up.
Sales and profit began to dwindle. “Between 1974 and 1983 the export volume was halved from 91 million watches and movements down to 43 million pieces”. The manufacturers began to merge into public limited companies [Aktiengesellschaften] in order to limit the risks.

At least 30 banks were shareholders in SSIH, which was also in severe crisis. Moreover, SSIH did not look like it was going to be able to pull itself out of the crisis. And were SSIH to have gone bankrupt, it would have resulted in a disastrous chain reaction. It would have taken a great number clients , and consequently debtors, down with it.
It became obvious that a new marketing strategy was desperately needed. Peter Gross, general director of the Bankgesellschaft Zürich, suggested conducting a situation analysis. The suggestion was accepted in the hopes that it would save the watch industry. Yet, to whom should such a difficult task be assigned?

5. Nicolas George Hayek
My father and I met Nicolas Hayek (image 5.1) roughly one year ago at the Post Zürich Enge. With a self-confident stride, a kind radiance and light blue eyes, he walked in through the entrance. He possessed the self-confidence of a man that knows what he has already achieved as well as what lies ahead. On each wrist he wore three watches – one from each of his brands. My father called out, “Nicolas Hayek!”. He now recognized my father and turned around. My father wanted to greet him and offered him his right-hand, to which Hayek replied offering his left – a response that somewhat confused my father. Hayek went on to explain that he was sick, and that his hand was full of germs. My father then grabbed Hayek’s right-hand and shook it and said, “Give me a few of them [germs], because yours make one strong.”

However, Hayek is now dead (image 5.2 and 5.3). He died most likely due to a heart attack on June 28th, 2010 while working in his office in Biel. He had high blood pressure and often became very agitated.

Hayek had already made arrangements for both his daughter Nayla and son Nick, who have been working in the company for many years, to take over when the time came. Even his grandchild Marc (Nayla’s son) was assigned a task.

Nicolas Hayek had experienced and achieved a great deal. How he was able to achieve so much as well as his character will be the subject of the next chapter. The following questions will be addressed: Why did Hayek come to Switzerland? How did he treat his employees? Could anyone else have pulled the Swiss watch industry out of such hard times?

5.1 His Childhood and Education in Beirut
Born on February 19th, 1928, Nicolas Hayek grew up in affluent quarter of Beirut called Achrafieh. He has a sister Mona and a brother Sam. Not too much is known about Sam. His mother Linda came from a wealthy family of attorneys and his father Georges was a dentist trained in the United States. They raised the children Greek-orthodox. Nicolas went on to attend a Jesuit school, where he received lessons in religion. Nevertheless, he remained somewhat distant to matters of religion throughout his life. He claimed that the teachers were never able to answer the deeper questions.

This curiosity and questioning nature reveals an important aspect of Hayek’s character. He was a very self-confident individual and unconventional thinker. It was precisely this unconventionality and straight-talking attitude for which he later became well-known.
When school was not in session, he always went to the family’s second residence in Koura (Libanon), where he supervised the workers during the olive harvest – a job that apparently enjoyed a great deal.

After having completed his studies at the Jesuit school, Hayek went on to receive his Matura from the AUB Preparatory School in Beirut. Later he attended the Christian Université Saint Joseph, where he studied mathematics, chemistry, and physics. At the age of 21 he received the Certificate of License with a grade between satisfactory and good.

Several of the Hayeks’ employees worked in the household – among them a Swiss woman named Marianne Mezger who served as the family’s Au-pair. While this job is not highly regarded, it did not stop Nicolas Hayek from falling in love with her. As the parents became aware of their son’s feelings for Marianne, they tried to end the ‘inappropriate’ and unwelcome relationship. However, given Nicolas’ stubbornness, it did not take long for him to decide to move with her to Switzerland.

5.2 The Move to Switzerland in 1949
Penny less Nicolas Hayek now lived in Switzerland. Back then, the xenophobia was much more pronounced than it is today, above all when it came to foreigners without any financial means. His Lebanese appearance combined with his poor German provoked a strong aversion by many Swiss. Even later in life, because of his appearance, his loose ties, and rolled up sleeves he stood out from the crowd.

At first, it was very difficult for him to find a job. However, after a long search, he finally caught a break and received an internship at the Swiss Reinsurance Company [Schweizer Rückversicherung] as a mathematician. But it did not take long for him to realize that this was not the job for him. And while he knew that his talents were not being utilized, for the sake of his wife Marianne, he did let it get him down.

In 1951 he married Marianne, and in the same year she gave birth to their daughter Nayla. Hayek was not sure, however, how he was going to be able to support a family.

5.3 The Acquisition of the Machine Factory and Iron Foundry Ed Mezger
Fate took Hayek in an unexpected direction. His father-in-law suffered a stroke and was taken immediately to the hospital. Since his children were too young to take over the business, the Machine Factory and Iron Foundry Ed Mezger was effectively a ship without a captain. Confronted with this prospect, Marianne and her mother asked Hayek to take over the family-run business. He did not need to be asked twice, and accepted the offer to become company’s director.

In the beginning, however, this was no easy task. His German still wasn’t very good, not to mention his Swiss-German, and he did not have any experience in this branch. To make matters worse, the employees did not trust their new foreign boss. However, within several months, Hayek had learned enough Swiss-German in order to let the employees know what is what.

In 1956 Hayek travelled to Düsseldorf in order to attend a convention for foundries. With directed and concerted questions, Hayek was able to extract a great deal of important and useful information from other colleagues attending the convention. His inactions were profitable not only in the sense of having acquired useful knowledge about the industry and how it works, but he was also able to return home with several new customers. The orders the new customers placed brought in enough money to allow the company to buy the production halls which they had until then been renting. As such, Hayek skills as a director made it possible for the company to gain its independence.

5.4 The Recovery and Return of the Father-in-Law
In the meantime, Hayek had become accustomed to calling the shots and not having to justify his actions to anyone. Yet, once his father-in-law had recovered from the stroke and wanted to take over as director again, Hayek had great difficulty assuming a subordinate role within the company. The inevitable confrontations that ensued were eventually resolved by Hayek leaving the company, and a very strained relationship to his parents-in-law.

While Hayek had learned a great deal during his tenure as director of the company, he also came to realize that he could not assume a subordinate position, i.e. work for someone else. Since he now knew several important figures within the machine factory and foundry industry, he decided to become independent and found his own company.

6. The Beginning of Hayek Engineering
Once again, Hayek was unemployed. At least this time he had some equity to work with. Yet, this was only enough to pay for his room in a boarding house. His family, Marianne, Nayla and the newly born Nick, had remained with the parents-in-law in Aarberg near Bern.

Since what little equity he had was grossly insufficient for starting a company, Hayek took out a loan for 4,000 Swiss-francs from a bank. Initially, this money was used to rent an office in the Bahnhofstrasse 11 in Bern. Together with a colleague named Knight, Hayek founded a management consulting company in 1957, where he served as an adviser.

However, as is often the case when starting a business, the beginning was very arduous. Hayek received one rejection after another. It was claimed that he was too insignificant a figure, lacked adequate experience, and thus did not possess enough knowledge to run a consulting firm. Making matters even more difficult, the company did not even have a telephone. When Hayek needed to make a call, he had to use the public telephone across the street from his office. And the business contacts that he had made when he served as director of the Mezger factory, those who promised to help him, suddenly did not want to have anything to do with him. He has at the end of his rope. The situation seemed so hopeless that it was only because of Marianne’s support that he was able to endure and continue forward.

Then came the breakthrough – not in Switzerland, but rather in Germany. Germany was still in the midst of re-organizing and rebuilding its industry after the Second World War. To this end, and in a attempt to avoid the mistake they made after WWI, the Americans, English, and French lent Germany an enormous amount of money. Hayek was able to use this situation to his advantage, and soon was able to count the most well-known Germany industrial company to his list of clients. Even in Switzerland, the previously unknown Hayek was beginning to make a name for himself.

When Hayek first came to Switzerland as a man without financial means, he was denied naturalization as a Swiss citizen. Yet, now a successful businessman, his application for naturalization was finally approved. A further significant step for Hayek and his family involved a short day trip Marianne and her son Nick took to Hallwilersee [Lake Hallwil]. As the story goes, Nick was so impressed with the area and landscape that the family decided to build a house there. With his naturalization, an expansive and quiet place of their own, and a successful business, one could say that Hayek had finally arrived.
In 1963 Hayek registered his consultancy firm with the city’s trade register (image 6.1) and moved, without his business partner, into new offices in the Dreikönigsstrasse 21.

6.1 The Reasons behind Hayek Engineering’s Success
The reasons for Hayek’s success have partly to do with his wife Marianne, who had always supported and encourage him. However, the greater part of his success is due to abilities as a businessman.

“Jochem Thieme, who had the opportunity to observe Hayek closely during the ca. fifteen years he worked for him, characterised him thusly: “Never have I ever encountered an individual with such a combination of attributes: highly intelligent, a memory like an elephant, extremely quick thinking, diligence, and tremendous energy combined with an almost women’s intuition”.

“Hayek is able to immediately distil the most important elements from a chaotic complex of numbers, and then draw the appropriate conclusions”.

In contrast to the often repeated figure of 350, Hayek Engineering consisted of roughly 40 employees. Hayek almost exclusively hired those who would bring a great deal experience to the table. “He preferred physicists to engineers because physicists don’t give up so quickly. They keep pushing the limits and sometimes even go beyond them”.
The working conditions at Hayek Engineering were strictly regimented. Hayek only paid the hours that someone was actually productive. Time spent travelling was not considered work time. Moreover, despite the fact that almost everyone worked a great deal of overtime, only 40 hours of work were paid. Yet, to encourage his employees to constantly strive for more, bonuses for the best employees were given at the end of the year.

All of the proposals that the employees came up with had to go through Hayek. He would look over each proposal and make notes in the margins. Hayek had to know everything that was going on in the company, and nothing left the firm without his approval. One could say that he was a bit of a ‘control freak’. For instance, once during a meeting, a client asked the advisor responsible for his contract about something and not Hayek (who was present at all meetings). Apparently this was too much for Hayek and he then loudly exclaimed that he was the boss here and not the employee – the client should speaking directly with him. Somewhat disgruntled, the employee left the room.

Hayek routinely called his employees on the phone in order to keep them on their toes (image 6.1.1). He even called his employees during holidays. He was never without a phone – even while driving.

Hayek Engineering continued to grow. In Switzerland he was able to acquire several clients and was constantly receiving inquires per telephone. The most important call, however, came from Ms. Esther Grether, owner of the Doetsch Grether AG. The company products, among other things, the well-known “Grether’s Pastilles” and is in charge of the distribution of Nivea products in Switzerland (image 6.1.2). The phone call from Ms. Grether marked another major turning point in Hayek’s life.

6.2 Hayek Engineering, SSIH and ASUAG
Ms. Grether received a call from the general director of the SBG, Peter Gross. He wanted to know whether she was interested in investing in the watch industry – to which she replied, “Why not?” (image 6.2.1). She then asked Mr. Gross if he already had someone in mind to manage the company she would potential invest in. He replied that he did not. Ms. Grether then said that she had a few consultants that she would like to involve in the project – one of which was Hayek.

Ms. Grether promptly called Hayek.

The telephone rang for quite some time before Hayek picked up. He brashly asked whether she had enough money for such an enterprise – to which she responded, “Yes, es bizzeli öppis. Let’s say five million”. Without delay, Hayek said that he was already on his way over.

In reality, Hayek did know what he had gotten himself into. The watch industry was new ground for both him and his advisor. Despite his ignorance of the trade, Hayek was eager to master the task at hand.

He was instructed to make an accurate assessment of the SSIH because it had a few problems. Hayek immediately sent his vice director Jochen Thieme and several advisors to Biel in order to assess the situation at SSIH.

The watch production facilities were nothing like the large, loud factories and foundries they were accustomed to analysing (image 6.2.2). The concepts and terms belonging to the technical terminology like movement blanks, spiral spring, bezel and dial used in the watch industry were mostly foreign to the advisors. While Thieme and his advisors did the best they could to assess the situation in Biel, they quickly realised that the approach needed in the case of SSIH would differ greatly from their usual assessment approach to foundries.

Despite the initial setbacks, the advisors identified the corporate culture as the most significant weak point in the system. SSIH’s marketing strategy was out-dated, and would eventually ruin the company. The company’s management was completely ignorant of this fact until Hayek’s advisors explained the current situation and recommend that immediate action be taken in order to advert a disaster.

Once all of the weak spots and potential counter-measures were discussed in a meeting with the bank corporation [Bankverein], the Omega-Tissot-Group (SSIH) and Hayek’s advisors, did the banks commission Hayek to conduct another analysis – this time of ASUAG, whose situation was at least as bad as that of SSIH.

The advisors had a fair amount of work ahead of them. The screening of ASUAG took over a year and uncovered one mistake after another during the analysis. All of the suggestions were gradually pushed through by the creditor bank. The entire management was let go and a five person control committee was given acting authority. The committee consisted of a bank representative and selected experts in the field. One of these experts was Ernst Thomke, who would later go on to work with Hayek.

7. The Schweizerische Gesellschaft für Mikroelektronik und Uhrenindustrie AG
In the fall of 1982, the control committee decided, in accordance with Hayek’s assessment, to merge SSIH and ASUAG; for the order for SSIH to file for bankruptcy had already been issued. The merger, however, was postponed for six months in order to wait for Hayek Engineering’s final report. Against all expectations the report concluded that saving the two watch manufacturers was not out of the question. The report indicated that a great number of errors and mistakes made by both companies were the result of a poor marketing strategy and lack of automation. Nevertheless, the report came to an optimistic conclusion and indicated that the prospect for a brighter future was indeed available.

In 1983 SSIH and ASUAG merged into the Schweizerische Gesellschaft für Mikroelektronik und Uhrenindustrie AG (SMH). The new company was divided into three parts: (1) finished watches, (2) watch parts and components and (3) diversification.
Ernst Thomke was elected to the board of directors and placed in charge of the finished watch division, where he has done well for Swatch. The banks to a large extent followed Hayek’s recommendations. Now, he had his hand in everything. In the meantime, Hayek Engineering had earned around 200 million Swiss-Francs.

Despite the merger, the banks were still somewhat sceptical and were quite reluctant to approve a further expensive reorganisation measure. However, they really did not have a choice in the matter. To not approve the measure would have meant losing their entire investment. As such, roughly a billion Swiss-Francs were pumped into the company – an investment that soon began to pay-off. Within one year the industry was doing better and the worst of the crisis lay behind them. The prospects for generating a slight profit in 1984 looked realistic. Slowly but surely, the watch industry was on the path to recovery.
Despite the visible improvements in the industry, the banks were nonetheless not willing to continue with the project, and wanted to get rid of their SMH shares. They believed that the watch industry was going to take a turn for the worse and wanted to minimize their exposure by selling off their stocks.

8. Hayek and the SMH
Hayek Engineering had been very successful over the years, and Hayek had become a wealthy man. He began to search for a company that he could invest in and asked Peter Gross whether he knew of a company that would “fit” him. After some time, Gross responded, “SMH would fit the bill. You already know everything you need to know about the company!”. Once Hayek decided to purchase a two-year limited option of up to 51% of the shares, the then bank president Niklaus Senn immediately agreed. Hayek, however, did not want to carry the entire risk alone, and thus started searching for other investors. The first person he contacted was the multi-billionaire and investor Stephan Schmidheiny.

Schmidheiny was warned about such a step, but the fact “that Hayek was willing to risk his own fortune on the accuracy of his own assessment had impressed him”. In 1985 Schmidheiny and Hayek respectively bought 7% of SMH. The news spread quickly and the course started to climb. Hayek knew that he had to act quickly, for the longer he waited the more expensive the whole proposition would be for him. As such, he and a consortium of investors, among them Esther Grether, bought a 51% majority of the company. Schmidheiny and Hayek now owned 17% respectively and had paid together 94 million Swiss-francs to do so.

For strategic reasons, Hayek wanted to bring another investor on-board. When he approached the former head of Migros Pierre Arnold with the idea, Arnold did not want anything to do with it. Only once Hayek had practically begged him on his knees to join them did he finally agree. Since Arnold did not have enough money to invest in SMH, he had to borrow 2 million Swiss-francs from a bank. Several years later Arnold was able to sell his shares to Hayek and Schmidheiny for several time their original value.
The consortium had to abide by fairly strict rules. No one was allowed to sell their shares to a third party without a vote. Hayek also had the right of veto, thus he was able to protect himself from possible revolutions. Furthermore, Schmidheiny had a contract with Hayek that he would give his vote to Hayek.

Hayek had succeeded in becoming the dominating figure in the watch company. In June of 1986 he officially took over as director of the company, thereby replacing Pierre Arnold as president. To commemorate the occasion Hayek put on a feast at his house in Meisterschwanden near Lake Hallwil. Everyone in attendance had something to celebrate. The investors had acquired the controlling interest in the company for the bargain-basement price of 150 million Swiss-francs (half of its market-value), and Hayek celebrated his assent to company president.

9. The Swatch Group
SMH was re-named the Swatch Group in 1998. One of Hayek’s ambitions was to have at least one brand in each of the market segments – a feat that he eventually accomplished. With the addition of a several renowned watch manufacturers, the Swatch Group currently presides over 19 different brands.

Eventually Schmidheiny sold his shares to Hayek, who thereby acquired controlling interest in the company. Under his management the value of the Swatch Group had increased by a factor of 27. In 2009 the Swatch Group produced 3,996,000 watches – 1,433,000 of them with mechanical movements. None of the movements or components utilized in the watches were sourced from third party manufacturers. All of the watches were produced in Hayek’s factories in Switzerland, China and Thailand. His ETA SA manufacturer in Grenchen (Biel) produces the heart of the Swiss watch industry: the Valjoux 7750 (also known as ETA 7750) movement blank.

Without this movement the majority of chronographs manufactured in Switzerland would not work. To more precise, the ETA supplies movements not only to the brands belonging to the Swatch Group but a number of other brands as well, e.g. IWC, Breitling and Panerai. The ETA has a 75% market share of the production of movement blanks in Switzerland. With the exception of Rolex with a 15% market share and a select few expensive luxury brands, there are no other movement manufacturers. And since Rolex only manufactures movements for its own production, it does not present any real competition.

The Swatch Group’s marketing strategy belongs to the best in the world. There is not a single watch magazine that does not depend on the Swatch Group’s advertising for its survival. Senior Hayek even tried to publish his own watch magazine, but it did not succeed.

The Swatch Group’s advertisements are everywhere – whether it be tennis tournaments, conventions, auto races, open air events, ice sports of all kinds, in newspapers among many others.

The next section deals with the question as to how the Swatch brand was able to achieve such a marketing presence.

9.1 The Swatch AG
The Swatch watch is the bestselling watch in the world. Up till 2008 the Swatch AG had designed 5,000 different models, and from these models over 370,000,000 wristwatches have been produced. The Swatch AG has 600 of their own stores throughout the world. Moreover, they organize among other things a variety of events and competitions. In 2009 Swatch sold 10 million watches (99% quartz and merely 1% mechanical). They present two new collections pro year each consisting of 70 different models. Swatch’s flexibility and world-wide recognition contributes to their ambition to appeal to everyone and adapt to any trend.

No one would dispute that Swatch is one of the best managed companies in the world. The brand’s success, however, was not clear from the very beginning. In November of 1982 only a few hundred watches were sold. Luckily, this trend did not stay static, and by 1985 Swatch was selling 1 million per month.

Today, Nicolas G. Hayek is referred to as Mr. Swatch. While he certainly is responsible for making Swatch what it is today, he did not contribute to it genesis. It was Thomke, the former director of ETA, who commissioned the construction of the first Swatch watch and brought it to market in 1983.

“In the beginning the Stimmung was in no way euphoric. Some thought that this ‘unserious’ plastic product in flashy colours would marginalize Swiss watches and intensify the then crisis.”

On the contrary, the Swatch watch would eventually go on to become a tremendous success and helped heal the wounds of the Swiss watch industry. The next section will treat how this success came to be.

9.1.1 The History of the Swatch AG
In order to compete with the Japanese and re-take the watch market they lost, the Swiss watch manufacturers needed an extremely thin quartz movement. Responding to this call, in 1976 ETA (a subsidiary of the Ebauches SA) developed a quartz-calibre (quartz movement) only 3.7 mm. high and brought in to market. The movement’s diminutive dimensions allowed the production of a watch only 6-8 mm. high. This movement triggered a virtual watch ‘space race’ between the Japanese and the Swiss.

In 1978 Japan responded by bringing a movement only 4.1 mm. high to the market. In the same year, they bested their own record with an improved version: a quartz watch merely 2.5 mm. high.

The only way to top this mark and break the 2 mm. limit, the quartz movement had to be completely redesigned. ETA was able to achieve their goal by incorporating the watch bottom directly into the watch housing. This design not only saved vital space, but also greatly reduced the production costs. The result of these efforts was the world’s thinnest watch. At only 1.98 mm. the watch was not only remarkable thin, but also extremely expensive. The “Delirium Tremens” (most likely a play on “très mince” cost 40,000 Swiss-francs per timepiece.

The newly developed integration of the housing bottom into the housing was carried over into other models. Thomke had the ETA engineers attempt to construct a much less expensive version of the Delirium Tremens. However, it did not take long for him to recognize that this direction was not the solution they were looking for. He once again gathered the ETA engineers together to reassess the situation – this time the synthetic material specialist Elmar Mock and the watch technician Jacques Müller.

Both Mock and Müller, under the constant pressure from Thomke, contributed the most to the genesis of the contemporary Swatch. Thomke had succeeded in creating a thin and inexpensive watch. This breakthrough was the reason why the newspapers at that time began to refer to him as Mr. Swatch – a title that the media has now bestowed upon Hayek.

The newly developed quartz watch now consisted of only 51 parts instead of the previous 91. Additionally, the watch housing consisted of a plastic and was only made possible via a special injection moulding process.

The man responsible for inventing the name “Swatch” as marketing consultant Franz Xaver Sprecher, who created the name for the label by combining the words “Suisse” and “watch”. This in combination with the marketing strategy he developed, which to a large extent contributed to the brand’s success, is why he too is considered one of the Swatch AG fathers. Together Hayek, Thomke and Sprecher brought the Swatch AG up to speed. The general strategy they conceived and implemented still serves a model for other today.

9.1.2 Swatch before its Success
The test market for the launch of the Swatch was the U.S., and it was an absolute flop. While there were many reasons for the failure, two in particular stood out: (1) the lack of a solid marketing strategy and (2) the design of the watch was too conservative.
Something had to be done quickly if they were going to save the idea. As a result, marketing strategist Franz Xaver Sprecher and several other industry designers were brought onboard to come up with a solution. Franz Sprecher immediately set about the task and penned the following maxims:
“With the Swatch watch we want to obtain a strong position in the international markets.”
“Swatch is not intended to be a short-lived fashion fad, but rather should establish itself as a long-term fashion brand.”

“The Swatch should recapture the market share lost to the Japanese and Far East competition”.

Now that Swatch had a definite set of goals in mind, it was time to develop a well-thought out marketing strategy. The usual strategies would not be effective in this case, because the Swatch was not an expensive timepiece with a longstanding heritage and meticulously constructed. A new approach was necessary. However, before they could bring the Swatch to the market, they needed to formulate a specific message:
The Swatch should represent a watch that brings together cutting-edge technology, high quality, yet offered at a low price. A watch that stands for fun, lifestyle and provocation; one that stands out due to its fresh and playful design, yet produced in a way the respects the environment. The Swatch was conceived as a second or accessory watch. “One should be able to change the watch as one changes a dress shirt, T-shirt or the bathing suit”.

9.1.3 The Swatch Strategy
The strategy consisted of a marketing mix of the four P’s:
• Product
• Price
• Place
• Promotion

9.1.3.1 The Product
The goal was to offer a large assortment of Swatch watches that would be able to follow new trends. The fully-automation of the production lines made it possible for the company to adapt quickly. Each watch should be unique, yet, at the same time, based upon the same kind of watch. Swatch brings roughly 140 new watches to the market each year. They are designed in Milan, where the designers are inspired by the newest fashions, trends, and cultural atmosphere.

Here are four of the most well-known types of Swatch watches:
• MusiCall
• Maxi Swatch
• Swatch Solar
• Swatch Chrono

9.1.3.2 Price
The fully-automated production lines not only made it possible to rapidly respond and adapt to new trends, but also meant that the company could save on personnel costs. Furthermore, Swatch watches were sold directly to customers via so-called Swatch-Shops, thus cutting out the ‘middle man’ and thus reducing the retail purchase price.
A standard Swatch watch has remained around 50 Swiss-francs. Occasionally, a limited collection is produced in order to raise the prices during auctions.

9.1.3.3. Location
The watches were sold in department store, boutiques, sporting goods stores, traditional watch stores as well as in Swatch-Shops. Kiosks and discount store were excluded because they would have damaged the brand’s public image. The watches were sold in so-called store-in-stores, where a smaller section or department was exclusive for the Swatch brand. These departments were intended to radiate a cheerful, festive and artistic atmosphere – everything that the Swatch watch embodied.

Nonetheless, the number of retail outlets should remain relatively small. In the words of the Swatch AG: “As many sales as possible with the least number of points-of-sale”.

9.1.3.4 Advertising
The Swatch AG’s advertising campaigns are characterised by innovative fashion products, bright colours, and striking design. Events are constantly being planned and often take place at unusual locations, e.g. at the Scottish Loch Ness.

Hayek can often be seen with famous individuals such as Cindy Crawford, Dean Barker, to name but a few. Public relations, special events and unconventional promotional strategies are very important to the Swatch AG. Swatch’s innovative and sometimes even outrageous promotional gags, for instance, the 165 meter tall, 13.5 ton giant Swatch hung from the German Commerzbank in Frankfurt, were not uncommon. (image 9.1.3.4.1)
Thus, it came to be that the Swatch AG grew and grew and has now occupies an important place in the Swatch Group next to the luxury brands like Breguet and Omega.

10. Summary Remarks
With the ETA-Manufacturer, Nicolas Hayek has built up a virtual monopoly within the Swiss watch industry. He bought up all of the factories and plants that produce watch movement components. Since he is the only supplier (with the exception of Rolex and a few extremely expensive luxury brands), he can set any price and decide to whom he sells. Only those able to present a clear concept and who have not come into conflict with Hayek receive his watch movements. While there have been several lawsuits involving this business practice, none of them were successful.
However, this does not mean that Nicolas Hayek should only be casted in a negative light. The fact is, without him the Swiss watch industry probably would not even exist. Together with Ernst Thomke, Jochen Thieme, Franz Xaver Sprecher, his wife Marianne, Hayek saved the industry. One could say that he was the right man, at the right time and at the right place. No other person could have done what he did. While Ernst Thomke is clearly a talented and competent businessman, who routinely helps companies out of difficult situations, once the company in question is doing better, he then leaves to seek out a new challenge. I firmly believe that he could have helped the watch industry, but not to the same extent that Hayek did.
Nicolas Hayek has had a great impact upon all of us. He kept an important and vital economic sector from being lost and was able to re-establish the positive image of a valuable Swiss product abroad. Some see in him a heroic figure, while others see him as egocentric, overbearing monopolist. During the course of my research I have come to know both side of this controversial, yet complex figure.

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*I would like to thank my family for their support. I would especially like to thank my father for assisting me with the content and my mother for the proofreading of the article. Thanks also go out to Martin Buschbeck, Oliver Benz, René Weber, Lucien F. Trueb, Jürg Wegelin and Lukas Egli.

 (Posted with explicit permission of Mr. Dreifuss from ‘Maurice de Mauriac‘)