By Sigurd Neubauer
04/03/2023
Whether you aspire to acquire your first Rolex, or if you’re already enjoying a considerable collection of Swiss watches, the highly sought after commodity is offered at nearly every price level. The Swiss watch industry is also dominating international markets.
In a wide-ranging interview with the President of the Federation of the Swiss Watch Industry FH, Jean-Daniel Pasche, we discuss his industry and the various challenges and opportunities it faces.
We begin by focusing on how to balance between preserving brand recognition and innovation, and to what extent digital and smart watches have disrupted the industry.
“Digital and smart watches have not really impacted the Swiss watch industry because they are two different products, especially when it comes to the high-end,” Pasche explains, adding that if there’s any competition between the two, it is in the “low-end.” But, he prefaces, “consumers may also purchase both.”
The Swiss watch industry is the country’s third largest exporter after machinery and equipment, and chemical-pharmaceutical products. Of the 15.8 million watches produced in 2022, 95 percent were exported, which in turn generated $25.8 billion in value for the country that year.
“80 percent of our exports are covered by Switzerland’s various Free Trade Agreements (FTAs),” the FH president says.
A lawyer by training and former civil servant, Jean-Daniel Pasche has served as President of the Swiss Watch Industry FH since 2002. Photo credit: Courtesy
The United States has surpassed China and Hong as the largest market for Swiss watches
Last year, the United States surpassed China and Hong Kong as the largest market for Swiss watches. With an increase of 23.9 percent, North and South America achieved the highest level of growth and accounted for 19 percent of Swiss watch exports in 2022, according to FH.
Pasche predicts the robust U.S. growth to continue for 2023 and beyond, which he attributes to a strong in-country marketing strategy.
In China and Hong, sales fell 13.6 percent and 10.5 percent, respectively. The decline was mostly attributed to China’s ‘Zero-Covid’ policy, which saw draconian lockdowns imposed across the country from the pandemic’s eruption in early 2020 until they were eventually lifted in November 2022.
“The rise of nationalism and protectionism go hand-in-hand,” Pasche explains, then quips: “Our companies cannot produce different watches for different markets.” The most difficult markets for the Swiss watch industry are India, Brazil, and Turkey, he adds.
Responding to how watch companies innovate, Pasche explains that they do so primarily in two ways:
“First, a company innovates by developing new models and designs to remain attractive.” For example, this could include incorporating new materials into the watch with the goal of replacing oil for the wheels of its movements, he adds.
Second, when it comes to design, each brand tends to balance between evolution and preserving its models.
“Some brands are more traditional while others are disruptive,” the FH president says without mentioning any specific companies but emphasizes that his trade group has over 550 members.
250 of the FH members are watch companies while the remaining are suppliers. Pointing to what he describes as the “richness” of his industry, Pasche reveals that “traditional brands have to make some evolutions within the models without destroying the model itself.”
In practice this means that a traditional model could either adjust its size into a slightly bigger one or to change the color of the dials. It could also introduce precious stones and/or change its wristbands.
“They can play with different elements of design, but what’s important,” Pasche explains, is that “the consumer always recognizes the model at first sight.”
The following Swiss watch companies could be considered traditional brands:
Rolex; Patek Philippe; Longines; Breitling; TagHeur, among others.
Then there’s the industry disruptor: Richard Mille. Over the past decade, the company has transformed itself into a top brand through a combination of its avant-garde design coupled with the fact that its watch movement is modeled on the motor of a car.
The owner, Richard Mille, enjoyed a storied career in the car-racing sport prior to establishing his namesake watch brand in 2001.
Counterfeits
With its staggering success, the Swiss watch industry also faces numerous challenges, including in the battle against counterfeits.
Each year, the Swiss government destroys between one-to-two million counterfeits, Pasche explains. “Our goal is not to stop the counterfeits because that would be unrealistic, but what is critical for us is to maintain consumer confidence in our true watches,” he says, while adding that the FH is trying to reduce the visibility of the counterfeits.
The FH is also organizing training for law enforcement and customs agencies around the world on how to detect, disrupt and seize the counterfeits.
The destruction of the counterfeits are organized locally where the fakes have been seized : China, Dubai, UAE, Pakistan, Europe and so forth.
The FH also provides expert analysis for the relevant courts presiding over seized counterfeits, which affords it with the opportunity to discover the origins of the counterfeits.
The battleground against these criminal enterprises is also increasingly playing out on social media where Pasche oversees a team that is responsible for immediately shutting down any counterfeits advertised.
“We stop about one million of these announcements a year,” he adds
Switzerland is known for its business friendly climate: Pasche
‘Swiss Made’
Bern strictly regulates the term ‘Swiss Made,’ which requires the various watch companies to adhere to the following requirements: All technical developments must be carried out in Switzerland; the movement in the motor has to be Swiss; the assembling of the watch has to take place in Switzerland; the final product has to manufactured in Switzerland; and finally, 65 percent of the watch’s material has to be procured in Switzerland. “Without fulfilling these five conditions, a company cannot brand itself as ‘Swiss Made,’” Pasche explains.
The FH is also part of Economiesuisse, the country’s largest pro-business organization tasked with shaping regulatory policies ranging from taxes to energy, and even foreign policy.
“Because of our close and friendly contact with the authorities, we are in a good position to advocate for and defend our interests, especially once problems occur.” Pasche is specifically referring to the Covid-19 pandemic.
He also describes Switzerland’s regulatory environment as “rather good,” pointing to its low taxes and VATs compared to neighboring countries.
The FH also engages in lobbying and government relations within the various markets where its watches are sold to ensure that taxes are low so that its commodities can be sold. At home, it lobbies the Swiss government to promote free-trade policies while providing global market and economic analysis for its manufacturers.
Pasche concedes nonetheless that there is a shortage of watches available on the global market because of a shortage of workers in Switzerland.
“The production cannot follow the demand,” he says, referring in particular to some of the country’s most popular brands.
“For these brands to maintain the high quality and value, they cannot just grow the production to meet demand. Some companies increase production, but one cannot double or triple it as there’s just not enough human capital and natural resources available to meet demand.”
Switzerland’s highly educated workforce is at full capacity, he adds.
On what it takes to become a ‘Watchmaker’ in Switzerland, the FH President reveals that it requires completing a four-year apprenticeship program. The coveted title is protected under the law in order to ensure that the highest standards for the industry are met, he says.
There are several types of educational programs for learning the trade, one of which includes a two-year program focusing on operations. For research and development, engineers are needed, he explains, pointing once again to the close public-private partnership that his industry enjoys. “We have to adopt the training program for what the industry needs.”
For the curious consumer contemplating what watch to purchase, Pasche responds in a character like Swiss manner, namely diplomatically: “Selecting a watch is a matter of taste and price, we have 250 brands each with its own identity.”
For Pasche, who has held his current position for the past 21 years, being president of the
Federation of the Swiss Watch Industry FH is an honor of a lifetime. He will be retiring by the end of the year and looks forward to spending more time with family. “I have worked enough in my life,” he says with a laugh.
The destruction of the counterfeits are organized locally where the fakes have been seized : China, Dubai, UAE, Pakistan, Europe and so forth: Pasche