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I thought this was a good synopsis on a topic that many of us are familiar with . . .


ETA Withdrawal: The Fake Revolution ?

Olivier Muller is half Swiss, half French, and has been raised in the world of haute horlogerie & luxury watches right from the cradle. He now works in Public Relations in Paris.


Nicholas Hayek of the Swatch Group

In accordance with its strategic plans, ETA will withdraw the supply of blanks at the end of 2010. As the company currently has the monopoly on this market, it is reasonable to expect that many other players will be keen to jump into the gap left empty by ETA. But who really can?

To find out, we spoke to the people in the know, the movement makers themselves.

The Eight Year Withdrawal
Mr Hayek, the president of the Swatch Group, has never made a secret of his plans for ETA: ideally, in the long run, the company will not supply any component of its own creation to any company, even within the Group itself, for cost reduction reasons.

Therefore, back in 2002, Swatch made the first move to put this plan into action, starting with blanks. But the Swiss Competition Commission (ComCo) hadn’t a different take on this entirely. In their opinion the Swatch Group’s position in the watchmaking industry was simply too important to be altered without specific conditions; otherwise, such a withdrawal could jeopardize the economic balance of the industry.

Consequently, in 2004 Swatch was forced by the ComCo to continue the provision of its blanks to third party clients outside of the Group until the end of 2010.

A time-frame which is fast drawing to a close.




Many brands use ETA movements or modified variants, like this Limes model above.

Market Dominance
With a market share estimated, according to our information,at 75% of the 3.5 to 4 million “Made in Switzerland” watches produced each year, ETA all but controls the supply of watch movements. Especially when you consider that this figure would be closer to 90% if we exclude the number of watches powered by movements that have been created exclusively in-house, such as Rolex or Patek Philippe.

Looking at it in this light it is clear to see that the withdrawal of such a big player from the market would automatically free up a huge share of the market. But is it still really free?

Not necessarily.

Preparing For The Inevitable
You see, some of ETA’s more astute competitors have been slowly but surely positioning themselves to achieve maximum market share upon ETA’s exit. One company that has already taken a big part of the cakeis Sellita. The company assembles more than one million ETA pieces per year – which gives it a comfortable lead over competitors almost to the point where some might wonder if there really is enough space for other players.

Other suppliers have also taken steps in preparation of ETA ceasing the provision of blanks. The La Joux-Perret Manufacture, which has built close business relationships with Sellita both as a supplier and a client, started their transition program back in 2004.

This withdrawal is not a surprise to anyone. Before the economic crisis of 2009, ETA had ready raised its prices by 15%, and we have all known the approximate timing of their withdrawal from the blanks market since 2004”, explains Frédéric Wenger, GM, Manufacture La Joux-Perret SA. “Sellita has been in the market for many years, and thus they are best positioned to deliver generics at the comparable prices.

And what would happen if ETA was also allowed to stop supplying finished movements, one day? According to Mr Wenger, this is not a likely scenario;
“I don’t believe this is a realistic option.In this case too, their dominant position would create for them the same obstacle they had with the blanks supply. It would imperil some brands, or even spell death for others, which is definitely not an option in terms of competition and market regulation.”

It seems than, at least for now, that Mr Hayek’s desire to lock out his competitors will continue to run counter to his own success!


An ETA movement in a Swatch Group owned Certina

What about the end consumer?
As we mentioned here, the type of movement used to power a watch, especially from the high end range is critical, but we assume that this is less important for low to middle-end devices. Moreover, Sellita’s products are now the strict equivalent of ETA’s. But maybe, as a guarantee against what the future may hold, brands should start investing money into develop their own movements, in order to protect their independence?

Unfortunately whilst this sounds good, it is not really realistic. Firstly, many brands simply don’t posses the expertise and the technology required to manufacture movements in-house. Even if they did, it is likely that cost of such movements would be at least twice the price of Sellita’s, thanks to the lack of economies of scale. And, in the end, it almost guaranteed that there will be some reliability issues, especially in comparison so some of the pieces that are shipped by the millions!
***
As promised we also had a chat with Mr Miguel Garcia, the General Manager of Sellita. Thank you to those who submitted questions, we tried to ask as many of them as we could.
Please enjoy.

Exclusive interview of Miguel Garcia – General Manager, Sellita

TWL: How do you think the recent announcement of ETA will impact Sellita?
MG: This is an anticipated situation, as we were, with some other companies, at the origin of the ComCo complaint, which has led to their obligation to keep on supplying blanks until the end of 2010. To date, Sellita is the biggest client of ETA’s blanks. We started producing our own substitute blanks in 2004 / 2005.

TWL: Are the ETA and Sellita blanks interchangeable?
MG: Yes, completely interchangeable, bar a few minor differences.

TWL: Even with ETA’s older pieces?
MG: Yes, I think, but don’t forget that ETA has to provide their customers with after-sale service for their entire catalogue, even after the end of their supply.

TWL: Do you expect an increase in demand?
MG: No. We produce one million units per year, and our goal is above all to maintain this level, in association with the highest level of quality. We don’t run for quantitative objectives, only for qualitative.

TWL: How can you expect your market share to grow?
MG: We think 20% of market share is a reasonable goal. It allows us to work on reasonable volumes closely linked with our high quality standards, while also allowing space for competitors to enter the market.

TWL: Do you think that Chinese industry will try to fill the gap?
MG: With regards to Sellita, there are no business relationships in the pipe-line with any Chinese company, however good they may be. We defend and believe in the “Swiss made” brand, and it’s important to us to keep our know-how and our expertise here, and also to have local plants. To date, 97% of our production is Swiss made. To be honest, a partnership with a Chinese company has never even crossed my mind!

TWL: What do you think about the legal project to regulate the “Swiss made” convention, supported by percentages?
MG: This is outside my scope, but personally speaking, I think it’s a measure that can only promote and protect our know-how, guarantee our quality and consequently, at the end, protect consumers.

 

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Very good read. The question is simple - who steps up and fills the demand for product that will now be there. Someone WILL step up, and probably already has.
 

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Rick that is some very interesting stuff, It looks the Sellita, ISA, citizen Miyota and the Chinese will be stepping up to the plate.
 

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Great information. This should increase the value of the ETA movements and increase the price of the watches that use them. Sellita makes a great comparable movement so I suspect many companies will turn to Sellita for their movements.
 

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I've been intrigued by this "saga" since I first heard about it. It's going to be (has been) an interesting transition.

Personally, I enjoyed reading the remarks by Miguel Garcia – General Manager of Sellita . . .


"With regards to Sellita, there are no business relationships in the pipe-line with any Chinese company, however good they may be. We defend and believe in the “Swiss made” brand, and it’s important to us to keep our know-how and our expertise here, and also to have local plants. To date, 97% of our production is Swiss made. To be honest, a partnership with a Chinese company has never even crossed my mind!"



Where as I have no issues with movement sourced from anywhere . . . it's nice to see the eventual successor to ETA, state it's proud Swiss traditions will continue. It would be nice to have at least one major Swiss auto manufacturer to choose from in our Invicta, Renato, Oris, Breitling, Ball, etc.:wf
 

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If this happens, which I'm not entirely certain of, it should increase the value of the ETA movement watches. Everyone always longs for the bygone days...yada, yada, yada. Sellita makes a perfectly good movement, but I'm glad my Oris has a caliber based on an ETA. I think the long term value is enhanced, but we'll see.

I also understand that Sellita is about to get some pretty stiff competition from Japan, as Miyota is at the final testing phase of their 28,800vbh mov't. This movement will hack and be as smooth as the ETA and Sellita movements and should be able to sell for less and still offer the same reliability. (Maybe better...?)

We'll see how long the "cache" of SWISS movements can last. Remember, MADE IN USA meant a better watch than ANYWHERE in the world at one time. BALL is still benefitting from that history...

Good thread.
 
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