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Is Switzerland a ‘Company Town?’

WENGEN, Switzerland —The elite of the watchmaking world are planning to gather Thursday for the Oscars of their industry, the annual Grand Prix d’Horlogerie de Genève.

Much like the Hollywood event, there will be tuxedos and elaborate gowns at the Théâtre du Léman in the Grand Fairmont Hotel. And the presentation of the 18 awards, including the Aiguille d’Or for the outstanding watch of the year, will be broadcast live on Euronews and streamed on the organization’s website.

Outside, as the Jet d’Eau sprays into the air, the city’s lakefront skyline will be lit in neon — as it is every night — with some of the world’s best known luxury watch names.

This is Switzerland, after all.

“People think the capital of watchmaking is Switzerland,” said Vincent Jaton, a consultant who manages watch exhibitions in the Vallée de Joux, the heart of Swiss watchmaking. “It’s a little country — like a town for the Americans.”

So if Switzerland is the world capital of watchmaking, does that make the country a “company town?”

There is no definitive answer, but there certainly are a lot of opinions.

Image of Excellence

Not surprisingly, industry executives say watch brands play a crucial role in creating an appealing image for this country of almost 8.7 million.

“When you arrive at a Swiss airport, billboards for watches are one of the first things you see,” Raynald Aeschlimann, chief executive of Omega, based in the north-central town of Biel, wrote in an email. “A county that produces excellent watches will, by definition, have an appreciation for design, a skilled work force and a global reach.”

But he argues that the Swiss image of excellence was created by several industries, including banking, manufacturing, agriculture and tourism.

Maximilian Büsser, founder of the watchmaker MB&F, whose headquarters are in Geneva, said there was no formal correlation between Switzerland’s image and the watch industry, but watchmakers and their products have influenced the country’s reputation. “Swiss watches for decades — up to the turn of this century — were the only high-end watch manufacturers in the world,” he said. “Clearly that’s sending a message of quality and exclusivity, that’s for sure.”

And Oliver Müller of LuxeConsult, a watch consulting agency that collaborates with Morgan Stanley on industry reports, said luxury watch brands were what he called Switzerland’s pre-eminent “image purveyor,” with their aura of exclusivity and high craftsmanship trumping their actual contribution to the economy.

By numbers alone, that doesn’t look like much: Watches provide about 2.5 percent of the Swiss gross domestic product, and about 9 percent of its exports, Mr. Müller said. But there is more behind the statistics, several experts noted, including a commanding 95 percent global market share of watches retailing at more than $1,200, according to Mr. Müller.

Protecting ‘Swissness’

A number of Swiss institutions, including a unit in the federal foreign affairs office, are charged with helping to promote and protect Switzerland’s image of watchmaking superiority. Over the years, one of the most prominent has been the Federation of the Swiss Watch Industry, a trade association that represents the industry in dealings with the government and the public.

“The Swiss watch is a true ambassador of Switzerland and its values: quality, reliability, high education, skilled people,” Jean-Daniel Pasche, the federation’s president, wrote in an email. “When we think of Switzerland, we think to its watches and when we think of watches, we think to Switzerland. They are linked together.”

To protect the country’s image in legal terms, Switzerland has continued to strengthen its “Swissness” law, first passed in 1971. Since 2017, a Swiss watch must have Swiss movements, casings, final inspections and at least 60 percent of the manufacturing costs incurred in Switzerland to call itself “Swiss Made.”

A watch shop in Geneva in the 1980s. Watches have long been a popular item for Swiss customers and tourists alike. Credit…Jean-Marc CHARLES/Gamma-Rapho via Getty Images

The federation often takes legal action to challenge trademark applications and watchmakers worldwide for using certain trademark words, such as “Swiss” or “Geneva.” “Acting against misuse of Swiss designations is very important for the Swiss watch industry because the worldwide fame of Swiss watches could be in danger if it were not strictly protected,” Mr. Pasche wrote.

Case in point: Around 20 million watches a year were made in Switzerland before the pandemic; the federation has estimated that the number of fakes produced ran into the“tens of millions.” In 2020, 65 geographical trademark complaints were filed against entities from places like China, India and Pakistan, Mr. Pasche said, adding that 16 of those complaints were resolved.

Horological Heritage

Swiss watchmaking dates to the mid-1500s when French Protestants, called Huguenots, fled to Geneva to escape Catholic persecution and brought their watchmaking skills with them. At the time, the Swiss theologian John Calvin had banned jewelry as opulent, but allowed the city’s unemployed jewelers to produce watches. In 1601, they established the Watchmakers Guild of Geneva.

In the following centuries, watchmaking spread through the Jura mountains near the French border, an arc of some 120 miles from Geneva to Basel, where farmers, with free time during the winter, built mechanical watch components for Geneva watchmakers.

By the middle of the 19th century, Switzerland had outpaced Britain to become the world’s largest timepiece producer by volume, but faced stiff competition from American watchmakers using mass production techniques.

The Swiss followed suit. By 1934, the government was helping to boost innovation and create a monopolistic production network in which a few large suppliers offered watchmakers a limited choice of components.

“Promotion of watches,” Mr. Aeschlimann of Omega wrote, “really took off with the growth of creative advertising in the early 20th century as the products could be beautifully presented and attract aspirational wearers.” By the end of World War II, Swiss sales led the international watch market.

Workers in an earlier era at the Patek Philippe factory in Geneva. Credit…Authenticated News/Archive Photos/Getty Images

But then came what the industry still calls — with a shudder — the “Quartz Crisis.” In the 1970s the Japanese introduced timepieces that ran on inexpensive quartz batteries, which quickly dominated mid- and low-end sales. The competition decimated Switzerland’s mechanical watch industry, with employment falling to around 30,000 workers in 1984 from 90,000 in 1970.

The industry rallied through a combination of government support to expand high precision manufacturing, the merger of Switzerland’s two largest watchmaking groups to create Swatch, and a lot of public relations and marketing outreach. “The messaging was all about precision, excellence and legacy and proved to be very effective,” Mr. Aeschlimann wrote.

Today, the foundation estimates there are 250 to 300 Swiss watch brands. And according to Mr. Müller, just 24 brands generate more than 90 percent of the Swiss industry’s market value. “The high end controls the game,” he said.

In 2020, the watch industry’s trade association, Convention Patronale de L’industrie Horlogère Suisse, said the industry employed 57,550 workers, or 1.22 percent of the Swiss work force, with 20 to 30 percent of those being French citizens who commute daily across the border to work in watch businesses.

Their median annual salary, the association said, was 70,369 Swiss francs, or $76,180 — far more than that paid in China. So while Switzerland’s workers rank very high in global salary comparisons — and reflect the country’s general prosperity, their compensation is also reflected in the average high cost of Swiss watches.

Export Leader

When it comes to Switzerland’s gross domestic product, “watchmaking is not that important,” said Ueli Schiess, senior economist at the Federal Statistical Office. “But when you look at exports, watchmaking is very important for the economy.”

The industry, which exports 95 percent of its production to markets like China and the United States, is the country’s fourth-largest export industry, following pharmaceuticals, metals and gems, and machines, Mr. Schiess said, adding, “More than 9 percent of all exports is huge.”

(The industry federation, however, ranks watches third in exports, bested only by pharmaceuticals and metals/machines, Mr. Pasche wrote.)

Federal G.D.P. statistics place watches in a category that includes electronics and optical products, which accounted for 3.3 percent of the G.D.P. in 2019. The watch industry federation estimates that watchmaking alone accounts for approximately 2.5 percent of G.D.P.

But Ariel Adams, the founder of ablogtowatch, regularly pours over industry reports and is wary of official statistics. “I would say there is very high likelihood that publicly reported numbers are misleading,” he said, “and the true value of how powerful the watch industry is, and the amount of money they are moving per year, is not known and not published.”

The main room of the new Audemars Piguet museum in Le Brassus, Switzerland.Credit…Samuel Zeller for The New York Times

In the Bern canton, home to the Swatch Group of brands and Rolex’s movement manufacturer, Sebastian Friess, an economist in the Economic Development Agency is also perplexed. “In my perception, 2.5 percent G.D.P. is way too low, but I don’t have a number to give you,” he said. “There’s more going on than we can see; there’s more economic impact than we can measure.”

Within Switzerland, promotion of the industry — to residents and the more than 11 million tourists the country had been attracting annually before the pandemic — seems ubiquitous. German-language textbooks for foreign students cite watches as one of five key words on a Swiss chart, and a host of Swiss government and tourism websites describe watch museums, workshops and tours, including a 200-kilometer (almost 125-mile) heritage trail in the Jura mountain district, which tourism authorities call “Watch Valley.”

“The industry’s indirect value, that you can’t measure, is extremely high,” Mr. Friess said.

And the Future?

Sales for Swiss luxury watch brands are generally exceeding expectations in 2021, with a handful of brands enjoying a banner year.

Wei Koh, who publishes the watch magazine Revolution, said respected Swiss brands now trade at “crazy” prices on the secondary market because retail watches are often sold out. The winners: Rolex, Patek Philippe, Audemars Piguet and Richard Mille. “Covid has been a big accelerator,” Mr. Koh said, thanks partly to collectors taking more time online to focus on the watch market.

But export numbers have been declining steadily in recent years, totaling 13.8 million last year, partly the result of disruptions in Chinese supply chains, reduced production in Switzerland and closed retail shops around the world. In 2009, the total was 30 million.

Even with a post-pandemic recovery, “the volume won’t recuperate much, and that’s scary,” Mr. Müller predicted, noting that Swiss watch volume is down to 1940 levels.

A horology student in a workshop at the École Technique de la Vallée de Joux in Switzerland.Credit…Aurélien Bergot for The New York Times

Apple’s smartwatch explosion — the company doesn’t disclose numbers, but there are estimates it sold 34 million watches last year, two and a half times more timepieces than Switzerland exported — also piles competitive pressure on the Swiss industry to maintain its image of superiority and to protect its large supply chain network.

If Swiss watchmakers cannot get volumes back to at least pre-Covid levels, Mr. Müller said, he fears many brands and suppliers won’t have enough watch orders to stay in business. “An industry cannot survive with only luxury brands; we need volume to maintain production facilities and innovate,” he said. “We need to have that to remain strong.”

And to ensure that whether or not Switzerland is a “company town,” its reputation for watches stays just as strong in the world’s imagination.

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