The Case of Switzerland and the World Watch Industry *

Home , Blancpain, Bulova, Hamilton Watch Company, Le Locle, Longines, Movement (clockwork)

469

Technological discontinuities and flexible production networks: The case of Switzerland and the world watch industry *

Amy Glasmeier tain and augment their competitiveness in a global Unrr~rs~t~of Texas at Austin, Texas, USA economy. On the eve of the electronics revolution, the Swiss watch production system, centered in the mountainous Jura region, was flexible, cost The twentieth-century history of the Swiss watch industry effective, and extremely profitable. Both horizon- illustrates how cultures and industrial production systems ex- tally and vertically disintegrated, the Swiss system perience great difficulty adapting to external change at differ- offered enormous variety while maintaining qual- ent points in time. The current emphasis on production net- ity and timeliness of delivery. “The multiplicity of works - unique reservoirs of potential technological innovation realized through cooperation rather than competition among enterprises, and the competition and emulation firms - lacks a detailed appreciation of historic networks, and that characterized the industry, yielded a product in particular their fragile character in times of economic of superior quality known the world over for high turmoil. While networks can and do promote innovation within fashion, design, and precision” [21, p. 481. an existing technological framework, historical experience sug- Beginning in the 1970s when foreign competi- gests their fragmented, atomistic structure is subject to disorganization and disintegration during periods of technological tion hurdled technological frontiers in watch change. An exclusive focus on “production” ignores other movements, advancing from mechanical to elec- constraints that are powerful forces governing the reaction tric, electronic, digital and finally quartz technol- abilities of regions. Previous research has largely relied on a ogy, the Jura’s undisputed dominance ended. ’ model of oligopolistic competition to explain how the Swiss Massive job loss and out-migration occurred as lost control of the world watch industry. I conclude, on the contrary, that the Swiss experience must be understood from firms, unable or unwilling to adapt to new tech- the standpoint of how technological change challenges previ- nologies, closed their doors. Today, while still ous ways of organizing production, industry, culture, and world leaders in watch export value, Swiss society. Technology shifts present a series of strategic turning watchmakers produce only a fraction of their pre- points that industrial leaders must navigate during a period of 1970s output levels, and resources needed to in- technological change. vest in new product research and development are scarce [40]. In a span of less than 30 years, the world’s dominant watch region yielded technologi- In tro d u c tio n cal leadership (in watchmaking and micromecha- nits) to its Far Eastern rivals. What lessons can be The history of the Swiss watch industry is in- learned about network production systems and structive as countries and regions experiment with technological innovation from the experience of network production systems in attempts to main- Switzerland’s watch region? Industrial restructuring of the past 20 years has * This paper is based on original research conducted in Japan, left once dominant manufacturing regions such as Hong Kong, and Switzerland. The assistance of Luc Tissot, America’s industrial heartland and Germany’s Wendy Taillard, Pierre Rossel, and Jocelyn Tissot, of the Ruhr valley debilitated. Reincorporating techno- Tissot Economic Foundation, was greatly appreciated. The logical innovation within production systems of Foundation and its staff were instrumental in the successful deindustrialized regions has become a major con- completion of this research. A full elaboration of the argu- ment presented in this article can be found in various cern. Even technologically vibrant regions such as working papers in the Graduate Program in Community and Route 128, Silicon Valley, and Emilia Romagna Regional Planning, Working Paper Series. confront uncertain futures in the current period of

Research Policy 20 (1991) 469-485 North-Holland ’ The Appendix provides a brief review of watch technologies.

0048-7333/91/$03.50 0 1991 - Elsevier Science Publishers B.V. All rights reserved 470 A. GIasmeier / Switzerland and the world watch industry intense technological development and interna- together by elaborate cultural, institutional, and tional competition. How can a region remain in- economic relationships, exhibits flexibility and novative during a period of technological change? adaptability within an existing technological Do network production systems offer a more flexi- framework. The case study also illustrates, how- ble and permanent means of regional adaption? ever, that within any production system flexibility By examining the experience of the watch industry and innovativeness are time-dependent. Therefore, I hope to tie together empirical experiences of given specific historical circumstances, they are researchers asking similar questions concerning vulnerable. the relationship between structure of production, The lack of coordination and organization regional culture, technological change, the forma- within small firm complexes has precipitated dis- tion and maintenance of core skills, and state-led cussions about the need for governing systems to regional development in industrial hinterlands. regulate small firm atomistic behavior and to rep- This article reviews the twentieth-century his- licate functions performed by the vertically in- tory of the Swiss watch industry. My purpose is to tegrated corporation such as R&D, management suggest that focussing’solely on production trans- training, marketing, and distribution. As Saxen- actions does not adequately explain how eco- ian’s work suggests, network production systems nomic, social, and cultural conditions interact to are vulnerable to technological threats from the form a complex of human relations that can re- outside [30]. Calls for institution-building must be main flexible and innovative over time. While tempered with the knowledge that coordinating networks are quite proficient at production and organizations quickly become absorbed into the innovation within an existing technological frame- regional fabric and ossify over time. During the work, disintegrated systems may neither accu- course of two centuries the Swiss watch industry mulate profits nor demonstrate a collective will to established elaborate institutions, organized tech- make essential investments in research, marketing, nological competitions and other social events, and distribution in response to technological and supported diverse organizations to bolster the change. At a more refined level, this article sug- industry’s innovative capabilities [8]. The strength gests that the current emphasis on production of these institutions has been and still is signifi- networks - unique reservoirs of potential techno- cant. The Swiss Watch Industry Federation (FH) logical innovation realized through cooperation was the leading organization in trade negotiations rather than competition among firms - lacks a for the world watch industry [24]. Long after the detailed appreciation of historic networks, and in Swiss lost volume leadership, the FH continued to particular their fragile character in times of eco- lead GATT negotiations [27]. Market share, nomic turmoil [29,30,31,32]. While networks can quotas, and tariffs are still negotiated by the FH and do promote innovation within an existing for the world watch industry. Yet despite its technological system, historical experience sug- worldwide reputation, in the 1960s and 1970s the gests their fragmented, atom&tic structure is sub- FH was unable to overcome resistance to new ject to disorganization and disintegration during technology. While the organization sponsored periods of major technological change [35,8,9]. * Swiss R&D, it could not force members to incor- Inter-firm networks are important ingredients porate new technologies into existing products. of technologically innovative and flexible in- This article departs from past treatments of the dustrial production systems. This insight is an watch industry’s post-war experience by examin- important addition to contemporary theoretical ing the rise of world competition through the lens discussions about the relationship between re- of technological shifts. Previous treatments have gional and technology development. As the case of largely relied on a model of oligopolistic competi- the Swiss watch industry suggests (within a par- tion to explain how the Swiss lost control of the ticular structure of production and organization), world watch industry. I conclude, on the contrary, a highly articulated system of production, tied that the Swiss experience must be viewed from another angle. How do technological shifts challenge previous ways of organizing production, in- ’ The use of the term “disintegration” is meant to imply chaos not the evolution of the spatial division of labor as used by dustry, culture, and society? Fundamental changes Scott [32]. in technology present a series of strategic turning A. Glasmeier / Switzerland and the world watch mdustry 411 points that industrial leaders must navigate. The manufactured at large scale in centralized facto- Swiss were no exception. ries, while flexibility was maintained in dispersed This article first considers the historic evolution design and assembly activities. Even the more of the Swiss watch industry during the final de- complicated parts were eventually mechanized cades of the last century and shows its early using “ versatile machines which were susceptible adaptability to new production innovations within of all manner of adjustment, hence required some the framework of mechanical watch technology. skill to operate. . . ” [20, p. 401. Thus within the The bulk of the remaining discussion traces the existing mechanical technology system, the in- evolution of the industry - illustrating the difficul- dustry achieved new levels of profitability and ties experienced in the face of radical technologi- international renown. cal developments. There is no doubt that by the 1910s Swiss The Swiss watch industry provides an im- mechanical watches dominated the world watch portant case study of an industrial and cultural industry [18]. The Swiss controlled the micro- system that retained technological supremacy for mechanical export industry by cost competitive- two centuries and that still holds its dominant ness, superior manufacturing competency, high position within the earlier mechanical paradigm. levels of precision, and extraordinary attention to The industry has, however, yielded technological detail and style. The vertically integrated parts leadership to foreign competitors in a major geo- manufacturers achieved economies of scale graphical shift in world production [36]. The Swiss through volume production. This benefit was are now followers rather than leaders of industry passed on to assemblers in the form of low cost trends. movements. In the most labor-intensive aspects of the industry, the vertically disintegrated system of assembly and case manufacture kept overhead The early twentieth-century history of the Swiss charges low. watch industry International economic chaos and the call for regu- Historically the Swiss industry has shown lation surprising resilience in the face of change. At the end of the last century (187661900) the industry The early 1920s was a period of great instabil- was issued a major challenge by the U.S. watch ity in the watch industry. 3 Disruptions in the production system. America’s watch manufac- watch market presented the Swiss with new and turers developed machinery to produce watches at different problems [18]. Significant sums of capital high volume with low cost, low skill, and relatively had been invested to meet the American manufac- high levels of precision. Watch movements were turing challenge. Firms were larger, and the in- drastically simplified and more economical to pro- dustry represented a larger share of gross national duce. While hand-adjustment was still required in product [21]. The severity of the crisis forced final assembly, the overall skill content in Ameri- family businesses to take drastic steps simply to can watches was drastically reduced. reduce inventory. Opportunism, price-cutting, and The Swiss response to U.S. technological chal- increased export of movements and parts further lenges was decisive. Over a period of 20 years destabilized the industry [39]. This unprecedented (188551905) they proved more than capable of threat resulted in a call for industry regulation, making needed technical progress [7]. While the and a cartel was formed. 4 Swiss lost considerable market shares in the U.S., During the 1920s various associations were the country’s manufacturers did not yield control created to represent the interests of industry mem- of global markets [19]. Over the course of two decades, the Swiss system adopted aspects of the American system that were cost effective. The World War I created severe disruptions in the world watch Swiss system shifted from its reliance on small- market. Russia, a major Swiss market, closed its borders to international trade, while other countries raised protectionist scale cottage production to an intermediate form barriers in attempts to preserve domestic industries. Demand that combined mechanization and partial vertical for Swiss watches declined precipitously between 1916 and integration. Standard parts were mechanically 1921. 472 A. Glmmeier / Sw~r~erlund and the world watch industly bers. The Swiss Watch Industry Federation (FH) manufacturers. ASUAG could sell only to firms was organized to govern both firms assembling recognized by the Swiss government under the watches from component parts and the few firms law. It could not export parts or technology. with integrated manufacturing operations. The 17 Manufacturers fabricated complete watches but manufacturers of ebauches (watch movements) were restricted from selling movements and other were organized into a trust EBAUCHE S.A. parts to assemblers - thus eliminating competi- Manufacturers of components other than ebauches tion with parts suppliers. They were also restricted (balance wheels, assortments, hair springs) were from setting up production in other countries. organized into the Union des Branches Annexes Assemblers were prohibited from establishing pro- de l’Horlogerie (UBAH). In the late 1920s mem- duction outside Switzerland, and they could buy bers of the various associations agreed to set levels parts from non-Swiss m~ufacturers only if prices of output and prices, and explicit rules were desig- were 20 percent below Swiss levels. The law’s ned to restrict exportation of parts [lS]. greatest effects were in regulating who was al- When this degree of collaboration proved insuf- lowed to produce, what could be produced, and ficient to control opportunistic firms, the govern- how much could be produced. By requiring export ment intervened. In conjunction with industry and and manufacturing permits, the government essen- banking leaders, the federal government created tially held supply below world demand and en- the massive holding company ASUAG (which in- sured Swiss firms handsome profit levels. cluded EBAUCHE S.A. as well as other leading From 1933 to 1961 the Swiss watch industry component producers). This final merger halted experienced considerable stability matched by the exportation of parts and components to com- handsome growth. All industry sectors enjoyed the petitor countries 1181. benefits. Under the Statut de l’florlogerie, market shares were effectively stabilized. This predictably The Statut de E’HorIogerie and the codification of encouraged firms to reinvest profits in new pro- the Swiss system cess technology. High profits earned in this period allowed firms to develop a mechanical watch The Statut de I’Horlogerie of the early 1930s manufacturing system unparalleled in efficiency. established a regulatory system that governed Swiss watch manufacturing for more than 30 years. Abandoning industly regulation: Instituting in- Through a combination of cartelization and dustrial change government ownership, the Swiss industry was regulated to control vertical integration, foreign In the early 1960s three decades of stability sourcing, and off-shore production. Swiss manu- once again gave way to uncertainty. Foreign com- facturers could buy only from Swiss component petition ended the Swiss monopoly on mechanical producers, and component producers could sell watch production and the country’s quasi-mo- only to Swiss firms. To further limit competition, nopoly on the world watch industry. The slow government regulated the sale of machinery. The erosion of Swiss world export market share met Statut de 1’Horlogerie regulated the volume of with cries from industry members to change laws Swiss watch production by requiring permits for that had regulated the industry for 30 years. the construction and expansion of production Reasons for industry discontent were numer- facilities [15]. ous. The more profitable and better run firms The resulting industry structure consisted of lobbied against the cartel arguing that it protected the parts manufacturers who sold their output to firms that were producing low quality watches assemblers, the assemblers, and the brand name [39,21]. Laws were also criticized for fixing the level of Swiss production at a time when other countries were making substantial inroads in the Swiss world export market share. In 1961 the It was the larger firms which had made the capital invest- Federal Assembly of the Swiss Confederation ments in equipment that wanted to inject order into the ratified a new decree eliminating the regulation of historically anarchistic industry. To recoup capital investments, the more advanced firms had to control the small output and encouraging rationalization of the in- firms that easily sprang up and produced cheap watches 1151. dustry. The new law took effect in 1962, but it was not until the early 1970s that restrictions on watch Table 1 manufacturing were entirely eliminated. industry structure As expected, the watch industry underwent a Houses Employment series of unprecedented mergers. The heaithier Movements and parts 40 8000 and larger establishments joined forces to match Casing and bracelets 135 6500 the sizes of their Far East Asian and American Subcontractors 135 6000 rivals. Within two years three firms were produc- Integrated manufacturers and assemblers 250 12000 ing 32 percent of Swiss exports. SSIH (formed in the 1930s with the merger of Tissot and Omega to Source: Radja [26]. become a leading vertically integrated manufacturer) became the third largest watch manufac- all watch sales. Firms marketing in this segment turer in the world (behind Timex and Seiko). In include well known Swiss (Tissot, Omega, 1971 the ASUAG expanded beyond strictly com- Longines, Rado), Japanese (Seiko and Citizen), ponent production by creating the General Watch and specialty American name brands (Hamilton). 6 Company, a holding organization of several brand The luxury market segment comprises only 1 per- names and component manufacturers 1181. A third cent. Luxury watch prices start at about $750. holding company, Socitte des Garde-Temps There are 20 brands in this category and include (SGT), was created primarily to manufacture such world-renowned names as Cartier, Ebel, low-price and electronic watches. 5 Rolex and Patek Philippe. Some firms span more In addition to the three holding companies, than one market segment. These include firms there were a number of important groups. Rolex, such as Rolex that add value to the basic steel case although privately held, had 1972 sales estimated watch model by altering the external parts of the at 200 million Swiss francs (almost a quarter of watch (e.g. diamond-encrusted bezel). Swiss exports by value) [17]. There were also four middle-sized groups including two subsidiaries of Structure of the Swiss watch inducts U.S. companies, Zenith and Bulova, and the prestige brands, Piaget, Patek Philippe and others. The structure of the Swiss industry emerging The remainder of the industry was made up of after the collapse of the cartel maintains im- hundreds of small companies assembling and sell- portant vestiges of the old system. The Swiss ing watches. watch industry reflects both horizontal and vertical disintegration of establishments. Although the number of individual producers has declined over The world market for watches time, the shares of establishments in the different industry segments have remained the same [25,26]. At the end of the 1980s watch producers The watch industry consists of four levels of pro- manufactured approximately 500 million watches duction: movements and parts manufacturers; case annually worldwide (not including Eastern and bracelet manufacturers; subcontractors; and European production). The market for watches is assemblers and integrated manufacturers. Table I made up of segments in a pyra~d-like structure. lists the number of Swiss watch firms and their The base of the pyramid consists of mass pro- employment by industry level. ducers selling watches with a wholesale value of less than $50 (1990 dollars). These sales account for 90 percent of total volume. Although this Parts and assemblers Production of parts and components passes segment of the market is dominated by Hong through various channels to arrive at final assem- Kong producers, it also includes American Timex blers. Final assemblers assemble for all price seg- and the Swiss Swatch watch. The mid-price ($50- ments of the watch market under nationally and 500) watch market segment makes up 9 percent of internationally known brand names. Together,

5 The SGT holding company aIso acquired two American 6 The Hamilton Watch company is American in name only. watch companies, Waltham and Elgin. The Swiss corporation SMH owns the brand. 474 A. Glasmeier / Switzerland and the world watch industry parts manufacturers, subcontractors, and assem- Table 2 blers employ approximately 20,000 workers with a Firm distribution by size turnover of more than 3 billion dollars, or 40 Size category Number of Number of percent of total industry revenues (1990). Mid- establishments employees price watch assemblers include such well known 1-9 200 1,500 names as Chopard, Century, Corum, Eterna, and 10-19 130 2,000 Raymond Weil. The luxury end of the assembly 20-49 100 4,000 50-99 70 5,000 industry includes “international names” such as 100-199 34 5,000 Cartier, Chanel, Christian Dior, Gucci, and 200-499 32 10,000 Dunhill. These brand labels represent individual 500 plus 4 5,000 designers that subcontract with Swiss component Source: Radja [26]. and case manufacturers to assemble their watches. ’ Piguet, and La Novelle Lemania et Laeger- Manufacturers Lecoultre. These firms cater to the luxury watch In contrast to the disintegrated structure of industry. parts manufacturers and assemblers, the Swiss in- Movement production in the Swiss watch industry also includes enterprises that are vertically dustry is the most vertically integrated. It is com- integrated. Manufacturers produce the entire posed of 40 firms employing 8000 workers with an product from movements through parts, casing, average plant size of 200 employees. This compo- and final assembly. There are a dozen important nent of production is the most technologically integrated watch manufacturers. Rolex is the single advanced and enjoys significant economies of largest manufacturer and enjoys 25 percent of scale. Parts and case makers, subcontractors, and total Swiss industry revenues. At the very high end independent manufacturers represent the majority luxury market segment are found the most presti- of establishments but employ far fewer workers gious integrated manufacturers, including Piaget, per firm (averaging 45 employees). Observing size Patek Philippe, Audemars Piguet, Breguet, Ebel, of establishment verifies the disintegrated struc- and Blancpain. These firms produce watches that ture of production. Table 2 lists the number of sell in the thousands of dollars and are produced firms by employee size category. The structure of in small numbers. the industry is essentially the same as it was in the 1970s. Movement manufacturers In response to economic instability in the 1930s movement manufacturing was concentrated in a Global competitors and the world market for single firm (ASUAG). In the early 1980s reorgani- watches zation further concentrated this activity. ASUAG was combined with a number of large previously In the early 1970s the Swiss struggled to re-ori- independent manufacturers (Tissot, Rado, Long- ent their factories while nimble competitors ines, Omega, Certina, and Swatch) into SMH. flooded the field. But their production system was SMH accounts for approximately 30 percent of all not easy to dismantle or rearrange. Japanese, watch revenues and controls almost 25 percent of American and Hong Kong firms posed unique total watch employment. While SMH is the single challenges to Swiss watchmakers. This new and largest supplier of parts and movements, there are rising competition and the advent of a new move- a number of other movement producers including ment technology were both significant problems. Fabrique D’Ebauches de Sonceboz et Ebosa, The Japanese industry was vertically integrated and therefore a low-cost producer [18,22]. Seiko and Citizen made major inroads in the world Until recently these international brands did not operate watch market as both component and finished their own manufacturing plants. Cartier (one of the largest watch manufacturers. The Japanese made high international brands) previously subcontracted production to EBEL, a Swiss prestige manufacturer. The French firm re- quality low-priced movements that were sold to cently opened a plant to manufacture its own products. firms around the world. By the early 197Os, A. Glasmeier / Switzerland and the world watch industry 475

Japanese watch companies had succeeded in cap- which concentrate on digital watch manufacturing turing 14 percent of the world watch market. [3,4]. Both companies pursued watch manufactur- The Japanese increased their share of world ing to assure a market for their primary product, export markets through various means. They had electronic components [8]. Seiko dominates Japan’s lower labor costs and an undervalued currency. watch industry. The company is responsible for 60 They were vertically integrated and employed percent of the nation’s output. Vertical integration manufacturing automation. The Japanese devel- was part of a conscious strategy to be the industry oped the capacity to manufacture standardized leader [34,14]. After World War II (like other movements and watch models. Japan was also Japanese firms such as Honda), Seiko followed a selling large volumes of movements to the U.S. product diversification strategy built around the and Hong Kong. Although the Japanese produced company’s core competence, precision manufac- models for every price range, they targeted the turing. 9 lucrative middle range, undercutting Swiss compe- The most critical advantage of Japan’s capital- titors. intensive system is the ability to manufacture Unlike the Swiss, the Japanese had the ad- components in huge volumes at low cost. The sale vantage of a large protected home market. Be- of movements and watch kits cemented the in- cause other watch manufacturers were effectively dustry’s 1970s world volume leadership. locked out of their domestic market, Japanese producers enjoyed artificially high domestic prices The U.S. market and American watch manufac- that covered fixed costs. Thus in international turers markets watches could be sold close to or at marginal costs. ’ Japan was not the only significant challenger to Government regulation and financial assistance the Swiss watch industry. The U.S. was both the (R&L D grants) accelerated Japanese penetration of world’s largest and most competitive watch market the world watch industry. The Japanese watch [S]. The vast majority of American demand was industry continued to rationalize - undergoing satisfied by domestic firms. America’s two stellar further vertical integration that streamlined oper- watch manufacturers, Timex and Bulova, essen- ations and reduced inefficiencies. The government tially controlled two-third’s of the nation’s market encouraged vertical integration to “minimize the [19]. American watchmaking firms were dominant proliferation of marginal watch producers and to in the U.S. partly because of high tariffs that were minimize the drain on foreign reserves caused by based on the number of jewels in the watch move- the importation of watch machinery” [18, p. 231. ment and implemented to protect the domestic In 1978, 88 percent of Japanese production was industry. Swiss manufacturers responded by rede- attributable to two firms. Switzerland’s leading signing their watches to include fewer jewels. But manufacturer accounted for only 9 percent of by redesigning watches, production was further total national Swiss production [2]. fragmented with more models designed for the U.S. market. A bad side effect of this strategy was The structure of the Japanese watch industry an inability to produce at volumes that would allow for productivity gains [27]. On the other The level of vertical integration in the Japanese hand, American firms enjoyed a loophole in trade watch industry is high by national standards. High policy which permitted off-shore watch assembly levels of vertical integration are primarily associ- by low-wage laborers. Because American firms ated with the small number of industry competi- could avoid paying duties, they could sell cheaper tors (Citizen, Seiko and Casio) and individual products than the Swiss. company product development strategies [lo]. Citizen and Casio are primarily electronics firms

9 Today Seiko has major market share in certain types of a When domestic wages began to rise, the Japanese quickly semiconductors, micro machinery, miniature circuit board shifted assembly to Hong Kong where wages were lower manufacturing, and small plastic and rare metal parts. The (creating a spatial division of labor to ensure low price and company has capitalized on the original core skill by pursu- timely product delivery). ing markets and product niches in related fields. 476 A. Glasmeier / Switzerland and the world watch industry

Bulova and Timex presented significant prob- cent of the U.S. market and 86 percent of U.S. lems for Japanese and Swiss manufacturers. Both domestic watch production. I2 corporations followed the American system of mass production. Employing a combination of The Hong Kong industry I3 sophisticated production technology and labor flexibility (through internationalization of produc- While the Swiss were battling for market share tion), Bulova produced a range of products span- with U.S. and Japanese firms, the Hong Kong ning all price categories. Bulova’s strength was the industry emerged. From its experience as Japan’s medium price range. The company produced low-cost assembly location and a long standing hundreds of different styles in its Swiss factories. preeminence in case and bracelet manufacturing, An international production system maximized in less than 30 years the Hong Kong watch in- site-specific advantages such as skill levels, tech- dustry rose to become the world’s volume leader. nology, and markets. lo The company’s interna- With little capital investment, Hong Kong tional orientation provided important opportuni- watchmakers developed the capacity to produce ties to test-market new products. By having a thousands of watch models each year. Assembling strong brand policy and aggressively marketing in excess of 300 million units in 1988, Hong Kong products, Bulova moved into markets worldwide. produced more watches than any other nation. At the high end, with its aggressively marketed Based on value of exports, the country recently tuning fork technology, Bulova was unique. surpassed Japan to become the second largest Alternatively, Timex sold a product that was watch producer, behind the Swiss 14. cheap, simplified, and standardized. It was therefore easily mass produced. The company developed highly efficient, dedicated production Like Bulova, Timex established international market pres- ence and production capacity. The company had 20 plants equipment to produce huge volumes of standar- scattered around the globe. Each market was carefully dized products. Timex also engineered true inter- analyzed, and sales strategies were adjusted according to changeability. Parts could be exchanged not only local customers [18]. within but between plants [21]. Because the U.S. In 1988 there were approximately 1,386 watchmaking firms lacked skilled watch workers, Timex pursued a registered with the Hong Kong government. From 1983 to 1988 employment increased steadily from 25,200 to 26,444. capital-intensive production strategy. Machines Over 90 percent of firms employ fewer than 50 employees. were automated to reduce human involvement to The structure of the watch industry is remarkably similar to a minimum. The company designed a dramatically that of electronics in Hong Kong. A recent study by the simplified but well-manufactured watch with a Hong Kong Government Department of Industry indicated relatively long life. ” that many of the structural weaknesses evident in the watch industry are also apparent in electronics. These include lack But Timex did not confine itself to the low-price of local brands and design capacity, a fragmented produc- market segment. By the early 1960s Timex had tion structure, and low levels of capita1 investment. developed a low-priced higher quality jeweled Hong Kong watch prices (FOB) are extraordinarily low by watch line. In addition to its traditional and effec- world standards. The average wholesale price of a watch in tive distribution channels (high traffic locations 1988 U.S. dollars was $3.00. Advertised wholesale prices ranged from $4.00-10.00 per watch (with a lead time of such as drug stores), Timex introduced its watches between 25 and 60 days). Even jeweled watches cost a into jewelry stores and other, more conventional fraction of those manufactured in Switzerland. Orders can watch sales outlets. Within 20 years the company be as small as 100 watches, and in some cases firms have no had gone from bankruptcy to control of 45 per- minimum lot size. Hong Kong is an established forerunner in innovation and exportation of watch parts, cases, bands, and accessories. The case and band industry is well-developed, and Hong “’ For example, Accutron was made in the U.S. where technol- Kong firms export finished products to major watch pro- ogy levels were high despite lesser manual labor skills. ducing countries that include Japan, Switzerland. and the Medium- and low-priced mechanical watches were manu- U.S. Surprisingly, even up-scale companies such as Cartier factured by high-skilled Swiss workers. use Hong Kong watch bands. In 1984 (the latest year for ” Given that their watch was cheap, Timex made no pretense which statistics are available), there were 484 case-making of providing after sales service. When the watch stopped firms employing 9,200 workers in Hong Kong. This is running, it was simply thrown away and a new one almost four times the number of case producers in Switzer- purchased. land. A. Glasmeier / Switzerland and the world watch industy 411

Early in the 1970s with advances in diode Hong Kong is ephemeral. Like other low-wage technology, Hong Kong watchmakers moved into assembly industries, Hong Kong’s momentary ad- light-emitting digital (LED) display watches. LED vantage can evaporate with the slightest increase watches dominated output for a short time, but in wages. A significant portion of watch assembly declined when liquid crystal display watches is already done in mainland China. Thus, while at emerged later in the decade. Until the early 1980s the moment watchmaking thrives in Hong Kong, this newer technology dominated the Hong Kong the industry has little long-term attachment to the watch industry. In the early 1980s the emergence island. of quartz analog watches breathed new life into the industry. Like other components of watch manufacturing, quartz analog watch production in Technological change and industrial instability Hong Kong relied upon foreign parts. And because it also required a higher level of capital Until the 1970s the world watch industry grew investment, Hong Kong’s production system took steadily, and production was shared among three time to adjust. countries, the U.S., Japan, and Switzerland. I5 But adjust it did. In the late 1980s quartz Trade liberalization in the 1950s coupled with analog watches began to dominate the industry, GATT and U.S. tariff reductions in the 1960s set and evidence of their growing importance is strik- the stage for enormous expansion of markets in ing. In 1980 digital watches accounted for ap- the 1970s. In a span of 10 years the market for proximately 60 percent of the value of total watch watches doubled from 230 to 450 million watches output. Analogs made up only 8 percent, and 1411 . mechanical watches accounted for the remainder. In the early 1970s world demand for watches In 1984 quartz analogs and digitals each made up was overwhelmingly for mechanical devices. Only approximately 43 percent of total output value 2 percent of export sales were electronic watches. [13]. By 1988 quartz analog watches dominated But in just two decades, the structure of demand the market, accounting for 82 percent of total changed. The competitive terrain shifted from pre- output by value. Digital watches made up only 12 cision based on mechanical know-how to accuracy percent. Because of its extremely fluid industrial based on electronic engineering. By the late 1980s structure, a rapid and complete transformation of electronic products comprised 76 percent of world the watch industry’s product mix was possible consumption - approximately 60 percent digital, ]8,I 31 . and the remainder analog. While the Swiss were Hong Kong’s flexibility to respond to techno- the first to develop electronic watch technology, logical change derives from the fact that its competitors succeeded in commercializing it. watchmaking industry is a user, not a producer, of new technology. Hong Kong has been unable to Science replaces art in watch manufacturing develop its own movement technology due to a lack of skills and capital investment. The The introduction of electronic watches in the “sweatshop” nature of the industry means that early 1970s had a profound impact on the Swiss labor absorbs the cost of change. Watchmaking in share of world markets (table 3). In 1974 Swiss watches made up 40 percent of the world export Table 3 market (by volume). Ten years later this figure Export of watch movements and completed watches 1951-1980 (thousands of units) had fallen to 10 percent. The loss occurred almost entirely in the high volume, low- and medium-price Japan Switzerland watch market segments. 1951 31 33,549 How was it that the Swiss share of world 1955 19 33,742 markets fell so precipitously? The watch cartel 1960 145 40,981 1965 4,860 53,164 1970 11,399 71,437 ” We do not include Eastern Block country production in 1975 17,017 65,798 these figures. A considerable volume of watches is produced 1980 a 68,300 50,986 in the Soviet Union, East Germany, and other Eastern a Includes movements [21]. Block nations [18]. 478 A. Glasmeier / Switzerland and the world watch industry insulated Swiss manufacturers from the effects of Machine tool firms such as Dixie, the originator of inter-firm competition. Enjoying (volume) control the jig bore, provided equipment to parts houses of the world market (based on mechanical devices), and claimed world preeminence in the manufac- it was easy for firms to become myopic about ture of precision tools. Banking institutions were external events and new technology introduced by deeply implicated in the fortunes of the watch distant competitors. Because ASUAG looked only industry. In the early 1970s regional banks were to members of the Swiss Watch Industry Federa- known to have as much as 50 percent of their tion (FH) for market information, new develop- loanable funds invested in family-run watch-re- ments outside Switzerland did not filter into exist- lated enterprises. And the industry made heavy ing information channels. investment in collective R&D laboratories. The When pressured to incorporate radical techno- complicated web of watch manufacturing per- logical innovations, the Swiss industry proved un- meated the core of the region’s social, political prepared to commercialize new ideas. Although and economic institutions. inventions were very frequent, industry leaders Watch manufacturing’s fragmented production were often skeptical about the viability of new structure also presented problems. Subcontracting proposals - particularly if they implied a radical levels were high, and the region’s dominant firms reorientation of existing timekeeping methods. As could not exercise control over the myriad compo- one leading watch family head commented on the nent producers. Fixation with precision had lulled industry’s failure to capitalize on tuning fork tech- the region’s firms into believing they were in- nology: “Every day someone came to the factory vulnerable to external forces [11,5]. Supreme pre- door with a so-called innovation. Claims of new cision, however, did not require a theoretical un- and different technologies were a dime a dozen. derstanding of new scientific developments; rather Given production pressures, problems and uncer- it necessitated great attention to detail. As Pierre tainties, what was one to do?” As Morgan Thomas Rossel notes, “ the region’s firms were unprepared notes, “many firms attempt to screen basic science to overcome a technological paradigm shift that and technical knowledge relevant to the firm’s devalued the region’s long-standing comparative mission” [37]. This skeptical complacency proved advantage” [28]. costly when Hetzel, the Swiss inventor of tuning Transferring a foreign technology into existing fork technology was ignored by Swiss watch products was crippled by a manufacturing culture manufacturers. After he successfully commercial- steeped in tradition. Rapid change was the ized his new technology in the United States, the antithesis of watch culture which rewarded patient Swiss were forced into a defensive position just to methodical actions within an existing technologi- gain access to the new technology. cal trajectory. This was the key. The transition from mechanical to electronic movement manu- The organizational structure of the Swiss watch facturing called into question the heart of the industry Swiss watch industry. To say that precision metal machining no longer ruled the sacred domain of The tightly articulated network surrounding timekeeping accuracy was simply too much for the watch manufacturing strengthened the status quo. centuries-old Swiss tradition to endure. Rather The watch industry was heavily geographically than embracing this new threat as they had done concentrated in the Jura Mountain region. To the when confronted by the American system of mass outside world towns were identified by the facto- production, they chose to diminish its significance ries of either major manufacturers (Longines in St. _ with grave consequence. Emier; Tissot in Le Locle), or by specific watch products (Bienne and SMH formerly made Invention does not guarantee innovation: Techno- ASUAG watch movements). logical discontinuity and the advent of quartz Regional institutions were interwoven into the fabric of the industry. Educational institutions Organizational limitations inhibited ASUAG, were steeped in watchmaking tradition, turning the major movement producer, from moving into out skilled workers who spent up to four years quartz. Because its market was literally hundreds learning to make watches from start to finish. of mechanical watch assemblers, no individual A. Glasmeier / Switzerland and the world watch industty 479 firm’s demand was enough to persuade ASUAG were poised to take full advantage of manufactur- to commit to one quartz movement design. But ing developments occurring at various stages in neither did any single manufacturer have an in- the watch manufacturing process - further ce- centive to switch technologies. And even when menting their technological lead. Simultaneously, ASUAG recognized the importance of quartz they could cross-subsidize component manufactur- technology, the company lacked the marketing ing, reducing per unit prices while raising per unit capability to successfully sell a quartz product to performance. The late development of Swiss its primary market, Swiss assemblers [38]. A cap- domestic production of integrated circuits in a tive producer (unable to sell movements outside free-standing enterprise could not take advantage Switzerland), ASUAG lacked the incentive, of information passing between component pro- necessity, and the ability to develop the marketing ducers and watch manufacturers. skills to compete internationally. Simultaneously, Unlike the Japanese watch manufacturers who key watch manufacturers such as SSIH were un- saw semiconductor technology as an end in itself, able to decide upon a quartz model. They there- the Swiss’ forays into microprocessor technology fore invested in numerous efforts to develop a were oriented strictly toward watches. This end- quartz movement. market focus did not facilitate synergies between As with other challenges, the Swiss responded semiconductor manufacturers and a wide range of initially to the new quartz threat. Convinced that users. In contrast with Japanese watchmakers who quartz was a passing fancy, nonetheless the Swiss had a commercial electronics industry to rely upon rose to confront the new menace. Setting techni- for market outlets, the Swiss watch industry had cians to the task, the Swiss produced the first to go it alone. Given the size of the watch in- quartz watch movement simply to show that it dustry’s demand for chips, it was difficult to oper- could be done. But the elaborate network then ate a chip production facility at optimal scale. It stopped in its tracks, confident that quartz would also made investments in R&D very costly per eventually be relegated (as the electric watch had unit of expected demand for chips. Based on the been) to the status of curio. network tradition, companies such as SSIH at- By the time the Swiss developed an industry- tempted to overcome their lack of technological wide response to quartz technology, they lagged capacity through a joint R&D project with Bat- two years behind the Japanese. Having developed telle. FH also initiated a joint R&D project to the initial technology, they failed to commercialize lessen Swiss dependence on U.S. semiconductor it. The Swiss are not alone in this fate. As Hoff- technology. With the FH, Brown Boveri and man notes, “an innovation may be a technical Philips of the Netherlands formed FASELEC, a success but a commercial failure in the innovator laboratory to develop Swiss semiconductor pro- firm but a commercial success in the imitator duction capacity. By the mid-1960s it was hard to firm” [12]. While the Swiss could claim that they judge the success of the venture because oper- were the first to develop a quartz watch (1971), ations were never made public [18,39]. they had to buy the necessary accompanying semi- Complicating matters further was the rapid de- conductor technology from the Americans. In- velopment of digital display technology. The com- creased investments in R&D could not overcome mercialization of digital watches occurred with the Swiss lag in microelectronics technology. The lightening speed. Digital display technology in- Swiss failure to act in the face of quartz technol- creased demand for quartz watches, leading to ogy could perhaps be blamed on bad judgement. further price declines. This time the competition But the problem was more fundamental and went included American semiconductor manufacturers to the heart of its highly fragmented network producing their own brands. Price reductions were system of production. dramatic, and by 1975 Texas Instruments had The Swiss did not anticipate that the new tech- introduced a very inexpensive digital watch in a nology would dominate the market in such a short plastic case for $19.95. Although problems with time. But as integrated circuit prices fell pre- the battery momentarily resulted in high reject cipitously, quartz watches became increasingly af- levels, and consumers really wanted watches with fordable. Because the Japanese had been vertically more visual appeal, it did not take long to solve integrated since the 1960s companies such as Seiko these problems. Battery longevity was vastly in- 480 A. Glasmeier / Switzerland and the world watch industry creased, watch designs improved aesthetically, and are filtered through networks of institutions which within an astonis~ngly short period of time, dig- often have competing short-term interests, In the ital watches took over a large share of the market. case of the watch industry, firms had a vested The Swiss responded slowly to change in digital interest in mechanical watchmaking. They were technology largely because when it was intro- receiving positive signals about their existing duced, it was crude. Given what promised to be a product, and demand was strong. Therefore reasonably long developmental period between the suggestions about a possible technological shift introduction of the quartz technology and its seemed misplaced. While the market provides a eventual market success, the Swiss were under- good focusing device after a decision is taken by standably skeptical. As Dosi characterizes this industry participants, it is rarely helpful in decid- moment, ing ex ante which direction the technology will ultimately take. As Dosi suggests, Especially when a technological trajectory is very “powerful”, it might be difficult to switch . . . the point we wish to stress, however, is the from one trajectory to an alternative one. general weakness of market mechanisms in the Moreover, when some comparability is possible ex ante selection of technological directions between the two (i.e., when they have some especially at the initial stage of the history of dimensions in common) the frontier on the an industry. This is, incidentally, one of the alternative (new) trajectory might be far behind reasons that militates for the existence of that on the old one with respect to some or all “bridging institutions” between “pure” science the common dimensions. In other words, and applied R&D. Even when a significant whenever the technological paradigm changes, “institutional focussing” occurs, there are likely one has got to start (almost) from the beginning to be different technological possibilities, an in the problem-solving activity [6, p. 154]. uncertain process of search with different organizations, firms and indi~duals “betting” The quartz “problem” permeated the Swiss on different technological solutions. With dif- watch manufacturing network. Every segment of ferent competing technological paradigms, the industry was affected. The rapid development competition does not only occur between the of quartz meant there were now many sets of tools “new” technology and the “old” one which it needed to produce cases and dials. Uncertainty in tends to substitute, but also among alternative both technology and consumer preference forced “new” technological approaches [6, p. 871. the Swiss watch companies to compete in three watch markets - digital, tuning fork, and quartz. The introduction of the electronic watch re- The succession of innovations and new model sulted in unprecedented change in the organiza- development resulted in excess inventory. It tion of watch production. The differences between seemed that just as a watch was developed, it electronic and mechanical watches were dramatic. became obsolete. During this period of rapid tech- Whereas labor costs constituted as much as 70 nological change, Swiss firms (and others) were percent of a mechanical watch, in electronic forced to take back and in many cases write down watches labor costs were very low (less than 10 inventory - an extremely costly endeavor 1391.The percent). Another major difference was the control problems of the industry did not become widely of technology. The Swiss effectively controlled apparent, however, until hidden reserves were con- mechanical watch technology (due to the watch sumed, and firms were forced to reveal their statute), and Bulova controlled the tuning fork. weakened position. Electronics were fundamentally different. The technology was widely available, thus increasing The limits of the network the likelihood of new competitors with little or no prior watchmaking experience. Given the evolu- The experience of the Swiss watch industry is tion of electronics, it was almost a foregone con- indicative of the turmoil experienced when a new clusion that price declines would occur in tandem technological trajectory unfolds. Signals about with increases in capability. Thus, even the cheap- which direction the technology will ultimately take est watch could be a good watch. A. Glasmeier / Switzerland and the world watch industry 481

Network rigidities hamper industry response formed the basis of market share, collective research became collective knowledge. Firms were Internal industry organizational and cultural compelled to embark upon research to create tech- impediments hampered a rapid response to the nological differentiation based on the original electronic watch. For example, the production quartz innovation. These efforts were costly, un- planning time horizon for mechanical watches dif- certain, and occasionally unsuccessful. fered radically from electronics. The manufacturing cycle was organized according to the lead time Distribution needed to manufacture tools and dies for the fabrication of a new caliber, or watch dimension. The Swiss also had to contend with a centuries- Once committed to a design, tools and dies were old distribution system built around the watch as crafted to cut the necessary metal parts. After a piece of jewelry. mechanical watches were tradi- parts were manufactured, movements were assem- tionally distributed through jewelry stores, and bled and sold. Introducing a new watch model jewelers made steady profits on repair. But quartz took up to two years. With electronic watches technology threatened to change all that. there were fewer parts to be manufactured. Conse- Swiss distribution outlets initially balked at the quently the time needed to make a watch dropped quartz watch. Early rejection was partially attribu- dramatically. Thus, when the Swiss were faced table to awkward styling: electronic watches were with the need to shift to a new technology, they bulky and unattractive [39]. But more importantly, were already two years behind, given the dif- watch distributors effectively stalled the introduc- ferences in the manufacturing cycles. tion of Swiss quartz analog watches in defense of Ironically, product variety further hampered the their own market for watch repair. Quartz watches industry. Few factories specialized in a single were more accurate and relatively unbreakable caliber. Therefore, firms were unable to achieve compared with mechanical watches. economies of scale. And because most factories Unlike the Swiss, the Japanese did not have an produced several calibers’ parts, inventory over- age-old distribution system. Market channel con- head was costly. Parts were required for each flicts did not confront Japanese quartz watch caliber - resulting in huge volumes of work in manufacturers. Indeed Japanese channel strategy process. And the manufa~tu~ng cycle had to be selected outlets through which the benefits of managed across a wide range of products from quartz longevity and error-free operation were tool making to product assembly. maximized. The quartz watch was easier to sell, Manufacturers had no choice but to focus on and it was more accurate. Timing was also im- quality to differentiate themselves from the assem- portant. The Japanese quest for large markets blers. Moreover, marketing strategy dictated the occurred simultaneously with the retail revolution. need to produce a family of watches to preserve Mass marketing greatly expanded the number of firm market share. Since manufacturers could not outlets for watches. By the 1970s consumers were sell movements, they could not achieve sufficient more likely to buy a watch in a variety store than economies of scale to enjoy minimum efficiencies. a jewelry shop. Low volume of output led to high prices. By the mid-1970s the Swiss were running just The effort required to overcome technological to catch up. Major Japanese competitors intro- deficiencies associated with quartz technology reduced increasingly cheap, long-lived, and refined quired an industry-wide response. Given the in- watches. They pursued a strategy of short produc- dustry’s weakened condition, no single firm could tion runs; each time improving upon previous afford the costs of developing such an uncertain designs and climbing the learning curve more technology. Numerous industry associations were rapidly. Because the manufacturing cycle for the formed to develop the technology. This new form electronic watch was much shorter than for the of CoIlaboration created serious problems, how- mechanical watch, the Japanese could experiment ever, because no single firm could appropriate the within a relatively short time period. fruits of collective research and translate it into a The final blow came when the benefits of quartz competitive advantage to capture new markets. converged to produce a cheaper, smaller, thinner, Unlike times past, when pursuit of new innovation stylish, and accurate woman’s watch. Before quartz 482 A. Glasmeier / Switzerland and the world watch industry efforts at further ~niatu~ation, women’s watches production system, high level of profitability, and had been less accurate and more costly to manu- persistent success in its traditional line of busi- facture than men’s. Now accuracy no longer dis- ness, what precipitated this historic reversal? tinguished cheap from expensive watches. The en- Beginning in the late 1920s the industry tire basis of Swiss market hegemony - precision - organized as a cartel to reduce the opportunistic had evaporated. behavior of industry participants. The resulting structure, though highly efficient and profitable, Reorganization and rati~na~~~at~~~ outlived its usefulness. Following the rescission of the Statut de l’Horlogerie, the network structure By the early 1980s the Swiss industry was in of production, while efficient and flexible, was disarray. The international recession dealt the fi- also fragmented. Faced with the need to shift from nal blow to the Swiss watch industry’s historic a technology based on mechanics to one based on organization. Faced with operating losses and electronics, a time-lag built into the fragmented massive inventories, SSIH was eventually a victim system inhibited rapid information flow. Shifting of industry reorganization. The company could technological systems required that institutions not solve the equation of low prices, wide assort- and other critical components of the existing sys- ment, small volume, rapid change, short delivery tem be substantially modified. But this task proved time, and large model series [38]. Seiko, Japan’s difficult. The 200-year dominance of the previous largest watch producer, was able to respond be- paradigm constituted an “outlook which focused cause it had the market volume to offer a wide the eyes and efforts of tec~olo~sts, engineers, assortment with economical series, low prices, and and institutions in defined directions” 16, p. 1581. short delivery. A single statistic says it all, “on the Initially, the region did not have the training average Japan produced, under each brand name, capacity to provide electronics engineers. These 6 million watches in the 1970s compared with skilled workers had to be imported from outside. fewer than 100,000 in Switzerland” [16, p. 2211. In the case of Swiss watches, the decades old In the early 1980s SSIH and ASUAG were distribution system promoted Swiss watches based forced by the banks to merge. While the national on their mechanical precision. Other organizations significance of the Swiss watch industry could not which represented the industry, such as the FH, be abandoned, neither could industry organization were still predicting mechanical watch supremacy be allowed to continue as it had in the past. The as late as the early 1970s. Educational and techni- merged SMH Group was taken over by powerful cal institutions - the core of the region’s produc- Swiss industrialists. One of the most dramatic tion complex - took even longer to respond to the changes arising from the merger was the introduc- new technological regime. tion of a wholly new product, the “Swatch,” pro- Amid radical change, organizations could not pelling the Swiss back into the low-priced segment form a single voice to respond. The watch in- of the market [2,23]. i6 dustry’s collective research efforts to pioneer new technology could not overcome organizational inertia and infighting that arose with the need to Summary, reflections and conclusions commercialize the new technology. Without detailed and prearranged specifications about how Over the course of the last 20 years the Swiss the benefits of research were to be distributed, lost both volume market leadership and techno- institutional inertia slowed the process of change. logical supremacy. Given the industry’s well-tuned Since no single firm could be the “first” to intro- duce the collectively developed innovation, each firm had to develop its own [39]. When industrial reorganization eventually occurred, efforts were 16 Swatch is a plastic watch manufactured at high volume insufficient to address the structural crisis. using advanced automation and assembly-line methods. But Longstanding inefficiencies embedded in the pro- the real innovation is in marketing the watch as a high duction system led many firms into bankruptcy, fashion, mood-oriented product. Ownership of multiple models is stressed, and marketing is targeted toward specific resulting in bank ownership of some of the region’s age groups [l]. most famous and successful firms. A. Giasmeier / Switzerland and the world watch industry 483

As the Swiss case attests, elaborate network ing components make the movement work at a production systems suffer like any other organiza- correct rate. The miscellaneous parts include the tional form in the face of unexpected technologi- case, crystal, etc. cal change [36]. All prior means of governance are A mechanical watch is driven by a main spring called into question. The peculiar advantage of which transfers stored energy (in the spring coil) decentralized systems are also potentially their to the gears that move the hands. The release of greatest flaw. Extreme change often necessitates energy is controlled by the escapement mecha- radical reorientation. In such instances the ability nism. Although numerous escapement models were to respond rapidly dictates who will be the ulti- developed over time, the mechanism is con- mate victors. Although watches represent a specific strained by the anchor fork to give up a precise case, their longevity as a product should bring amount of energy. The anchor fork rocks back pause to pronouncements that network production and forth allowing the escapement wheel to ad- systems are somehow immune to technological vance in tiny increments, and these increments are change. converted by other gears to the watch hands. The anchor fork moves in conjunction with a balance wheel that moves back and forth. The Appendix - History of watch technology balance wheel is motivated by a hairspring that coils and uncoils keeping the balance wheel in Evolution of the watch motion. As the anchor fork disengages from the escapement wheel, it transmits enough power to Since its creation almost 300 years ago, the the hairspring to coil it. As the hairspring uncoils, watch has remained remarkably the same. Up it rotates the balance wheel in the opposite direc- until the 1960s alterations in the watch occurred tion. This motion rocks the anchor fork in the mostly to the exterior in response to fashion and opposite direction, starting the next cycle of the consumer tastes. The internal mechanism re- regulating mechanism. mained stable. The advent of electronics represented the first significant departure in the inter- Not all watch movements are the same. Dif- ferences in movement quality relate to the techni- nal functions of the watch. The impact of this new cal composition of the parts used. Precision, oma- technological development was profound. Centu- mentation, and movement miniaturization dif- ries-old traditions in the manufacture of watches ferentiate a high from a low quality watch. Inter- were revolutionized over night. Prior to electron- nal jeweling in watches does not reflect differences ics, timekeeping accuracy was associated with the precision with which metal parts were cut, filed, in quality. Jewels are used to reduce friction between touching metal parts. The majority of jewels and fitted together. The most accurate watches used in the interior of a watch are made out of were made by a single craft worker who cut each synthetic materials and do not add significant part, polished each metal edge, and placed each tiny part in the watch movement. Tuning the value to the watch. Within mechanical watches there is a qualitative difference between jeweled watch to achieve accuracy required very careful attention to detail. A short description of the and pin lever watches. The pin lever watch con- evolution of watches helps clarify the meaning of tains a more simplified movement compared to a electronics to the industry. This section draws jeweled watch (an example is Timex). A pin lever heavily from Knickerbocker’s treatment of watch watch has ‘few moving parts and does not use jewels to reduce friction between metal parts. development [18].

The standard spring-powered watch The electric watch

A standard mechanical watch consists of three In this century, the first major technological groups of parts: the “tbauche”, or movement advance in watch movement manufacture was the blank; the regulating components; and other introduction of the electric watch. The electric generic parts. The ebauche consists of the frame- watch movement was made possible by World work (or back bone) of the watch, the gear train, War II R&D developments in the miniaturization and the winding and setting mechanism. Regulat- of motors and batteries. The electric watch was 484 A. Glasmeier / Switzerland and the world watch industry only a partial step away from the mechanical Changes to the watch face watch. The main spring and many of the components of the escapement were eliminated and re- Prior to the introduction of the quartz crystal placed by current from a battery that drove a tiny watch, changes in the timekeeping mechanism were balance wheel motor. The electric watch was in- completely internal to the watch. With the advent troduced in 1957 and was available world wide by of the quartz crystal, time could be displayed by the 1960s. Because electric watches were no more conventional means (analog) or by digital display. accurate than most mechanical watches, they did Two primary displays are important: light-emit- not make major inroads in the medium- and ting diodes (LED) and liquid crystal display (LC). high-price watch markets. LEDs are semiconductors that emit light (much like a light bulb). Originally used in calculators, LEDs became fashionable in watches in the early The tuning fork watch 1970s. Because LEDs require considerable power they are not illuminated at all times. A push-but- The second major innovation in watch technol- ton activates the display. In contrast, an LC dis- ogy, the tuning fork, had a profound effect on the play consists of a glass sandwich with a thin watch industry. The tuning fork is stimulated by coating of electrically sensitive chemical between an electric current from a battery. The current the glass plates. When a current is passed through causes the tuning fork to vibrate at 360 cycles per an LC, the chemical changes its crystalline struc- second. A tiny strip of metal connected to the ture. The altered crystals reflect light coming from tuning fork transfers the vibration to a set of an outside source. While less power consumptive gears, which like a conventional watch, drives the than an LED, LC’s brightness and precision de- watch hands. Because the tuning fork vibrates 31 pend on the brightness of the external illumina- million times a day, the mechanism is far more tion. accurate than a mechanical watch. Tuning fork The advent of quartz altered both internal and technology was invented in the early 1950s and external features of the watch. With high levels of became commercially available in the early 1960s. accuracy, the quartz watch could also incorporate A women’s version was eventually introduced in numerous functions. Within an incredibly small the early 1970s. space, a quartz watch could include multiple timekeeping mechanisms including alarms and other sophisticated functions. In combination, quartz The quartz crystal watch technology revolutionized the watch industry.

The third, and most significant innovation in References watch manufacturing occurred in the late 1960s with the use of quartz crystals to regulate increments of time. When electric current is passed VI J. Arbose, The Turnaround in Swiss Industry: How the Smokestack Crowd Learned Marketing, International through quartz it vibrates at very high frequency. Management (UK) 42 (1) (1987) 16-23. Micro circuitry subdivides the crystal’s frequency 121Business Month, Up From Swatch (March 1988) 57. into electric pulses which drive the watch. In some [31Casio Computer, I.J. Corporate Annual Reports (1984- cases the quartz is used to power a stepping mo- 1988). tor, which is connected to a gear train that moves 141Citizen Watch Company (Japan), Corporate Annual Re- ports (1985-1988). the hands. Quartz technology can also be used to 1510. Crevoisier, M. Fragomichelakis, F. Hainard, and D. stimulate a tuning fork device. In solid state Maillat, Know-how, Znnouafion, and Regional Development, watches the pulses are fed into integrated circuits Paper presented at the 29th European Congress, Cam- that convert the pulses into minute and second bridge, England, September 1989. time increments. This last type of watch incorpo- 161G. Dosi, Technological Paradigms and Technological Trajectories, Research Policy 11 (1982) 147-162. rates no moving parts. The face and hands of a [71G. Dosi, Technological Paradigms and Technological solid state watch are replaced with different meth- Trajectories, in: C. Freeman (ed.), Long Waves and the ods to display time. World Economy (Butterworth, England, 1984). A. Glasmeier / Switzerland and the world watch industry 485

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