I won't pretend for a minute that I wrote this, but it was just too good of a history of SWATCH Group to not be translated for us English speakers. For those who read French, here's a link to the original page.
Tomarrow, I will have a few additional comments on this article and some of my own on where SWATCH (appears to) be heading...
ETA, which is now part of the SWATCH Group, is the largest Swiss manufacturer of movements, including mechanical movements. Behind these three letters, more romantic names, like Valjoux, Unitas, and Peseux suggest some hidden treasures are awaiting discovery. ETA was not made in a day. The birth of such industrial giant required the intervention of the Swiss Confederation Government. Curiously, this fascinating history is difficult to reconstruct. There are many partial documents, including some remarkable (see bibliography), but no complete story from the birth of Ebauche SA in 1926 to SWATCH Group until today.
It is for this story I invite you to read. You'll discover there highs and lows, splendid successes and cowardly betrayals, and a little of the soul of Switzerland therefore, probably is a bit of life itself.
Chapter 1. The genius of the Ebauche SA
The watchmaker was individualistic in nature. Entrenched at his bench where he practiced watchmaking, each single one tended to keep his individual know-how secret and intended to manage his business by himself. In fact, when a crisis occured, as did at the beginning of 1921, he tried, and managed individually to market his own products at more or less discounted prices, and by more or less legal ways: most criticized behavior being the "chablonnage", i.e. the export of all the unassembled parts of a movement, avoiding all federal laws prohibiting the sale of Swiss movements out of the Confederation. Obviously the chablonnage was unfair competition against the manufacturers of complete watches, the famous "Brand Manufactures", which, at this beginning of the 20th Century, had started marketing in increasing number of watches under their own brand: Omega, Zenith, Longines, etc, etc.
In an attempt to introduce discipline in the profession, these “Brand Manufacturers” created in 1924, the Fédération Suisse des Associations de Fabricants d'Horlogerie, better known under the abbreviation FH, which then sought a strategy to implement their goals. But, the situation was complex. The main part of the watch is movement, which were assembled by a large companies with hundreds of employees. But, the piec-parts, the pallet, the balance, the hairspring, etc. were manufactured by a multitude of micro-enterprises, sometimes a simple workshop on the corner of a barn.
The solution was to create the Union des Branches Annexes de l'Horlogerie or UBAH in 1927. The aim was to encourage self-discipline and to monitor prices and quality to avoid the exhausting cycles of price inflation followed by collapse. The industry is a little reluctant at first, but the assurance of stable prices eventually won. Slowly the philosophy of UBAH shows promise.
However, for the movement makers, the situation is different. This was because of the size of the financial issues. In January 1925, 26 manufacturers of movements attempt to make an agreement. It quickly failed as a year later one of them unilaterally dropped its prices and the union broke. That's when the banks stepped in. A Mandate was given to the Société Anonyme Fiduciaire Suisse de Bâle. It should be noted that Swiss banks were heavily committed to the financing of the large movement factories and they had every incentive to promote market stability.
Banks never had a reputation for taking risks, yet at that time they supported a stroke of genius: on December 27, 1926, in Neuchatel, Ebauche SA (ESA) was created.
ESA was born from the merger of three large manufacturers of movements: Adolphe Michel S.A. in Grenchen, created in 1898 by Adolphe Michel and Jean Schwarzentrub, Adolf Schild S.A. also in Grenchen, created in 1896 by Adolf Schild-Hugi, and Fabrique d'Horlogerie Fontainemelon, founded in 1793 by Isaac and David Benguerel associated with Julien and François Humbert-Droz. In the 1920s, these three factories produced over 75% of Swiss movements/ebauche. A. Schild, for example employed over 2100 people.
ESA was different from the earlier aborted attempt at stabilizing the movements industry in that it was a Public Limited Company (PLC). With the help of the banks it is powerful. So, when ESA came to the table was not to talk, it was to takeover. Small manufacturers of movements yielded one after the other. In 1927, nine manufacturers are swallowed, Hora, Sonceboz and Charles Hahn, the chronograph movement maker Landeron. In 1928, ten more went down, of which Felsa, Venus, Root, Bovet, Optima. In 1929, eight of which more notably, Postala and Urania. With this concentration of manufacturing power, ESA pushed the “convention de chablonnage” which drastically regulated the rights and duties for exports on 1 December 1928.
It was just a tad too early.
There still was a “dissenting” block of movement manufacturers that escaped the bosom of ESA, which felt no need to follow the rules of the convention. These dissenter continued to export cheaply and caused a glut in the movement market. To add to the trouble, there came the great crisis of 1930 [Black Thursday and the beginning of the Great Depression], This caused the United States, the primary export market for Swiss watches, to increased watch tariffs from 300 to 500%, in an attempt to protect the US watch industry for inexpensive imports. Signatory companies of the “convention de chablonnage” began to scream about unfair competition from the “dissenters”, and in December 1930, the “convention de chablonnage” is voided.
Chapter 2. The super-holding company for the holding company.
The situation of Swiss watchmaking in the early 1930s was dire. Bankruptcies followed one another, almost 20,000 watchmakers were unemployed. Banks and Watch industry needed to take amother gamble to stabilize the industry (again). The basic principle was the strategy that led to the creation of ESA. It just needed to go further, until the full concentration of the movement manufacture was under one roof. They then devised the following plan of action:
1. Formation of a “super holding company” with equal participation from Brand Manufactures and movement makers,
2. Acquisition of the majority shares of ESA by the “super holding company”,
3. Swiss Federal Government financial participation,
4. Concentration of essential watch part suppliers, pallets, balancess and springs, through acquisition by the “super holding company”.
Thus was created 14 August 1931 Société Générale de l'Horlogerie Suisse SA better known under the name Allgemeine Schweizerische Uhrenindustrie AG or ASUAG, and it gets its first president, Hermann Obrecht.
The first thing ASUAG had to do was secure the financial required for such an undertaking as consolidating all of the various companies. Scraping the bottom of ASUAG and banks’ financial barrela lot of money was missing. Analysts allowed themselves the luxury of being precise: they lacked 13.5 million CHF. At this point they knocked on the door of the Swiss Confederacy Government.
It was not common for the government provides financial assistance to a private company [at least then]. But, the situation was unusual: first there was the impressive number of watchmakers unemployed an second, the watch is regarded in Switzerland as an industry like any other, this was a national treasure, that vehicle in the world, an image, and of values that the benefitted the country is export revenue which far outweighed the cost.
September 11, 1931, upon lengthy negotiations, the Swiss Confederation joined ASUAG granting simultaneously a free loan of 7.5 million CHF, and as a shareholder with an investment of 6 million CHF, repayable in annual instalments of 1 million CHF from 1934.
ASUAG now had a clear field and the concentration of the movement manufacturing and the regulating of sales was conducted swiftly. By 1932 Les Fabriques d'Assortiments Réunis SA and Les Fabriques de Balanciers Réunis were created uniting balance production. The same year ESA acquired Manzoni, Moser, Peseux, Fleurier, ED Kummer SA (Atlantic watches) and two mixed factories (movements and complete watches) which deserve some attention: A. Reymond SA and Eterna.
Auguste Reymond created Tramelan Fabrique d'Horlogerie in 1898. The company grew quickly and became a brand manufacture in 1906 by producing its own calibers, first in Bioux, then Tramelan. In 1918 the company became a public limited company under the name A. Reymond SA or ARSA and in 1926 bought the factory Unitas Watch Co. in Tramelan. At the time of the merger with ESA 1932, the company was divided into two: ARSA for the watches, Unitas for movements.
Same for Eterna. Joseph Girard and Urs Schild had joined in 1856 to manage a factory in Grenchen building movements. In 1870 the company employed over 300 people and the brand Eterna was used from 1876. On the death of Urs Schild, Max Schild took over and it became the company Schild Frères Cie. in 1891. In 1929 it had produced over 2 million parts and employed over 800 people. By the time of their merger with ESA in 1932, the name Eterna was reserved for watches and manufactures movements became ETA SA.
Despite these efforts, in 1933 there are still 22 dissidenting companies, including nine movement factoriess. In March 15, 1934 the Swiss government legislated “Decrees of the Federal Council tending to protect the Swiss Watch Industry.” From now on it is prohibited to start any new watch making company without a licence and it is forbidden to export “chablons” outside of preestablished agreements.
The Swiss watch industry is now under control.
The buyouts continue but at a slower pace: Fortunately, the economic situation improved and demand increases. ASUAG absorpted Champagne in 1938, Derby, Precimax, Gigantic in 1941, Glycine in 1942 and Valjoux in 1944. The Mythical Valjoux SA, to which the Swiss chronograph owes so much, was called Reymond Frères at its inception to Bioux in the Joux Valley, by John and Charles Reymond, in 1901. Hence, the acronym R found on the movements. The company specialized straight into the chronographs and manufactured these movements from 1910. In 1929 Marius and Arnold, son of John, took the estate and the business became Valjoux SA. In 1942 it produced annually as many as 60,000 movements before coming under ESA in 1944.
Chapter 3. The Golden Age to the Great Crisis
Between 1945 and 1960 the Swiss watch industry experienced fifteen years of almost continuous growth. Annual production of watches and movements more than double, from 18.8 to 41 million units. Protective measures prohibiting the creation of new movement factories were extended in the early 1950s and later relaxed. What probably saved the watch industry in the previous years of crisis will turn against it: the movement companies that remained independent had great difficulties, struggling against the power of ESA. They gradually disappear, the movements of Angelus, Excelsior, Universal, Movado, etc. fade out ...
In the early 1960s Switzerland faced a new surge of foreign competition. The watch industry had been rebuilt in those countries where it had suffered severely from the Second World War. France and Germany now had strong positions in the market and the United States and Japan deal have more and more success in foreign markets with Timex and Seiko, producing inexpensive watches in the millions. Switzerland's industrial fabric is still highly fragmented: there are over 3000 watch companies and 80% of them have fewer than 20 people.
To reduce costs and to get companies the size necessary to compete on equal terms with foreign groups, ASUAG, with the help of banks, will then embark on a new campaign focus.
Thus in 1966 Chronos Holding is created which yook over Cyma in Tavannes, took an interest in Gruen and created in 1968 the group Synchron, gathering Ernest Borel, Doxa and Cyma. In 1971 ASUAG created the General Watch Co. (GWC) gathering Certina brand, Edox, Eterna, Mido, Oris and Technos, and later that year bought Longines, which owned Record and Rotary.
The concentration continued on the movement side: ESA in 1967 bought Durowe in Germany and Sefea in Annemasse, France.
Everything seems just fine, the tools of production run at full capacity, and in 1974 Switzerland manufactured more than 84 million watches.
But looming on the horizon were dark clouds. Very dark. People usually say that the crisis that hit the Swiss watch industry in 1975 was the quartz movement. But the Swiss had developed the quartz in early 1974, and a number of Swiss quartz watches exported that year were quartz watches. What the Swiss watch industry did not expected was the apparent brutal disaffection with the mechanical watch [mainly the pin-levers, the bulwark of the industry] and especially the large drop in prices.
The nature of the industry had changed. The rapid development of the electronics from test bed to cheap product, outpaced the much slower, development of precision mechanical engineering. Quartz was not the only cause of trouble. In 1973 it was the first oil crisis which led to the following year’s global economic recession. To make things the Swiss Franc fell and within a few years it earned only 70% of its 1974 value.
Then situation became serious. From 1974, which was a record year, to 1983, the number of watches and movements manufactured in Switzerland decreased from 84.4 to 30.2 million, a drop of nearly 65%. Hundreds of companies disappeared, tens of thousands of jobs vanished. The ASUAG, out of desparation took defensive measures. ETA and A. Schild were merged, the Synchron group was dissolved, Borel, Doxa, Cyma were sold. In 1980 the number of calibers produced by ESA was drastically reduced from 136 to 40. The following year ASUAG loses more than 44 million CHF. In 1982 all movement factories are merged under ETA. Oris is sold. Losses exceed 156 million CHF.
So, here we are at the brink of oblivion.
But here we need to introduce the other major player, another giant with feet of clay: the Société Suisse pour l'Industrie Horlogère or SSIH.
Chapter 4. From Alpha to Omega
SSIH was born February 24, 1930 by the merger of Louis Brandt and Frères SA, Omega Watch Co. in Bienne, and Fabrique d'Horlogerie Charles Tissot et Fils in Le Locle. During this difficult period of 1930 (see above) SSIH rationalized their movement factories and coordinated their sales policies. What was missing from SSIH was the class of watch that became popular in the early 1930s: the chronograph. It was then that Marius Meylan, head of the Lemania Watch Co., founded in 1884 by his father-in-law Alfred Lugrin and located in the East in the Joux Valley, approaches SSIH, and in 1932, Lemania was bought out by SSIH.
SSIH quickly became a major player in the Swiss watch industry. In 1948, the centenary of Omega, SSIH employs 1,600 people and produced more than 500,000 watches. And in the years that followed the SSIH continued to grow: 3,000 people in early 1960, over 7000 in early 1970 with over 10 million parts produced. This growth was from, to a certain extent due to takeovers: Marc Favre in 1955, Eigeldinger and Co. in 1957, Rayville SA, manufacturer of Blancpain watches in Villeret in 1961. (Note that what interested SSIH in Rayville was its remarkable line of ladies calibers and not the trademark “Blancpain”, which was abandoned shortly after the takeover.) Also in 1961, acquisition of Cortébert, and in 1965 of Langendorf Watch Company, manufacturer of Lanco. In 1969, to fight against Timex and Seiko in the field of the economic watch, SSIH bought Aetos, a major manufacturer of pin-lever watches and two years later TSEs (Economic Swiss Time Holding established in 1967), the largest manufacturer of Swiss watches, Roskopf (Buler brands, Continental, FerexŠ). The acquisition of Hamilton, between 1971 and 1974, was proof of the indisputable ascendancy of Swiss watch industry over the Americans.
But for SSIH, and the entire industry, as seen above, things changed radically. In 1975 sales declined by over 20% in 1976 over 30%. Tissot ceased to manufacture their own movements, and 1979 sales decline again over 20%. Compared to 1971 the number of employees fell by more than 2000 people. The 1980 results were frightening, a drop of 63.6% The banks had to step in and three most concerned banks constitute a restructuring committee and appeal to a specialized firm: Hayek Engineering headed a Nicolas Hayek. The proposed solutions are brutal: Rayville / Blancpain is dissolved, Buler, Lanco, TSEs are sold. Even Lemania is assigned to a group of shareholders which include Piaget. And in 1982 the Blancpain sold 18,000 Swiss francs to one Jean-Claude Biver, head of jewelery watches at Omega ...
That's when Nicolas Hayek will seize the two titans in agony ...
Chapter 5. Fusion and rebirth
The idea of a merger between the SSIH and ASUAG was in the air since 1980 when the Swiss Federal Council had favored a cooperation agreement between the two companies. Moreover, in 1981, SSIH sold their quartz division to ETA. Nicolas Hayek's strategy was based on a market logic that can be compared to a pyramid: at the base there are the cheap watches manufactured in large numbers. To ensure a presence essential at this level there was ETA, therefore ASUAG. So it's ETA and its boss Ernst Thomke who supports the full implementation of SWATCH with the success we know. At the top of the pyramid there are the expensive watches which must correspond to a strongly-branded one: it will be Omega, and therefore SSIH.
The merger took place between 1983 and 1984. The new group was called SSIH-ASUAG, it employed over 12,000 people and makes more than 1.5 billion CHF in sales. It had a finished product division with Omega, Longines, Eterna, Rado, Hamilton, Certina, Tissot and Mido. The movements and components division is represented by ETA which now includes all ESA companies and supports the manufacture of watches SWATCH and Endura. Two other industrial divisions, complement the organization.
In 1984 things began to improve: the SSIH-ASUAG made a small profit (CHF 26.5 million) against a 173 million CHF loss a year earlier. However, not Omega, which was supposed to be the pinnacle of the pyramid, which continued to lose money. Eterna, ARSA, Atlantic are sold.
Then comes a new dramatic turn of events: in 1985, Nicolas Hayek, the head of a group of investors bought 51% stake in the SSIH-ASUAG and transforms it into SMH, the Société Suisse de Micro-électronique et d'Horlogerie SA, and Nicolas Hayek became its Chairmanship.
The rest of this story is pretty well known. Turnover and profits have increased steadily in 1992 Blancpain was resurrected, as well as one of the movement manufactures, Frederic Piguet. In 1997 Calvin Klein Watches was created. SMH becomes SWATCH Group.
Now, the vast majority of calibers bear the ETA mark.
By Joel de Toulouse - July 2002.