I had to look up the meaning of "event horizon".
Apparently it specifically refers to the theoretical boundary around a black hole, which acts as a barrier to light, but generally has come to mean any "point of no return".
Personally, I don't like that definition.
"Horizon" typically refers to the distant point at the end of our field of vision, where earth and sky meet, which is as far as we can see, literally, but metaphorically, it's also come to mean the limit of our perception.
I like the idea of an "event horizon" representing our inability to see beyond a specific event's occurrence sometime in the future - the event being so monumental, consequential, and unprecedented that we don't really know what comes after.
As in, what happens after 2020, when ETA will be allowed to stop selling movements to third parties?
Whether or not that will actually happen is itself a subject worthy of much debate and speculation, especially in light of the industry's health (or lack of it) in recent years.
In my view, I think it's better to consider 2020 as a future point in time when we're likely to see SOMETHING impact the industry. It could be ETA cutting off sales to 3rd parties, or, it could be ETA *NOT* cutting off supply.
But it seems to me that most people who consider ETA's actions are really only handicapping the possibility that they WILL cut off supply, as they've been saying they want to do, and what happens after.
However, I think it's equally important to consider what happens if they do NOT cut off supply.
Blame it on my true passion - poker.
Poker is a game of incomplete information, involving intentional deceit on the part of the players. In order to be a successful poker player, one must be able to analyze opponents' actions in context, and decipher their true intentions. The best players are those who can effectively combine mathematics, game theory, psychology, imagination, and improvisation.
When I heard that ETA wanted to cut off supply of movements to third parties, the first thing I wondered was WHY?
I understood that ETA's parent company, Swatch Group, gave an explanation, and that many people were repeating it, but I didn't buy it, and still don't.
From the NY Times article, the often repeated explanation:"The company insists that its goal is not to strangle competitors. And it argues that its withdrawal will require rivals to raise their spending on manufacturing, thereby strengthening the quality and competitiveness of the Swiss watch sector as a whole.
'In no other industry do you have one company supply all the critical parts to the people who then compete directly with it,' Nick Hayek, Swatch’s chief executive, said in an interview this year. Swatch said it had no further comment on the issue."
Uhm, pull the other one, Swatch Group.
Never in the history of industry has any company willingly given up an effective monopoly, of its own accord, and with no outside prompting, in order to benefit their industry as a whole, with nothing but the most magnanimous intentions.
I can think of a lot better reasons for these actions - in context - reasons which would better explain WHY Swatch Group would want to cut off supply - or make people *think* they wanted to cut off supply, perhaps more likely.
When I'm faced with a difficult decision at the poker table, I try to consider all the reasons why my opponent might be doing one thing versus another, then consider which reasons would be the most devastating, and diabolical.
My opponents are trying to do as much damage to me as they can, after all, so I tend to put the greatest weight on those reasons which would support those outcomes which would be most profitable for them, and least profitable or most devastating for me.
Why would ETA want to cut off supply, if not to help the industry, as they say? Why would they willingly give up their effective monopoly? I can only think of a few explanations:
- They are truly interested in seeing their competitors grow stronger - unlikely to be true, no matter what they or anyone else says.
- They want to create artificial scarcity, which supports higher movement prices - sensible, but could potentially backfire if competitors actually do step up to fill the void.
- They think cutting off 3rd parties will cut down on competition for Swatch brands - very much like the above, it's sensible, but could backfire if competitors step up to fill the void.
On the other hand, why would ETA want people to THINK they wanted to cut off supply, when in fact, they may NOT want to? I can think of some pretty diabolical reasons:
- They want to trick their competitors into revealing their own capabilities, capacities, and plans.
- They want to trick their competitors into over-investing in new production capacity, to fill the void, so that ETA can crush them by creating a glut of lower-cost movements on the market when it will do the most damage.
- They want to create opportunities to scoop up the assets of struggling competitors on the cheap, in the wake of the devastation their deceptiveness creates.
ETA and Swatch Group fought hard - very hard - to get court and government approval to cut off supply to third parties. It certainly looks like they're serious, or at the very least, like they want people to believe they're serious.
And, from what I can see, people have mostly believed they were serious - MECHANICAL - Who will succeed ETA?.
A lot of people and companies are scrambling to figure out how to fill the void ETA will supposedly create when they stop selling their movements outside the Swatch Group. Millions of dollars have been invested - tens, maybe hundreds of millions of dollars - and are still being invested in the effort.
Yet, for all that effort and investment, we're really not all that close to having enough good alternatives. In fact, we're pretty far away, really.
Sellita was, and may still be struggling to be completely independent from ETA, and many in the industry do not consider Sellita's movements as equal in quality.
Neither Soprod nor Eterna has either the capacity or the pricing to meet market demand.
STP and Ronda have yet to prove themselves. Every other Swiss company is either way more expensive, or quite underwhelming, or some combination thereof.
I'm not aware of any "truly" Swiss movement supplier with a ready supply of movements which can effectively be compared to the ETA 2824-2 in a performance-for-the-price sort of way, and many Swiss suppliers would still be dependent on Nivarox, also a Swatch Group subsidiary, one with an even bigger monopoly than ETA, for balance springs.
Swatch Group is metaphorically, if not literally, holding all the cards.
And what is the result of all that effort and investment on the part of all these people and companies?
Wait for it, because this is my favorite part of this story, the part where I figure out what my opponent at the poker table is REALLY doing...
JUNE 20, 2016
Swatch backpaddles on phasing out watch movement deliveries
ZURICH (Reuters) - Swatch Group SA (UHR.S) said on Monday Swiss competition authority Weko was examining if the world’s biggest watchmaker could supply MORE [-emphasis mine-] mechanical movements to its customers than was set out in a 2013 agreement on phasing out deliveries...
Rivals built up production capacity after Swatch got the green light to phase out deliveries, a development that together with weak global demand for luxury watches led to an oversupply of movements.
“Weko is currently examining if a certain liberalization of the mutual agreement is possible given the structural change that has taken place in the area of mechanical movements,” Swatch Group said in reply to an inquiry from Reuters.
Swatch said liberalizing movement delivery rules would let it better meet the needs of ETA’s third-party customers. Weko confirmed a review was under way.
“I think it is to do with the lower production the industry is going through and Swatch Group probably wanting to improve its capacity utilization by supplying more movements to third parties,” Kepler Cheuvreux analyst Jon Cox said: “If business was more brisk and there were more demand for watches overall I doubt it would be looking to do that.”
Watch movement makers told Reuters at an industry event in Geneva last week that weak demand had led to a glut of mechanical movements and that Swatch had signaled readiness to again deliver more movements to the industry.
“Yes, there is overcapacity in mechanical movements. You find copies of ETA movements everywhere,” Laurent Besse, head of watch movement maker Soprod, had said.
Sebastien Gigon, of small movement maker Technotime, said if ETA with its pricing power was again supplying more movements this would pose problems to rivals who built up production on the assumption ETA would stop deliveries by 2019.
“I’m thinking of Sellita, but also Soprod and people like ourselves who took big risks to develop our own movements to fill the gap that Swatch was going to leave,” he said.
Sellita, which is privately owned and the only competitor able to offer watch movements at comparable prices to ETA, last week declined to comment or provide any details on its business.
Several movement makers, including Vaucher Manufacture and Dubois-Depraz, said they had already cut jobs or could do so soon due to the difficult economic situation.
Swiss watch exports dropped 9.5 percent during the first four months of the year, reflecting dwindling sales and high stock levels in No.1 market Hong Kong.
Oh. muh. gawd.
Swatch group now wants to start supplying MORE movements? And that's going to suck for their competitors? Because they took big risks to fill the void ETA was supposed to leave in their wake?
Who could have seen this coming???
Uhm, only every decent poker player on the planet.
So...does this mean that there's no reason to be concerned about what happens after 2020?
No, not at all. In fact, quite the opposite. We need to be very concerned, I think.
If you think the industry is in bad shape now, wait until ETA gobbles up or stamps out most of their Swiss competitors, all of whom are likely on shaky legs today, and could have their legs cut out from under them within the next two years.
The Japanese? I love Japanese movements. I'm a huge fan. But when the price of Oil goes up, so does the price of Natural Gas. So to do Japanese movement prices go up when Swiss movement prices go up, and, when that happens, it's often the case that quality goes DOWN, from what I've seen, and had confirmed by others.
More competition is good for the market, it forces manufacturers to deliver quality products at fair prices. When there are only a handful of suppliers for a key component, the suppliers don't feel nearly as much pressure to perform.
The Chinese? Mehhhh...we have a big disconnect between our expectations and their capabilities. I wouldn't hold out hope for a Chinese Connection to save the day.
So...what's on the other side of this particular Event Horizon?
If I had to guess, I'd say fewer Swiss movement manufacturers, not more. Or, if there are more, or merely "enough", they may be "Swiss" in name only, and not really a threat to ETA in any way. I think that could mean higher movement prices for both Swiss and Japanese movements, and probably Chinese movements as well, without any increase in quality.
If movement prices go up, watch prices go up, generally. But, it could actually be worse than that.
If Swatch can put most of their toughest movement competitors out of business, then they COULD effectively cut off supply to 3rd parties, and there wouldn't be many, if any good alternatives. Imagine if the only brands with access to ETA movements were Swatch-owned brands, which had artificially lower movement costs, by virtue of being Swatch-owned.
Imagine if Hamilton, Tissot, Certina, Mido et al were priced 20%-30% below all comparable competitors. Imagine what that would do to all brands not owned by Swatch. Imagine a Steinhart without any Sellita, for example.
You see why I think ETA never really planned to cut supply, at least not without ruining their competitors first, and certainly not because they wanted to "help" strengthen the industry, right? This isn't an effort to prevent a monopoly. I see it as a potential effort to ensure the survival of one.
Read that 2011 quote from Nick Hayek again: “'In no other industry do you have one company supply all the critical parts to the people who then compete directly with it,' Nick Hayek, Swatch’s chief executive, said in an interview this year. Swatch said it had no further comment on the issue."
Kinda puts a comment like that into a different context, when you consider everything that's happened since, no?
Nick's right. You don't see that in any other industry, and before long, you may not see it any more in the watch industry.
Well played, Nick.