Table of Contents
1. Foreword
2. The Swiss Watch Industry from 1960-1980
3. The Société suisse pour l’industrie Horlogère SA (SSIH) and the Allgemeine Schweizer Uhrenindustrie AG (ASUAG)
4. The Causes of the Quartz-Crisis
5. Nicolas George Hayek
5.1 His Childhood and Education in Beirut
5.2 The Move to Switzerland in 1949
5.3 The Acquisition of the Machine Factory and Iron Foundry Ed Mezger
5.4 The Recovery and Return of the Father-in-Law
6. The Beginning of Hayek Engineering
6.1 The Reasons behind Hayek Engineering’s Success
6.2 Hayek Engineering, SSIH and ASUAG
7. The Schweizerische Gesellschaft für Mikroelektronik und Uhrenindustrie AG
8. Hayek and the SMH
9. The Swatch Group
9.1 The Swatch AG
9.1.1 The History of the Swatch AG
9.1.2 Swatch before its Success
9.1.3 The Swatch Strategy
9.1.3.1 The Product
9.1.3.2 Price
9.1.3.3. Location
9.1.3.4 Advertising
10. Summary Remarks
- Foreword
“Without Senior Hayek there would not be a Swiss watch industry anymore.” This statement has been made many times and by a great number of people. You will also find this statement in the Swatch Group customer report.
Yet, is it possible that a single man could single-handedly have saved the entire Swiss watch industry?
How did Nicolas Hayek even get into the Swiss watch industry? How did he become the main shareholder and president of the Swatch Group? What is the market value of his company? Why is the Swatch Group so successful? And finally, was Nicolas Hayek alone responsible for these achievements?
Before these questions can be adequately addressed, it is necessary to describe the historical situation of the Swiss watch industry, which first made it possible for Senior Hayek to save it.
- The Swiss Watch Industry from 1960-1980
In 1960, the market share of the Swiss watch producers was between 35-44%. The demand for the watches was greater than the supply, thus eventually leading to an over-demand for the Swiss timepieces.
In order to meet the demand, the watch manufacturers bought up large inventories of individual components, for a mechanical watch consists of 300-350 parts. It was assumed that the demand for individual components would increase, thus it would no longer be cost-effective to have each part individually manufactured. This is how the large inventories came to be.
At this point, the Swiss watch industry was quite proud of their achievement and dominance of the world watch market. After the crisis of the 1930s, the branch of the Swiss watch industry was finally doing better.
“The striving toward perfection (…) cultivated the sales, which only served to further reinforce the watch manufactures’ belief that only Switzerland could produce such qualitatively high quality watches.”[1]
The confidence and pride for the Swiss watch industry led to self-praise and an over-estimation of its abilities. The Swiss watch-barons became increasingly powerful and started paying less and less attention to the competition: the foreign markets. Research into the development of new and innovative watches fell by the wayside. Only a few brands tested electronic watches in order to try and put them out into the market. They were, however, considered traitors. In the eyes of the other Swiss manufacturers, these electronic watches had nothing in common with traditional Swiss mechanical watches.
However, as history has shown, it was a grave mistake to not have taken these watches (and the technology behind them) more seriously, for in 1969 the Japanese manufacturer Seiko introduced a world premier: the first quartz wristwatch (Image 2.2). The Swiss simply smiled, because they already had a reliable and inexpensive watch, i.e. the Roskopf watch. In 1860 Georges Frédérik Roskopf dedicated himself to the development of an inexpensive watch movement. As the result of various changes to the movement, the watch became thinner and less-expensive to produce: as low as 20 Francs per movement. The Swiss companies were thus convinced that they could compete with the competition from abroad. However, this turned out to be a form of self-deception. The demand for mechanical watches changed almost overnight, and the Swiss manufacturers quickly felt the effects.
Soon thereafter Japan, closely followed by China, flooded the European market with inexpensive, electronic quartz watches. The quartz watches were less expensive, much more accurate and lighter as the mechanical watches. The price for such watches sank almost daily, thus allowing anyone to be able to afford one. The Swiss watch industry watched helplessly as their sales fell drastically. Only a handful of prestigious brands, for example, Rolex, Patek Philippe or Jaeger-LeCoultre, were able to hold their own.
Nevertheless, in the middle and lower price segments, the quartz watches began to take over. And because the watch industry is the third largest source of revenue in Switzerland, something had to be done quickly. Making matters worse, the Swiss-franc was becoming stronger compared to the U.S. dollar, thus making the watches even more expensive abroad and leading to a further reduction in exports.
The Allgemeine Schweizer Uhrenindustrie AG, which had been the backbone of the Swiss watch industry, as well as the Société Suisse pour l’industrie Horlogère SA demanded support from the federal government, since their profits threatened to decline. As such, the crisis had exposed the fundamental weak spot of the branch: they had no clear strategy as to how to deal with the crisis, even though they were the ones who should have helped the industry safely navigate through this crisis.
3. The Société suisse pour l’industrie Horlogère SA (SSIH) and the Allgemeine Schweizer Uhrenindustrie AG (ASUAG)
On February 24th, 1930, Omega (Louis Brandt & Frère SA) and Tissot (Charles Tissot & Fils SA), along with several other watch companies, merged to become SSIH. Together the two subsidiaries held an influential position within the industry. They had 7 of the 10 directors and presided over 100% of the share capital. The fusion made it possible to raise product quality, while at the same time, expand the product line. In order to complement the existing range with high-quality products, SSIH bought Lemania Watch Co. in 1932.
Companies such as Marc Favre & Co. (specializing in high-calibre women’s watches), Marke Lanco (focusing on the mid-price segment), Aetos Watch Co. in Geneva (concentrating on the lower price segment), and finally Economic Suisse Time Groupe (whose brands AGON, Ferex, Continental and Buler rounded out the inexpensive price class) were all eventually incorporated into the SSIH.
Picture 3.1
The ASUAG was founded one year after SSIH was established, and was supported both financially and organizationally from the federal government. Ebauches SA (Société anonyme) represented the core of the organization. All ebauche manufacturers were forced to join the ASUAG. This SA was responsible for “coordinating the sales of ebauche-blanks, trimming down the product line, as well as fostering specialization and useful new developments”.[2]
In the statutes ASUAG was obligated to deliver parts, components, and movement blanks to all of the watch manufacturers. Furthermore, this holding was established in order to retain control over the key technologies. This meant that it was forbidden to export, for example, templates, components, watch machines and tools to other countries. This was done to insure the inviolability of Swiss watches.
“Via share-transfer ASUAG created in 1971 the watch conglomerate General Watch Co. (GWC) to which brands such as Certina, Diantus, Edox/Era, Endura, Eterna, Longines, Mido, Rado, Rotary and Technos belonged”.[3]
Image 3.2
Both SSIH and ASUAG were run like family businesses. As such, “the holding company wanted to preserve the long-standing experience and maintain the traditional ideas and attitudes regarding production processes and marketing”.[4]
4. The Causes of the Quartz-Crisis
Since the crisis in the 1930s, the Swiss watch industry had been living in an ivory tower, free from the pressure of foreign competition. As such, the watch barons did not realize the profound changes that were taking place on the world market.
As has already been mentioned, the great demand for Swiss watches only served to reinforce the watch barons’ belief that they were indeed the best. However, this situation was about to change quickly.
When it came to technical sophistication, the Swiss watch industry was able to hold its own. In 1969, before Seiko presented its quartz watch, the quartz watch Beta 1 was developed in Neuenburg. However, both the implementation and marketing of the watch were grossly inadequate.
The consequences of the quartz crisis were quite severe. The warehouses were increasingly being filled with unsold watches and components. The result of the diminishing demand meant that production had to be decreased and the workforce reduced. The number of employees was decreased by two-thirds (from 90,000 down to 30,000). Approximately 1200 manufactures were either closed or bought up.
Sales and profit began to dwindle. “Between 1974 and 1983 the export volume was halved from 91 million watches and movements down to 43 million pieces”.[5] The manufacturers began to merge into public limited companies [Aktiengesellschaften] in order to limit the risks.
At least 30 banks were shareholders in SSIH, which was also in severe crisis. Moreover, SSIH did not look like it was going to be able to pull itself out of the crisis. And were SSIH to have gone bankrupt, it would have resulted in a disastrous chain reaction. It would have taken a great number clients , and consequently debtors, down with it.
It became obvious that a new marketing strategy was desperately needed. Peter Gross, general director of the Bankgesellschaft Zürich, suggested conducting a situation analysis. The suggestion was accepted in the hopes that it would save the watch industry. Yet, to whom should such a difficult task be assigned?
5. Nicolas George Hayek
Image 5.1
My father and I met Nicolas Hayek (image 5.1) roughly one year ago at the Post Zürich Enge. With a self-confident stride, a kind radiance and light blue eyes, he walked in through the entrance. He possessed the self-confidence of a man that knows what he has already achieved as well as what lies ahead. On each wrist he wore three watches – one from each of his brands. My father called out, “Nicolas Hayek!”. He now recognized my father and turned around. My father wanted to greet him and offered him his right-hand, to which Hayek replied offering his left – a response that somewhat confused my father. Hayek went on to explain that he was sick, and that his hand was full of germs. My father then grabbed Hayek’s right-hand and shook it and said, “Give me a few of them [germs], because yours make one strong.”
However, Hayek is now dead (image 5.2 and 5.3). He died most likely due to a heart attack on June 28th, 2010 while working in his office in Biel. He had high blood pressure and often became very agitated.
Hayek had already made arrangements for both his daughter Nayla and son Nick, who have been working in the company for many years, to take over when the time came. Even his grandchild Marc (Nayla’s son) was assigned a task.
Nicolas Hayek had experienced and achieved a great deal. How he was able to achieve so much as well as his character will be the subject of the next chapter. The following questions will be addressed: Why did Hayek come to Switzerland? How did he treat his employees? Could anyone else have pulled the Swiss watch industry out of such hard times?
5.1 His Childhood and Education in Beirut
Born on February 19th, 1928, Nicolas Hayek grew up in affluent quarter of Beirut called Achrafieh. He has a sister Mona and a brother Sam. Not too much is known about Sam. His mother Linda came from a wealthy family of attorneys and his father Georges was a dentist trained in the United States. They raised the children Greek-orthodox. Nicolas went on to attend a Jesuit school, where he received lessons in religion. Nevertheless, he remained somewhat distant to matters of religion throughout his life. He claimed that the teachers were never able to answer the deeper questions.
This curiosity and questioning nature reveals an important aspect of Hayek’s character. He was a very self-confident individual and unconventional thinker. It was precisely this unconventionality and straight-talking attitude for which he later became well-known.
When school was not in session, he always went to the family’s second residence in Koura (Libanon), where he supervised the workers during the olive harvest – a job that apparently enjoyed a great deal.
After having completed his studies at the Jesuit school, Hayek went on to receive his Matura from the AUB Preparatory School in Beirut. Later he attended the Christian Université Saint Joseph, where he studied mathematics, chemistry, and physics. At the age of 21 he received the Certificate of License with a grade between satisfactory and good.
Several of the Hayeks’ employees worked in the household – among them a Swiss woman named Marianne Mezger who served as the family’s Au-pair. While this job is not highly regarded, it did not stop Nicolas Hayek from falling in love with her. As the parents became aware of their son’s feelings for Marianne, they tried to end the ‘inappropriate’ and unwelcome relationship. However, given Nicolas’ stubbornness, it did not take long for him to decide to move with her to Switzerland.
5.2 The Move to Switzerland in 1949
Penny less Nicolas Hayek now lived in Switzerland. Back then, the xenophobia was much more pronounced than it is today, above all when it came to foreigners without any financial means. His Lebanese appearance combined with his poor German provoked a strong aversion by many Swiss. Even later in life, because of his appearance, his loose ties, and rolled up sleeves he stood out from the crowd.
At first, it was very difficult for him to find a job. However, after a long search, he finally caught a break and received an internship at the Swiss Reinsurance Company [Schweizer Rückversicherung] as a mathematician. But it did not take long for him to realize that this was not the job for him. And while he knew that his talents were not being utilized, for the sake of his wife Marianne, he did let it get him down.
In 1951 he married Marianne, and in the same year she gave birth to their daughter Nayla. Hayek was not sure, however, how he was going to be able to support a family.
5.3 The Acquisition of the Machine Factory and Iron Foundry Ed Mezger
Fate took Hayek in an unexpected direction. His father-in-law suffered a stroke and was taken immediately to the hospital. Since his children were too young to take over the business, the Machine Factory and Iron Foundry Ed Mezger was effectively a ship without a captain. Confronted with this prospect, Marianne and her mother asked Hayek to take over the family-run business. He did not need to be asked twice, and accepted the offer to become company’s director.
In the beginning, however, this was no easy task. His German still wasn’t very good, not to mention his Swiss-German, and he did not have any experience in this branch. To make matters worse, the employees did not trust their new foreign boss. However, within several months, Hayek had learned enough Swiss-German in order to let the employees know what is what.
In 1956 Hayek travelled to Düsseldorf in order to attend a convention for foundries. With directed and concerted questions, Hayek was able to extract a great deal of important and useful information from other colleagues attending the convention. His inactions were profitable not only in the sense of having acquired useful knowledge about the industry and how it works, but he was also able to return home with several new customers. The orders the new customers placed brought in enough money to allow the company to buy the production halls which they had until then been renting. As such, Hayek skills as a director made it possible for the company to gain its independence.
5.4 The Recovery and Return of the Father-in-Law
In the meantime, Hayek had become accustomed to calling the shots and not having to justify his actions to anyone. Yet, once his father-in-law had recovered from the stroke and wanted to take over as director again, Hayek had great difficulty assuming a subordinate role within the company. The inevitable confrontations that ensued were eventually resolved by Hayek leaving the company, and a very strained relationship to his parents-in-law.
While Hayek had learned a great deal during his tenure as director of the company, he also came to realize that he could not assume a subordinate position, i.e. work for someone else. Since he now knew several important figures within the machine factory and foundry industry, he decided to become independent and found his own company.