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.”
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. 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.
