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'Swiss-Made' Label Lacks Precision for Watch Industry

by Reuters

   ZURICH --

   If you buy a "Swiss-made" watch thinking it's almost entirely produced
   in Switzerland, you might be mistaken.

   The manufacture of components including dials, sapphire glass and cases
   is flourishing in China, Thailand and Mauritius and many of these end
   up in watches designated as "Swiss-made."

   Stricter rules came into force this year for watches bearing the
   coveted label on their dial and for which consumers are prepared to pay
   a premium.

   The key requirement is that 60 percent of the manufacturing costs occur
   in Switzerland, up from a previous 50 percent threshold that applied
   only to the movement - the core mechanism.

   The new rules were meant to make the label more credible in the eyes of
   consumers and to shield the industry from Asian competition.

   But the change has made it difficult for the makers of cheaper Swiss
   watches to cut costs and weather a harsh industry downturn. And at the
   same time it has left the makers of more expensive brands enough leeway
   to shift a chunk of component supplies to Asia to protect their profit
   margins.

   "Since the Swiss-made rules were tightened, we have fewer orders, not
   more," said Alain Marietta of dialmaker Metalem, based in Swiss
   watchmaking hub Le Locle. "Some customers ask us to produce half of the
   components in China so we can be cheaper."

   He said he was concerned about losing customers but had stuck to his
   principles. "We want to offer a real Swiss made in Switzerland,
   otherwise for the people working in the watch industry here, it'll mean
   slow death."

   Cost pressures

   Affordable brands struggle to make money in Switzerland, where labor
   costs are high, margins are low and intense foreign competition,
   including from smartwatches, means they can't raise prices.

   Citychamp's Rotary brand, which had used the label for decades, offers
   no "Swiss-made" pieces in its latest collections, saying the new rules
   made it hard to deliver value and quality.

   Swatch Group, whose watches span all price points and which has
   extensive production facilities in Switzerland, said it was benefiting
   from the new rules it advocated. Chief Executive Nick Hayek said in a
   recent newspaper interview the group might soon be without competition
   in affordable "Swiss-made" watches.

   Mondaine Group's Ronnie Bernheim said the group's brands, which include
   popular Swiss railways watch Mondaine, had also abandoned some models
   that would not have met the new criteria.

   National Watch Federation (FH) statistics show the value of exported
   watches with a retail price of up to 600 Swiss francs ($610), fell by
   more than 11 percent in the first 10 months of 2017, versus an overall
   rise of 2.4 percent for all price tags.

   Watches account for roughly 10 percent of overall Swiss exports and
   almost 57,000 people work in the industry.

   Specialist companies have sprung up that offer brands the optimum
   product mix that will qualify for the "Swiss-made" tag.

   EOS Watch Development, for example, promises on its website to deliver
   "Swiss-made" products that will help customers save money by combining
   Swiss and Far East suppliers.

   Tough at the top

   At the top end of the market where timepieces sell for thousands of
   francs, a severe downturn in demand translated into sharply lower
   profits in recent years.

   Profitability at luxury group Richemont and more diversified Swatch
   Group is recovering now, helped by improving sales, but a tight focus
   on costs remains vital.

   "Some brands in the high end would up to now never have considered
   buying components abroad for ethical reasons, but also because their
   excessive retail prices and resulting margin levels allowed it," said a
   Swiss dialmaker who asked to remain anonymous.

   "The slowing demand forced almost all brands to reposition their
   products and they benefit from the new law, which is very explicit, to
   improve their margins by partly sourcing abroad."

   He said his own dial company was mainly producing in Mauritius, where
   salaries are much lower, but a technical bureau performing some
   operations in Switzerland meant the dials qualified as "Swiss-made."

   Several sources said almost all watch case makers now imported sapphire
   glass from Asia. Luxury watchmakers generally keep their suppliers
   secret, but recently there have been some initiatives denouncing this
   lack of transparency.

   Francois Aubry, a supplier turned watchmaker, recently launched a
   timepiece with "99.99 percent Swiss production," publishing the list of
   all its suppliers, while the Swiss CODE41 watch project raised 543,000
   francs on crowdfunding platform Kickstarter with a concept of total
   transparency on the mostly
   Chinese origin of its components.

   Industry body FH said it was its task to intervene if "Swiss-made"
   rules were not respected. It has decided to set up a task force to make
   sure everybody plays by the new rules, especially once a transition
   period expires at the end of 2018.

   However, some watchmakers have already lost patience with the system.

   High-end brand H.Moser & Cie this year dumped the "Swiss-made" label
   while declaring its own watches over 95 percent Swiss. It denounced the
   official rules as "too lenient, providing no guarantee, creating
   confusion and encouraging abuses."