Competitiveness and Strategy
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This paper covers the comeback of the watch industry in Switzerland on the world market after a great crisis that affected the industry between 1975 and 1985. The analysis put focus on Cluster Group that is one of the main Swiss companies whose has a great foundation in the country (John, 2009). It is one of the currently world leader in this branch with and recently shedding light on the strategic choices made by the firm and their implementation.
The Swiss watch industry was virtually considered dead at the beginning of 1980s, as they could not be able to succumb the competiveness that was put in place by the Japanese rival that was expanding worldwide. This was through the mass production of high quality mechanical watches that were followed by the quartz watches that were produced in 1960s through the growth strategy that was aimed at putting end to Swiss domination of the market (Mengying. 2011). Therefore, the massive development of the Japanese watch companies in the early seventies that made their production to skyrocket to around four hundred million US dollars to two billion made them overtake Switzerland market. With a span of five years that is from 1981 to 1985 the Japanese, export of watch-surpassed Switzerland with more that three hundred million US dollar. This statistic explains why Swiss watch makers had became less competitive on the world market.
The competitive strategy that the Japanese employed to subdue the market triggered a major crisis in Switzerland that characterized stagnation of their exports as well decline I n the employment in this sector. The employment declined with 30% from 1970 to 1985 in the Switzerland (Poliecon 2010). Nevertheless, the Switzerland companies have ensured that they have put in place strategies that have seen them export highly lately. From 1990, the country has been marked by a huge export growth of more than 200% from 1990 to 2009. This has been followed by subsequent fall in the export of the watches in Japan.
However, this has not gone unnoticed in the Japanese companies. Through the decline of the watch industry in Japan, the companies and the scholars have offered a high priority to product innovation in order to ensure that they get out of the crisis and to ensure that they still became competitive once again with the Swiss watch industry (Hans,2011). The obsession that the companies have in product innovation has led firms to launch many new products that are varied on their use. However, according to Närings departmental 1997, Japanese had lead very little impact in terms of growth. However, in these companies management scholars also continue to attach great importance in matter pertaining to technological innovation and in emphasizing of product diversification and product modularization to ensure that they recover their competitiveness.
Japanese have stuck to technological innovation, Swiss have offered put a lot of emphasis to the culture of marketing strategy as a way of their competitiveness. This explains the reason why the market has shifted to the Swiss favor since 1990. These two main strategies show the approaches that have been distinguished recently (Vacheron, 2011).
The first and predominate explanation of how the Swiss watch market has been rebirth is through industrial district theory. This can be seen through key elements of the Marshalls district that includes industrial atmosphere, inter-firm competition cooperation relations among others. They explain that the rebirth of the Swiss watch company such as cluster results to the proper use of technical culture that is situated in specific territory (Haas, 2011). This enables the company to reposition itself the high end and the manufacture of quality products using the traditional knowledge.
However, this kind of approaches has brought a lot of problem as they propose a model that is based on disputable interpreted industrial district on the analysis that does not rely on documentary sources. On the other hand, they do not insert Swiss watch industry in the global context (Rolex. 2010).
The second approach interprets the revival of Swiss watch industry in the consequences of the new marketing as a strategy to increase their competitive advantage. This helps in repositioning of the company to ensure that they compete well in the watch market globally.
The legend of the swatch
At the beginning of the 1980, the main measure that was adopted to pull out of the recession that was a merger of two Swiss biggest watch groups that are ASUH and SSIG in 1983. Through these, the gross sales amounting respectively to CHF 1.3 billions and CHF 815 million in 1979. Through this, they outstripped other companies that made watches with the position three being occupied by the Société des Garde-Temps SA and Rolex (John, 2007). Their gross sales were evaluated at this time to be CHF 190 million. In 1979, ASUAG and SSIH employed about the half of the employees in the Swiss work force in the watch industry. However, the advantage that these companies enjoyed was due to the crisis that affected other companies. In reality, ASUG and SSIH faced a huge industrial and financial difficulties and their support of the major banks.
ASUAG had difficulties in the fast-paced growth and diversification of previous decades. Whereas this company had initially founded trust in the control of production of watches in Swiss (Lucas,2010). Cluster companies also had advantages as they had federal state support. The company also suffered benefited from liberalization of the tradition role that they had. Therefore, this company attempted to diversify the production of complete watches through setting the group General Watch Co. (GWC). These companies included Longines and Rado.
This strategy, deepen the impact on the company finances and management. Between 1970 and 1974, ASUAG assets shot up from CHF 54.5 million to CHF 234.1 million (Edhardy, 2010). Of course, the gross sales were growing steadily during this period that has risen from 760 million in 1970 to the peak of CHF 1.4 billion in 1974. However, ASUG depended on the increase on the outside capital that made it possible to found GWC. This amounted to 23.3% of assets in 1974 as against 23.7%. Due to this, the Swiss watch company went into tailspin (Admin, 2011). At this time, ASUAG gross sales decreased by more than 1.2 billion per year in 1975-1978 and its dependency on the bank capital increased highly.
SSIH was hit by the crisis after 1974. This group of complete watchmaker also comprised of such companies as Omega and Tissot that diversified extensively in 1960s and in the 1970s. This enabled cheap mechanical watches to be manufactured by companies such as Economic Swiss Time Co. that were not competitive in the global market. This lead to the collapsing of SSIP between 1974 and 1982. The sales at this time plummeted from 12.4 million to 1.9 million watches making the gross sales sank from CHF 733 million to CHF 537 million. This made the employees number to reduce from seven thousand in the watch companies in 1974 to three thousands five hundred in 1982.during this time the bank loan kept the companies going trough offering of grants and credits and through driving the companies management (Admin, 2011). A committee was formed that was led by the Union Bank of Switzerland (UBS), Swiss Bank Corporation (SBS) and Credit Suisse (CS) in 1980. Peter Gross who was the former director of UBS was elected president of the board of directors. Between 1981 and 1983, the banks put CHF 900 million in these two watch companies and ensured that they withdrew as soon as they could (Editor2, 2011).
Rationalization and globalization of production systems
However, the year 1985 to 1998, the Swiss company was characterized by far reaching streamline of the means of production. The ASUAG-SSIH after coming together led to weakly integrated corporation of watch companies and the reorganization of the production in watches. The movement of the parts was a major issue during the first few years. This policy involved two key points. The first one is centralization of the movement and parts production in Switzerland while the second one is globalization of production system (Dmarineligh,2006).
Consequences of rationalization
These policies lead to increased in the production. The number of volume of watches and movement that emerged from SG shot up from 44.3 million units in 1985 to 88.9 million in 1992 and to 118.8 million in 1998. Levels of growth are characterized by two periods with high growth in 1985-1992 that portrayed an annual growth f 8.3% that was later followed by a weak growth of 5.3 that related to production growth trends (John . 2009).
The Swiss watch companies within a span of fifteen years have seen a great growth from 1985 to date. They have experienced sea change making their disparate corporate weakly integrated Swiss watch companies to centralized, rationalized and globalized companies. This has made their arc-rivals Japanese companies such as Seiko, Citizen and Casio to have headlong into technological innovation as possible that acted as a driving force to enter into a new phase of growth (Poliecon, 2010). This made Cluster Company manage establishment to globally lead the watch the watch company without lots of technological innovation.
Otherwise, lack of non-technological innovation was to be countered by the roots that the company had put as their competitive strategy through their complementary policies that was rationalizing of production system and the implementation of new marketing strategy. Corporate governance tended towards strengthening of the of the firms through centralization and concentration of power that enhanced the function of the extended management board to function as platform for coordinating the groups global strategy between the global brand that were produced (Mengying, 2011). This has made Switzerland watch companies come back strongly in the market.