Bob's Blog

A visitor looks at watches on the Vacheron Constantin booth at the ”Salon International de la Haute Horlogerie” SIHH exhibition at the Palexpo in Geneva January 21, 2013.

Credit: Reuters/Denis Balibouse

ZURICH (Reuters) – How much is the “Made in Switzerland” marque worth to consumers increasingly vigilant about the provenance of everything from what they eat to what they wear? The answer, luxury watchmakers say, is “a lot”.

Protecting the label is essential to the industry’s image, profitability and future growth, many luxury watchmakers say, and studies by St. Gallen and Zurich universities do show the tag can almost double a luxury watch’s price.

But as with so many other products in a globalised world, there is a grey area around what makes a watch Swiss, and that lack of clarity has consequences for quality – and revenues.

The issue is part of proposed new legislation before Switzerland’s parliament to regulate the use of the label for foods, services and industrial products.

With politicians and lobbying groups fighting over designations on products as diverse as cheese, pocket knives and textile machines, the chances for passage this year are dimming, however, and many watchmakers are growing anxious at the delay in solving what they see as an urgent problem.

“This law is (like the debate over) the Loch Ness monster,” said Richard Mille, whose ultra-light watches are worn by tennis player Rafael Nadal.

“I’m not sure if there ever will be a solution.”

In the first discussions in the two houses of parliament, the lower house has argued that 60 percent of the value of an industrial product must originate in Switzerland for it to be labeled “Made in Switzerland”, in line with the draft law proposed by the government, while the upper house holds that 50 percent is sufficient.

If no compromise is found over the percentages and a myriad other issues, two more sets of debates may be held in each house over the next half year. If no agreement is reached, the bill fails.

Both versions are stricter than the 40-year-old “directive” currently governing the use of the “Swiss Made” stamp used for watches, which says at least 50 percent of the value of only the watch movements must be made in Switzerland.

This means cost-conscious watchmakers in the lower-priced segment can import 100 percent of the cases, dials, hands and straps and still mark their watches “Swiss Made” as long as half of the parts of the watch movement are made at home.

The directive also has little-to-no heft in international trade disputes, making it a blunt sword in the fight to protect the reputation of “Swiss Made”, luxury watchmakers say.

“Thanks to current weak Swiss laws, watches produced almost entirely in China can be sold legally under the “Swiss Made” label,” Jean-Daniel Pasche, chairman of the Swiss watch federation (FH), said in a telephone interview.

“This is going to harm the label over time as consumers nowadays want to know what they are buying. Some complain their Swiss watches are not as Swiss as they should be,” he said.

Erich Mosset, head of movement maker Ronda, which makes some parts for its Swiss quartz movements in its factory in Thailand, said the new law meant a “massive tightening”.

Stepping up pressure ahead of the next parliamentary debate on March 11, the Swiss watch federation announced last week it was leaving business lobby economiesuisse because of what it called its “lack of support” for the tighter rules, an unusual move in a country where consensus is the guiding principle of public life.

Economiesuisse decided only last year to back the 60-percent limit for the watch industry, which the federation said came too late to help them in their lobbying efforts.

CHEAP CHINA

The debate over how high to set the threshold is partly due to concerns that producing more in Switzerland, where salaries and prices are high, could hurt small and mid-sized firms’ margins, already squeezed by a strong Swiss franc.

Some watchmakers agree.

Ronnie Bernheim, head of the maker of Switzerland’s railway clocks, Mondaine, said a threshold as high as 60 percent could compel makers of lower-priced watches to buy cheaper components abroad.

“If you import a lower price component, also of lower quality, the Swiss percentage goes up … Lower-quality products would qualify for ‘Swiss Made’. It is paradoxical,” said Bernheim, on behalf of some 25 watchmakers opposing stricter rules.

The trend is likely to be accelerated by a move by watch industry major Swatch Group to get out of the business of selling movements and movement parts to other watchmakers, which will compel some players to source more parts from Asia, at least in the short-term.

LVMH’s biggest watch brand TAG Heuer has been one of the few to publicly admit buying movement parts from Japan’s Seiko while stressing this would not hurt its “Swiss Made” image.

Buying less crucial watch components such as cases, straps and dials from Asia, mainly China, has been common practice for decades. While luxury players and big groups can afford to make these parts in Switzerland at a higher cost, smaller and mid-sized firms in the lower-priced segment cannot, said one Swiss movement maker who asked not to be named.

“You can find these components in a very good quality in Asia,” he said. “They are not better if you make them in Switzerland.”

JOBS AT STAKE

Mondaine’s Bernheim said Switzerland would lose its competitiveness if it adopted rules that were too strict. But Pasche said the special reputation and value of Swiss watches justified tougher rules.

Italy voted tighter rules for applying the “Made in Italy” tag to clothes, footwear and leather goods in 2010, asking that two stages of manufacture should take place in Italy. But the new law is awaiting European regulation on the matter.

The European Commission has proposed origin labels for both EU-made and imported goods, defining the origin as the country in which the last major step in the production process occurred.

To better protect Swiss products abroad, the draft law proposes to extend an existing register for “geographical indications” for agricultural products to all goods.

Interested groups will be able to win certification that their products meet strict technical and aesthetic rules and have qualities unique to their location, for example “Geneva” for watches, and register a geographical trademark which will help defend its holder’s rights abroad.

One of the first such geographical marking systems was France’s “appellation d’origine controlee” (AOC) applied mostly to cheeses and wines.

“There are no such rules at the moment. This makes it very expensive and often impossible to take legal action against free riders abroad and have them punished,” said Anja Herren of the Swiss federal institute of intellectual property (IGE).

Mondaine’s Bernheim fears stricter rules will threaten his business and force him to cut jobs. But the watch federation says the rules will preserve jobs in the industry, which currently employs about 53,000 people, and make it impossible for foreign companies to buy watch firms for the “Swiss Made” label only to relocate production abroad.

Pasche says if parliament fails to pass the new laws, watchmakers will work on strengthening the industry directive, which it has held off doing while the legislation is debated.

Julien Marchenoir, brand equity and heritage director at Richemont’s 260-year old Vacheron Constantin brand, said the “Swiss Made” label as well as the “Geneva hallmark” will help keep watchmaking knowhow in Switzerland.

“There are lots of different economic interests involved but people shouldn’t be short-sighted.”

(Additional reporting by Stephanie Nebehay in Geneva; Editing by Sonya Hepinstall)

Reuters: Oddly Enough