ost people know that the Swiss watch industry collapsed between 1975 and 1985, resulting in most manufacturers going out of business or consolidating into the modern Swatch Group. But why did this happen? Folklore would have it that the Swiss watch industry was shaken by the onslaught of cheap quartz watches, many from Japan. They have heard that this “quartz crisis” derailed the entire industry in the 1970s and nearly ended watch manufacturing in Switzerland. But this tale is highly inaccurate.
It seems logical that a new technology like electronic quartz movements would be disruptive to the industry. But the actual crisis that shook the industry was economic, triggered by a rapid increase in value for the Swiss franc but actually caused by the hopelessly-fragmented industry legally restricted from modernisation. Although Japanese and American suppliers of quartz watches made this economic crisis worse, technology was not the driving force. And many high-end manufacturers survived the crisis, laying the foundation for the modern luxury watch industry.
Although Japanese and American suppliers of quartz watches made this economic crisis worse, technology was not the driving force.
- This 1977 editorial is clear that the crisis was economic, and that the Swiss watch industry was responding with standardised mechanical and electronic movements.
- ©Europa Star Archives
The economic crisis and the rise of quartz
They say that generals are always fighting the last war, and this observation is true of businesses as well. From the great depression to the Covid pandemic, investment and trade policy is usually directed by recent failures rather than forward-looking economic analysis. So it is no surprise that the policies that drove Swiss watchmaking in the 20th century were a reaction to past rather than future challenges.
After decades of boom and bust, the Swiss government and industry joined together to put an end to over-production and cut-throat price wars. But these moves, adopted in the 1930s, also reduced the incentives to modernise production and distribution of watches. In fact they might have spelled the end of the industry entirely if the world was not immediately plunged into a decade of war. After World War II, global exchange rates were locked in place by the agreements signed at Bretton Woods. The value of the Swiss franc remained artificially low for two decades, allowing Switzerland’s watch industry to prosper without adopting the verticalised mass production that transformed the world in the 20th century. Although they were aware of this perilous situation, the industry did little to prepare for international competition and floating exchange rates.
The value of the Swiss franc remained artificially low for two decades, allowing Switzerland’s watch industry to prosper without adopting the verticalised mass production that transformed the world in the 20th century.
Thus it is no surprise that the entire Swiss watchmaking industry collapsed once the Bretton Woods system failed in the 1970s. With the franc rising rapidly, Swiss watches were no longer competitive on the international market and dispersed Swiss factories were not able to reduce costs through centralised mass production.
Already on its knees due to economic factors, the Swiss industry then faced a new challenge: quartz. American and Japanese electronics companies rapidly reduced the cost of quartz watch components, notably integrated circuits, quartz crystals, and stepper motors. Although Switzerland had competitive technology from the start, they could not compete with the global electronics industry and were forced to source these components from outside the country.
- ETA caused a sensation with the low-cost Swatch, which first appeared in 1982 just as Swiss watchmaking was at its lowest point. But the fashionable plastic watch provided the impetus and financing for much-needed consolidation and focus.
- ©Europa Star Archives
Thus it was that the hundreds of specialist component factories in the Swiss Jura felt the impact of quartz even as the Swatch sold millions of units globally. These sequential crises pushed Switzerland out of the low-priced watch market entirely. Japan emerged as the global supplier of mass-produced watches, and quartz movements dropped to the bottom of the market. But high-end and complicated watches retained some demand even in the 1980s, and the Swiss industry embraced luxury and craftsmanship.
We don’t have to guess about the cause of the crisis. In a 1977 editorial, Europa Star editor V. Philibert noted specifically that “the recent economic crisis shook the Swiss watch industry throughout and placed many manufacturers in the awkward position of having to revise their whole commercial and economic policy.” Let us take a deeper look at the true root of the crisis.
- In reviewing the Basel Fair in 1972, Europa Star published this illustration of the state of the art for electric and electronic watches. It shows that the Swiss industry was actively developing advanced watches, and was competitive in every aspect of technology. The eventual crisis was financial and manufacturing-related, not technological.
- ©Europa Star Archives
A workshop or factory in every valley
The roots of the watchmaking crisis in the 1970s are seen even a century earlier. Mass-produced American watches took the world by storm in the 1870s, offering higher quality and lower prices than the largely hand-made European products. Switzerland still followed the system established by Daniel JeanRichard at the end of the 17th century. Small workshops, some just a workbench in the kitchen, produced individual components by hand throughout the Jura mountains. These hand-made components were collected, assembled, and adjusted by family workshops in towns like Le Locle, La Chaux-de-Fonds, and Saint-Imier before being distributed and sold worldwide. So-called etablissage matched the geography, philosophy, and politics of Switzerland but the resulting watches were widely seen as unreliable compared to the products of large American factories.
Even as they were reeling from the drop in demand due to American production, the world was rocked by an economic crisis in the 1870s. Neuchâtel watchmaker Théodore Gribi wrote from the Philadelphia Exhibition of 1876 of the tremendous progress of industrial watchmaking by Waltham and others. Although Jacques David and Ernest Francillon of Longines and Georges Favre-Jacot of Zenith quickly built more modern factories, the wider industry was resistant to change. As watchmaking factories proliferated around the turn of the century, most were small or specialised, scattered in every valley and town in the Jura.
Overproduction after World War I and competition from German factories, desperate for currency after the Deutsche Mark collapsed in the Weimar Republic, caused the next great crisis for Swiss manufacturers. About half the watch and component makers active when the war started were no longer in business a decade later, but these were quickly replaced by an explosion of new names in the 1920s. Industry leaders began to sound the alarm that a new round of overproduction was looming.
The roots of the watchmaking crisis in the 1970s are seen even a century earlier.
The Swiss watchmaking cartel
Throughout the 1920s, Swiss politicians, bankers, and industrialists came together to protect the industry. Although the largest factories were consolidated in towns like Le Locle, La Chaux-de-Fonds, Saint-Imier, and Bienne, hundreds of factories remained scattered through the cantons of Vaud, Neuchâtel, and Bern. Fearing the economic impact of real consolidation, their decisions focused on retention of this dispersed manufacturing base.
The cartels, cooperatives, and holding companies created in the 1920s were designed to retain the geographical and functional dispersion of watchmaking. The Swiss solution was to protect existing companies through subsidies, tariffs, price controls, and quotas rather than concentration of production in a few large factories. This began with the industry but soon brought the power of the Swiss state to bear.
Starting in 1923, the Swiss Watch Chamber initiated a series of measures to protect the “common interests” of the industry, creating the Fédération Suisse des Fabricants d’Horlogerie (FH) in 1924, Ebauches S.A. in 1926, and UBAH for component makers in 1927. Although they were somewhat successful in restricting competition, some firms persisted in exporting movements and skirting the quotas established by these groups. In 1931, a “super holding company” called ASUAG was created to exert more pressure on these companies. But even this group, which included the Swiss banks and the government itself, was not entirely effective.
In 1933, a federal statute was passed to create “Measures of Economic Defense against Foreign Countries.” The first measure was to legally restrict exportation of watch movements and components without permission of the Chamber or a compliance organisation known as Fidhor. In 1936, these export controls were extended to include complete watches, and minimum price lists were established, along with restrictions on new firms entering the field.
Thus, the fragmented Swiss watchmaking industry was cemented into law under the control of a central committee. The Fidhor rulings eliminated real competition between firms and blocked innovation in design and production of watches. And tight export controls were designed to stop any other country from developing a competitive industry to produce watch components or assemble watches based on Swiss movements.
The cartels, cooperatives, and holding companies created in the 1920s were designed to retain the geographical and functional dispersion of watchmaking.
Saved by the post-war economic system
The strict controls of the cartel would likely have interfered with the long-term competitiveness of the Swiss watch industry had the 1940s not seen every other watchmaking nation turn its attention to World War II. Production of watches was halted in Germany, France, Britain, Russia, Japan, and the United States, and the factories and machinery in Europe and Japan were destroyed. Watchmakers joined the war as well, with many serving as soldiers or dislocated for war production. After the war, few were able to return to their former occupation. Switzerland went on producing watches right through the war. Although many watchmakers were called into military service, the factories were able to adapt. Demand for fine watches fell, but production of military watches remained strong. After the war ended, the Swiss industry bounced back quickly, with little competition anywhere in the world.
The competitiveness of the Swiss watch industry was cemented by the emergence of the post-war economic system established at the Bretton Woods Conference. Even as the war raged, John Maynard Keynes and Harry Dexter White in Britain and the United States, respectively, began to develop plans to promote global economic stability and cooperation. They saw that trade wars and hyperinflation were one of the causes of the war, and sought to establish a new monetary order.
Switzerland was not formally represented at the Bretton Woods Conference, but they reaped many benefits from the post-war economic system established there. The 1944 agreement established fixed exchange rates for global currencies, pegged to the United States dollar. Nations were required to maintain the value of their currencies by buying and selling others in international markets.
The Swiss franc was pegged at about 4.3 to the dollar starting in 1945, giving the country’s exports a strong foundation against international competition. Through the 1950s, even as the American regulators sued the cartel for unfair trade practices, Switzerland dominated watchmaking at all levels. Protected against competition both domestic and foreign, Swiss companies enjoyed a golden age of watchmaking. Forced by American courts, the Swiss government dropped many of the restrictions and price controls by 1964. Yet the exchange rate was so favourable that American watch manufacturers sought to buy Swiss factories rather than restart production in the United States. With no more restrictions on these investments, American firms purchased Hamilton, Movado-Zenith, Concord, and other Swiss firms in the 1960s.
Through the 1950s, even as the American regulators sued the cartel for unfair trade practices, Switzerland dominated watchmaking at all levels.
The Nixon crisis?
The monetary stability of Bretton Woods was undermined by the economic policies of many countries, but the American national debt would make it untenable. Europe and America tried to maintain the currency peg by establishing the London Gold Pool in 1961, but inflation of the dollar and the pound caused an opportunity for arbitrage. The resulting run on gold was unsustainable, and the pool was closed in 1968. Gold trading moved to Zurich, and Germany and Switzerland soon stopped supporting the exchange rates fixed 20 years earlier.
In 1971, US President Richard Nixon stopped the convertibility of dollars to gold, and the so-called “Nixon Shock” drove the world away from fixed exchange rates. By 1973, most European currencies were free floating, and the Swiss franc rose dramatically against the dollar. Linked by law to the price of gold, the franc rose from 4.375 per dollar during Bretton Woods to 2.5 in 1975, hitting a record high of 1.5 in October 1978. A watch manufactured in Switzerland would cost three times as much in 1978 compared to a decade earlier!
By 1973, most European currencies were free floating, and the Swiss franc rose dramatically against the dollar. A watch manufactured in Switzerland would cost three times as much in 1978 compared to a decade earlier.
- Seiko released a pair of practical and modern quartz watch movements in 1974. Calibres 38 and 41 enabled the company to deliver a full line of analogue quartz watches at a competitive price, laying the foundation for the dominance of Japanese quartz watches in the 1980s.
- ©Europa Star Archives
The height of the crisis
The industry suffered particularly in 1981 and 1982, as the world economic crisis impacted production of watches in Switzerland, France, and Asia. But commentators were clear that it was an economic crisis rather than a technological one, with the rise of quartz movements dealing a second blow to an already-struggling industry.
V. Philibert, writing in Europa Star in 1982, noted that “the storm that broke of the watch industry occurred at the same time as the world [economic] crisis, and contributed to undermine this industry’s foundations.” But insiders saw some hope as well. Although “buyers made a beeline for novelty,” Philibert saw that “the quartz watch with LED display has disappeared” and that “with LCD display has lost its impact.” And already it was clear that “jewellery watches and top-grade watches whether mechanical or quartz maintain their popularity because, at that level, the quantity and quality of the gemstones and the originality of the ornamental work are the most essential factors.”
V. Philibert, writing in Europa Star in 1982, noted that “the storm that broke of the watch industry occurred at the same time as the world [economic] crisis, and contributed to undermine this industry’s foundations.”
But even the full might of Japanese quartz watch production was not immune to economic conditions. Later in 1982, Philibert warned that “quartz watch sales are toppling too” and that “the only kind of watch that seems to be holding its own in this general collapse is the top grade one.” He then states clearly that “the factors responsible for the crisis are increased unemployment and the fall of purchasing power in almost every country.” He also saw that mass production was driving down the cost of watches, undermining the global industry.
By 1983, the low-end Swiss watchmaking industry was gone, but the iconic plastic Swatch was emerging as a global fad. Jean-Claude Biver’s reborn Blancpain and Chaumet’s Breguet debuted that same year, and Chronoswiss, Ebel, and Kelek showed the value of complicated mechanical movements. As predicted, mechanical watchmaking came roaring back in the second half of the 1980s, with IWC’s Da Vinci and a raft of tourbillons leading the charge. The true quartz crisis was over as quickly as it started.
It was not quartz that nearly spelled the end of the Swiss watchmaking industry but the structure of the industry itself. Today, a remarkably similar challenge is rising. Smart watches are displacing mass-produced Swiss watches, especially those built of commodity components. Yet the haute horology market is barely even noticing the rise of the Apple Watch and its ilk. Once again, Switzerland is thriving by focusing on what it does best.
In 1982, Philibert warned that “quartz watch sales are toppling too” and that “the only kind of watch that seems to be holding its own in this general collapse is the top grade one.” The true quartz crisis was over as quickly as it started.
- When this editorial was written in 1982, analogue quartz watches were dominant, but LED and LCD had failed, and top-grade mechanical watches were ready for a renaissance.
- ©Europa Star Archives
ETYMOLOGY OF THE QUARTZ CRISIS
Given the true history of the economic crisis of the 1970s, where did the term “quartz crisis” come from? The earliest references in Europa Star to a crisis of quartz watches come in 1983, when Philibert referred to “the crisis of the technical timekeeper.”
It was not until 1993 that the term “quartz crisis” appeared there, and then as a reference to the push to develop competitive movements in the late 1970s. Throughout the 1990s, we see the economic crisis being mentioned alongside the rise of quartz. A 1999 profile of Ernst Thomke tells us that the “quartz crisis” was the need for a modern quartz movement in the 1970s, which Thomke delivered as head of ETA.
In the 2000s, however, the reality of these crises was merged in the words of those covering the industry. As the resurgence of mechanical watches crested and massive industry consolidation occurred, the economic and technological issues of the 1970s and 1980s lumped together under the banner of the “quartz crisis.”
Perhaps it was a case of marketing spin. The differentiating factor for Swiss watches in modern times is their craftsmanship and heritage, and this could be undermined by the collapse of most companies around 1980. So what better way to spin that failure than blame quartz, which was by then seen as an uninteresting commodity? Seen this way, the term “quartz crisis” actually delegitimises the electronic watch industry while highlighting the resurgence of Swiss artistry.
What better way to spin that failure than blame quartz, which was by then seen as an uninteresting commodity? Seen this way, the term “quartz crisis” actually delegitimises the electronic watch industry while highlighting the resurgence of Swiss artistry.
HOW SWITZERLAND ALMOST AVOIDED THE CRISIS
Despite the stability of the 1960s, the Swiss watch industry was aware of the challenges they faced. Even without direct competition they invested in new technologies and attempted to rationalise production of watches. But they were unable to make the changes needed to hold off the crash that started in 1978.
Although Japan, America, France, and Germany were instrumental in the development of electronic and quartz watches, Switzerland was clearly in the lead. The Neuchâtel-based research group known as CEH was home to many breakthroughs, showing the world’s first quartz watch in 1967. Swiss scientists and engineers were deeply involved in the development of integrated circuits and quartz crystals, and Swiss companies were well ahead of Japan and America in the early days of quartz and LCD watches.
Swiss companies were well ahead of Japan and America in the early days of quartz and LCD watches.
But Switzerland’s small distributed manufacturing system could never compete with emerging giants like Intel and Texas Instruments who would come to dominate the electronics industry. It was not until Swiss companies embraced this global supply chain that they were able to build low-priced quartz movements. And it is important to note that the first Swatch watches came off the line in 1982, the darkest year of the quartz crisis!
- The Thin Watch War saw Ebauches SA, Citizen, and Seiko battling to deliver the thinnest quartz movement. ETA’s Delirium measured under 2 mm when it was released in 1978, and the technology and architecture paved the way for the Swatch.
- ©Europa Star Archives
Watch industry management saw what must be done as well. In 1968, SSIH commissioned con- sulting firm McKinsey to study the reorganisation of the holding company that then included Omega, Tissot, Lemania, and Rayville (Blancpain). The company responded by reorganising along functional lines and integrating from the top down. In 1972, SSIH Management Services wrote in Europa Star: “Economic inflation, technological renewal, the world monetary crisis, and present protectionist trends, following on 25 years accelerated expansion, need to be faced realistically with a view to altering our structures whenever necessary.” They also noted that “Omega has sold more quartz watches than all other competing firms together” as of that date.
Moves like this explain why the SSIH remained stronger than most companies through the economic crisis and became the foundation for the Swatch Group. But most others failed to centralise production, with hundreds of small struggling factories closing around 1980. Despite this ongoing crisis, hundreds of new factories popped up at the same time, most failing just as quickly. It is shocking to see that there were twice as many Swiss companies exhibiting at the Basel Fair in 1980 as in 1960!
- Even amid the turmoil caused by the global financial crisis, twice as many companies exhibited at the Basel Fair in 1980 as in 1960.
- ©Europa Star Archives
Switzerland fought a losing battle throughout the crisis, but the success of the Swatch Group (and the Swatch itself), the focus on haute horology (exemplified by Audemars Piguet, Blancpain, and Breguet), and the exit from hopeless markets like low-end watches brought us to where we are today.