Swatch to cut down supplies to rivals; concentrate on higher profit margins

GENEVA: The Swatch Group may be best known for its playful, plastic watches. But it also produces mechanical movements and other watch components that it sells to most of its rival timepiece makers.

Starting Jan. 1, though, the company will begin to cut back, and possibly eventually end, its sales of the inner workings to competitors to concentrate on producing watches with higher profit margins and to make sure it has enough supplies on hand for its own brands, including Longines, Omega, Tissot and Breguet.

Swatch's move, which was approved by Switzerland's competition authority, is being challenged in court by nine watch companies, many of them small and without the financial wherewithal to produce their own movements.

The plaintiffs predict that several companies will disappear because they have few other options for the parts, which must come from Switzerland to keep the lucrative "Swiss made" label. They also argue that if Swatch goes through with its withdrawal, the result could be as wrenching to the Swiss watch industry as the arrival of Japanese digital watches, which almost led to the industry's collapse in the 1970s.

The dispute is fanning resentment of Swatch's clout and size in an industry that is showing exceptional strength, as demand from Asians who want to communicate their wealth and taste overcome the worldwide economic downturn and the strong franc.

"A lot of companies will cease to exist while Swatch, the monopoly operator, will simply get stronger," said Peter Stas, the Dutch co-owner of Frederique Constant, an independent watch company in Geneva that is one of the plaintiffs.

Stas acknowledged that it would have been nearly impossible for him to start in watchmaking 23 years ago without access to Swatch's production platform. Swatch's revenue last year of 6.44 billion Swiss francs, or about $6.95 billion, makes it by far the world's largest watchmaker.

The company insists that its goal is not to strangle competitors. And it argues that its withdrawal will require rivals to raise their spending on manufacturing, thereby strengthening the quality and competitiveness of the Swiss watch sector as a whole.