Do You Know How Much Swatch Is In Your Watch?

Swatch seems to have a
'Made in Cat' brand ...

Can there be another country whose name is identified with a greater array of products of quality and excellence more than Switzerland (Swiss; Suisse)? For the daily palate, there is Swiss cheese and Swiss chocolate; for the outdoors type, there is the Swiss pocket knife. But surely the crown jewel is the luxury watch business and the designation "Swiss Made", where it is reported that the appellation can nearly double the price of a watch. What follows is for those of you who either are wearing a Swiss watch or wish that you were, which means, more or less, all of us. Be warned-- all is not quiet on the "Swiss Made" front. As reported both by The Economist ("Time is money") here and Reuters ("What Puts the Swiss in a "Swiss Made" Watch?) here, the Swiss parliament is currently considering amendments to the law governing what "Swiss Made" means. Even if you think you know the answer, read on—you may be surprised.

The debate centres on a change to the current "directive", which provides that a watch must contain at least 50% Swiss manufacture of the value of the watch movement parts to be eligible for the designation. This means that a manufacturer can in principle import all of the ancillary parts of the watch, such as the dials, cases and hands, and still satisfy the requirement, provided that at least 50% of the watch movements are made in Switzerland. As such, says the chairman of the Swiss watch federation, "watches produced almost entirely in China can be sold legally under the "Swiss Made" label." The result is that "[s]ome complain their Swiss watches are not as Swiss as they should be", he added.

The lower house of the Swiss parliament proposes to raise that minimum amount made in Switzerland to 60%, while the upper house wants the amount to remain the current 50%. What is crucial in both cases is that the proposed percentage will apply not only to the watch movements, but to the overall value of the watch. So what are the economic consequences? It depends upon who you ask. Some say that the change as proposed will enhance the quality of the watch by ensuring that "more" of it is actually made in Switzerland. "Not so fast", says others. Since the determination is to be made on the basis of the overall value of the watch, and given the high cost of almost everything in Switzerland, including the manufacture of watch movements and the like, the result might be that certain Swiss watch manufacturers will be more inclined to import even more low-cost components, making minimum use of Swiss-originating components. Here, the value of the expensive Swiss components will be integrated with cheaper "non-Swiss" components. The paradoxical end-game might be that raising the percentage requirement and making it apply to the overall value of the watch will make the ultimate product even "less Swiss" than before. "More" might actually mean "less". If so, could there be a threat to the prestige of "Swiss Made" as the designation applies to watches.

Blancpain

If that were not enough, there is also another dynamic at play here—the role of the Swatch company as the source of watch movements for 70% of all Swiss watch makers, rising to 90% for the balance springs. This means that no only does Swatch sell watches at the retail level (including brands such as Blancpain and Omega in addition to the Swatch house mark), but it is also the main supplier for the inner parts of watches manufactured by others. Swatch is now seeking a way to reduce the extent to which it supplies such components to other manufacturers. The Swiss Competition Commission has been called in to regulate this process. But sooner or later, Swatch will materially reduce its role as supplier of components. As such, certain competitors will face the possibility of either seeking to buy up smaller component manufacturers (some watch makers are reportedly already doing so), which might drive up the price of such components, or import more of them from abroad, thereby taking the risk of further eroding the allure of the "Swiss Made" designation for watches.

All of this recent flurry of attention to the operative meaning of "Made in Switzerland" raises an interesting trademark-related point. Classic trade mark law puts generic designations outside the pale of legal protection. But that pale is not as hermetically sealed as one might think. A generic domain name, with an unassailable registration, may be worth a lot of money. In a roughly analogous fashion, the descriptive designation "Made in Switzerland" has been impregnated with value when applied to goods under certain terms and conditions. Sanctioning genericness under various legal guises is alive and well.

This Kat has to run out now--he just checked, it is already after midnight on his Made in Switzerland "Swatch" watch.

More on Swiss cheese here.
More on Swiss chocolate here.
More on Swiss army knives here.