Swatch Group Essays

Swatch Group Essays Swatch Group Paper Swatch Group Paper The global watch Industry Is an Industry that Is In midst of change, where technology considered high-tech Is now considered behind or companies who were leaders are now just fads. The Swatch group falls in this category as it is a company facing the issues of the necessity of reposition itself, facing increased competition and higher than normal production costs. The swatch group seems to be in a stage in their company that has kept growth low, and the future shaky thus a strategy has been set forward for the company. The recommended strategy of partnering with Titan Industries is a strategy, If Implemented properly will be able to deal with someone of these core Issues at hand. The strategy Is aimed to reposition the company, while taking advantage of external opportunities such as international expansion and lower production costs. In the following document, a closer insight into the watch industry and the swatch group itself gives a better more in-depth look of its current strategies, external/internal threats and opportunities and other possible strategies with the partnership as the ultimate outcome. External The global watch industry has been consistent and continually provoking more interest. The watch industry has usually in the past used a horizontal structure in which suppliers, craftsmen and sub-contractors supply movements and external parts to assemblers , who in turn put the final product all together. Although in rare instances the use of vertical structure has been used in the Industry, where the company builds the product completely within the company. The Industry takes more of a fragmented stance with more of a spread of players in the Industry. The products primarily offered in the global watch industry revolve around electronic, prestigious, luxurious and appealing watches. Various opportunities and threats in he industry are discussed below as well as in Exhibit A Major opportunities in the industry include the continued technology advances occurring In society, with technology continually advancing opportunities for more Innovative product lines exists and at potentially lower cost production. Another opportunity that exists in the industry is international expansion, as the watch market continues to become more relevant in the world, international expansion is up for grabs. The keys to success for companies in the industry will revolve around companies investing more heavily in R and D to maintain with the technology advances and take advantage of the international opportunities. Another opportunity in the Industry revolves around the ability to continue to produce watches at cheaper costs. Keys to success Include companies being able to locate sufficient outsourcing opportunities with production being cheaper in these locations. The major threats that occur in this industry involve around the market becoming too saturated. Since the ability to produce will become cheaper, in a sense the opportunities for companies already in the industry will also be considered a threat as continued new entrants in the market segments will appear. The same goes for International expansion, as companies expand Internationally, messmates companies are being threatened and requiring defense of their companies. Both these threats will lead to profits being diluted and a market shares being cut in to. Keys to success for companies will be able to fall heavily on their reputation along with maintaining strong existing connections customers to maintain the competitive advantages that exist, taking a more focused differentiation strategy and possibly looking for mergers to defend the international expansion and take advantage of the international expansion at the same time. Internal Assessment The swatch group is a diversified multinational holding company that was formed in 1983 through two Swiss watch manufactures. The swatch group manufactures and sells finished watches, Jewelry and watch components. The group is the leader in the world when it comes to watch making and the group supplies nearly all the components required for the watches. The groups production companies supply watch components and movements to third part watch makers in Switzerland and around the world. The swatch group has a reputation and customer loyalty that is rare and quite positively unmatched in the watch making world. Switzerland had commonly been known well for their ability to produce high quality clocks and relies heavily on its reputation based in its watch market. The Swiss watch represents wealth, power and status and with the swatch group as representative of the Swiss watch market, its stance in strong and trustworthy. The swatch group also relies heavily when it comes to their research and development segment in there company. And this is done rightly so as the companies R and D segment has continued to show innovation that has kept them as a world class company and watch maker. The many continues to enhance and develop the design of watch. This is a vital strength because the swatch group utilizes the end-user as a starting point of the departments research. The issue that arises is that with the continued development of R and D in competitors, this is considered an imitable strength and temporary distinctive competency A rising weakness that the swatch group continues to face is the high production costs the company faces. While most watch companies locate manufacturing activities in countries with lower production costs, swatch continues to remain committed to its Swiss home production. While they may consider this important to their D. AN. F the company, it will and has already started to deteriorate profits which have started to plateau profits. Swatch group can convert this into strength if other options of manufacturing their product is realized and considered. Financial Analysis The Swatch group continues to be a leading force in the global watch industry, as it is considered in value terms as the worlds leading watch manufacturer with 14 percent of the world market. The company continues to see consistent growth around 15 25 per cent per year, and saw an increase in gross sales and gross profits y 7. And 7. 5 percent respectively in 1998. This can be primarily attributed to a repositioning strategy initiated in the early asss, by replacing expensive metals with cheaper brands used to refresh the company and by also reducing its streamlined models from 2500 to 130. Another successful initiative that saw the company become stronger financially was a marketing campaign that saw increase its awareness Tort ten omega watch Increase, Ana Decode stronger especially Witt an average of a 50 percent price point below its main competitor Role. Financially where the swatch group lacked was the fact that there sales have began o plateau at levels around 18 to 20 million units a year. The issue the company faces would be that if sales continue to plateau the company will have to rely more heavily on debt and borrowing as the company moves the future. Attempting to utilize its assets more efficiently is one step, another is reducing costs. Current Strategies The Swatch Group and Hayes currently deploy a differentiation strategy in their company which relies on their ability to create a watch that is able to stand out when grouped in with their competitors. The Swatch group has implemented this strategy and sustained its competitive advantage through innovation and their dedication to quality. Innovation at the Swatch group has been an important cornerstone in the groups development and progress towards the future. Innovation from adapting to technology advances in the watch market to their vertical integration strategy by keeping cost production costs lower through reducing the numbers of parts and automating the manufacturing process. Swatch cut the number of parts from 91 to 51 resulting in production costs of under 10 Swiss francs. The Swatch group also relied heavily on their marketing campaign to create brand wariness for their brands and reinvent the watch concept for consumers. The Swatch group positioned their products as accessory items opposed to time keeping. They did this through creating fashionable designs, creating large scale advertisements, limited editions and event sponsoring. The ass they switched their distribution channel to swatch concept stores where the brand products were displayed. A final important part to the Swatch group was the vision set out by Hayes (CEO). The Swatch group wanted to convey a message like no other watch brands in the watch market. Hayes and the swatch group made it clear that the group wanted to target ND be present in all market/ price segments from top to bottom and willingness that the group would be able compete in the markets. Key Issues After clearly seeing the nature of business the swatch group takes, it is clear the Swatch group has a couple of different issues that need to be addressed in order for the company to move in the right direction. The issues the swatch group faces is first that currently their position in the industry is ambiguous and needs to be re organized/ re positioned to give a clearer out look o the future. They are being seen by consumers as Just a fad of the earlier days and Ewing over looked by upcoming and exciting watch industries like Timex. Another is their high manufacturing costs of producing watches in Switzerland which is becoming a strain on the company financially. With more and more of the competition looking for outsourcing possibilities in countries with low cost production solutions, the swatch group has started to fall behind. The problem has really started to affect the company and stands at the forefront of their issues. Continuing to manufacture in one of the most expensive countries in the world and began to take a toll on the company. Another issue that is posed on the swatch group is the increasing competition and different market niches. With companies beginning to take Autocue Transliteration strategies In tenet companies, certain market segments and price segments are becoming increasingly more competitive. This stands as a serious issue for the swatch group as they are present in all market segments and price categories and can result in decreased net margin. Strategic Alternatives The first alternative that Swatch group can pursue is moving manufacturing out of Switzerland into Asia, countries with lower cost production solutions. This will lead to watch taking a cost focused strategy approach. By moving production out of Switzerland the swatch group will be able to maintain with its competitors in regards to production and its productions costs will move from a weakness to strength. By moving production out of Switzerland and still be compliant with the Switzerland government, the swatch group will be able to continue forward with growth and have more to invest in their R and D department. The second alternative that the Swatch group can pursue is a strategic partnership with titan industries (a watch making company based out of India) which will help with the many reposition itself internationally, significantly helping its efforts of gaining more international recognition. Titan industries is also another extraordinary success story in the industry, there expansion has been quick, profitable and recognized by the industry. In this broad differentiation strategy an alliance with a company like titan suits swatch well, as both are looking to continue to grow internationally and avoid the wide spread of competitors continuing to enter the market while both focusing primarily on the watch industry. With immense domestic demand and low cost labor, titan seems to be an exciting and profitable opportunity. The third alternative that swatch can explore is reorganizing its product portfolio. With continued increase in competition especially with competition in niche markets tightening up, swatches current strategy of attempting to be present in all market and price segments seems to have expired. In this focused differentiation alternative swatch will focus their attention on their product lines that are more profitable for the company and abandon their other markets. This means swatch will put more focus on their middle to luxury market segments. This will create a more of a focused differentiation approach strategy. Criteria and evaluation of alternatives by criteria In determining which option will best suit the Swatch group and lead them to more prosperous future, the alternatives that have been discussed need to be asses against three criteria. The first criterion that needs to be met in order to ensure future success for the alternatives would be to produce a positive NP (Net Present Value). The second criterion that needs to be assessed is how each alternative will affect the companys long term sustainability. The final criterion that will be assessed or each alternative is risk level of each possible direction, in the sense evaluating if any of the alternative imposes any greater risks on the Swatch group or the risk of the strategy failing In the first alternative of moving production out of Switzerland with regards to the first criteria of NP, this criterion would produce a NP of $5,333,543,488 which satisfies the criteria. In terms of long term sustainability, moving production out of Switzerland could play a positive role with this criterion. As production is being moved out, costs will De raceme, growth can De Increased as cap tall can De ovate to toner important initiatives of the company and the selling price can be readjusted. The risk level of alternative is tarnishing the Swiss made label that has been the foundation of the company. If consumers drop the product because the prestigious label has become cheaper the company could lose market share in the higher to middle end market segments, which would hurt growth in the company and the futures outlook. The second alternative of partnering with titans industries, creates an NP of $9,027,460,032 which is not only positive, satisfying the first criterion it is the largest NP produced, a important factor to consider. With regards to long term sustainability, this alternative seems to be the strongest in this criterion. With the company needing to reposition itself and create a firmer outlook in a fickle industry, partnering would create the companys outlook stronger and create a synergy between two rising companies looking for international expansion. The partnership would assist in lowering costs, opening up new markets, benefiting from economies of scales, combining assets, advanced growth and competition advantages. The risk level of this alternative is the possibility of losing some of its Swiss made label, which could hinder the future. Also since titan had failed in an alliance earlier, the possibility of failure is possible. The last alternative of reorganizing their portfolio by reducing their product line to the most profitable product, satisfies the first criterion producing an NP of $5,447,279,600. With long term sustainability, the company would be able to see growth through focusing on their most profitable product lines, except costs would increase because the producing these higher end market segments would be more expensive. The risk level of this alternative is that consumer would be lost resulting n lower revenues and if they cant attain higher market share in the product lines they focused on the company would not see growth. The pay out of this alternative might not be worth the risk of consolidation of the products. Recommendation and Implementation Based on the evaluation of the alternatives, the recommended strategy to implement is to create a strategic partnership with Titan industries. The criterion shows that this alternative would be the most attractive in dealing with the key issues the Swatch group faces in the future. Profits would be increased, costs would be reduced b, intention reduced and the company would be repositioning itself for the future. Implementing this strategy would have be done delicately and ensured that not too much time is spent to distract them from moving forward. First part of production would be moved to India resulting in redistributing the cost savings in R and D and some production kept in Switzerland to attempt to keep the Swiss made label. A marketing campaign would be implemented to create a view of the future for the organization and ensure consumers know where the organization stands. The marketing campaign would involve social networks, heavy advertising and the SE of celebrities from all over the world wearing the watches. Then continue to produce product lines, with a more international aspect being implemented so new markets are created. Competition will then be targeted, innovating together by destroying images of others and increasing market share of their own. Avoidance of WOO De nope In tens partnership to rely more on current assets AT ten alliance. Limitations and critique of recommendation While this strategy of partnering with Titan industries seems to look strong and quite promising for the organization certain limitations exists. The first one being that Titan had already tried to work with a partner to develop internationally and move forward, this company being Timex. While a failure seems possible, the difference in this scenario is that both companies are more suitable for a partnership opposed to the partnership with Timex, who really never needed one and was becoming strong on their own. In this scenario swatch and titan need each other more then Timex needed titan. Another limitation that occurs is the fact that even though some production stays in Switzerland, the Swiss made label needs might be tarnished. While this risk seems possible, a proper advertising campaign can mitigate this risk and help the organization move forward without fear of this really hurting the company. The limitations are a concern only if the Swatch group does not commit fully to this strategy. Exhibit 1 External Analysis Opportunities and Threats: Opportunity: New Markets * Opportunity to expand internationally with new markets being produce * Deciding whether to enter the markets or not * With new markets being entered, hype/ attention will be back on swatch * Technology advances creating new markets Opportunity: Low Cost Production solutions Over seasons markets open to inexpensive cheap labor * Could be considered a threat if not taken advantage of * Lower costs of production leads to lower overall costs and higher profits Threat: Market saturation * Companies investing more in research and development in niche markets(RD) * Heightened competition in focused markets, creating tougher markets to compete in Threat: New Markets * International expansion helping companies move internationally, and steal market share from other companies * New competition taking advantage of innovation in the industry, creating new product lines Conclusion: To take advantage f these opportu nities means to take advantage of them now before they disappear. In the watch industry, it seems of late its becoming an ever changing industry where position needs to be firm. With regards to the threats, if they arent dealt with they can be a serious detrimental issue to a business in the industry.