Watch Industry Illustrates Successes, Failures Of Industrial Strategies, Government Policies

June 1, 2001

University Park, Pa. --- One technologically rich industry -- the watch industry -- has shown that the most successful companies continually listen to market signals and information from many sources and embrace flexibility, supported by agile national industrial policies, says a Penn State economist.

In a recent book, "Manufacturing Time: Global Competition in the Watch Industry, 1795-2000," Dr. Amy Glasmeier, professor of geography at Penn State, illustrates how an industry’s success or decline did not occur in isolation, but resulted from the interaction between the communities, industrial cultures and systems, and the effects of economic crisis, technological change and political identities. Her research highlights the rise and fall of major watch companies in five countries -- Britain, Switzerland, U.S., Japan and Hong Kong -- for more than 200 years.

"Many leaders still believe the myth that the only successful industrial model is free market capitalism and that the best role for the government is a benign one or stepping in only when something goes wrong," Glasmeier says. "But the history of watch industry demonstrates that a country’s government can play an important strategic role in an industry’s development and growth, such as Japan and the microelectronics industry."

"Viewing the world watch industry over 150 years reveals the fragility and, in some cases, the temporary nature of market dominance," she notes. "Inertia often caught market leaders off guard, while more astute competitors forged ahead by anticipating and embracing innovation quickly. Over time, competitive pressures resulted in different responses from watch producers ranging from contracting out production to the complete automation of production."

Government protection of various forms also has been pursued with the British using tariff barriers and other restrictive legislation to maintain control over markets, according to the book. The Swiss engaged government protection at different points. While the U.S. passed tariffs and protectionist trade policies, it was defense contracts encouraging innovations that helped boost its watchmakers.

When under siege, numerous watch producers sought refuge in government protection, but in most cases, protection only delayed their inevitable decline. Eventually, when restrictions were lifted, these countries’ watch industries were failing anyway and unable to compete internationally, the Penn State economic geographer says.

Her book begins with the British in the mid-18th century. "While the location of the first manufacture of watches is attributed to Germany in the 1500s, Britain quickly rose to become the world’s center for the early development of the early industry," the author writes. "Best known for its success in creating a durable and accurate chronometers, the British industry ruled the world of timekeeping, plus Britain was a pioneer in the world system of trade."

But their industry leaders were short-sighted and slow to change, giving way to the Swiss producers who rose to prominence in the middle of the 19th century, Glasmeier says. The Swiss imported know-how from France, set up the foundation for skilled precision manufacturing, and supported competition within their borders.

The Americans introduced the concept of mass production to the watchmaking industry, assisted by a robust machine tool industry, according to the book. The 1860s through the 1890s were the golden years of the U.S. watch industry. By simplifying the watch and standardizing its parts, pioneers forged ahead and won customers by improving a watch’s reliability and cost, and distributing it widely.

The establishment of a railroad watch standard in 1892 gave U.S. companies a lock on the domestic market, but discouraged future innovation and markets. Therefore, they were not ready for the advent of wristwatch technology, the book notes.

In the meantime, the Swiss still controlled global markets, though frozen out of the U.S. markets. Foreign trade allowed the Swiss industry to regain financial health and pursue new technology. Their firms adopted cost-effective American industrial methods and observed new fashion trends and niches, resulting in the wristwatch. The Swiss took the lead again in the 1930s and 1940s.

However, in the 1960s, Japanese manufacturers began their ascent to become major players, assisted by their government’s trade policies to protect home markets and to develop automated production, lowering labor costs.

Two major developments in the world watch industry began in the 1960s and reached maturity by the end of the 1970s: The commercialization of quartz watch technology and the emergence of Hong King as the world’s most formidable manufacturer of low-priced watches.

"The lessons learned by the watch industry can be applied to others such as automobiles, personal computers, and semiconductors," says Glasmeier. "Government partnership is critical, using the stick or the carrot correctly. But the trick has been getting the balance right and keeping it on track. Sometimes, once the government steps in, it overstays its welcome because political factors become more important and creates more burden. They have to know when to fish and when to cut bait.

"However, no matter what country, the most successful companies are those which encourage strong information flow from the bottom to the top and with little hierarchy. They value human capital, listen to even the faint market signals, forecast possible directions, and reward new ideas and leadership," she notes.

"Manufacturing Time: Global Competition in the Watch Industry, 1795-2000" is published by The Guilford Press of New York City.

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Contact:

Vicki Fong (814) 865-9481 (o) vfong@psu.edu

EDITORS: Dr. Glasmeier is at akg1@ems.psu.edu by e-mail.