Life After the Quartz Attack

New laws, new technologies, or changing customer demands are forcing many industries to change.
The consolidation of an industry is a painful process – something even the proud Swiss watch barons have had to learn since the early 1980s. That's when Hayek arrived. The entrepreneur set in motion a transformation that gradually optimized the industry and forced the realization that structural change pays off.

Text: Medard Meier
Photo: Medard Meier / Breguet, Thomas Krause

Here, in the middle of Europe, is the end of the world. A high valley, 1,000 meters above sea level, blown by the wind. Sometimes icy cold, sometimes scorching hot. No longer Switzerland, not yet France. So much of a no-man's-land that people brew devastating liquors and give their places makeshift names: Le Lieu (the Place) or Le Sentier (the Path), overlooked by Mont Tendre, the gentle mountain.

In front of an uninspiring building stands a silver-gray Mercedes, equipped with the latest communications technology. Hayek is there. The building is the headquarters of Breguet, the traditional company that delights humanity with glamorous marvels like the Classique, a watch with seven handcrafted hands, a quarter-year cycle, a power reserve, and a solid gold dial. Price: 125,775 euros.

The people of the Vallée de Joux have a knack for such things. Breguet has been making watches since 1775. Watchmaker and company founder Antoine LeCoultre (Jaeger-LeCoultre) from Le Sentier, in 1844, invented things like the millionometer, a device that could measure a thousandth of a millimeter, during dark winters. Around the corner, at Lemania SA, the chronograph for the first lunar flight was developed in the 1960s. Fifteen years later, the era of the mechanical watch seemed to be over. Lemania was slated for closure, and Blancpain, Breguet, Jaeger-LeCoultre, Omega, Audemars Piguet, and all the others faced an uncertain future. Then came Nicolas G. Hayek.

The Zurich-based management consultant, who had moved to Switzerland from Lebanon at a young age, invested 70 million Swiss francs, a third of his fortune, in the Swiss watch industry. Many saw this as a risky gamble. But for Hayek and his fellow investors, it was a carefully calculated move. He knew the numbers. The banks, which had large loans in the shattered industry, had entrusted him with the analysis. He saw untapped assets – and built an empire upon them. Today, the Swatch Group ticks reliably around the globe, is number one worldwide, and has made Hayek a multi-billionaire.

But the man remains restless. Constantly on the move, Hayek drives, inspires, and is curious. You either get infected by his forward momentum or quit your job. The 76-year-old is driven by the experience of a double alienation: that of only being able to move things forward against strong resistance in harmony-obsessed Switzerland. And that of being a heretic (or, alternatively, the inquisitor). "Many managers serve the false religion," says Hayek. Instead of investing in innovation and the future, they eye the stock market: "Where have the real entrepreneurs, the founder types, gone?"

At the end of the 1970s, he watched in shock as the watch barons watched their own decline, sometimes doggedly, sometimes helplessly. Companies went bankrupt one after the other, their number declining from 1,600 to 600. Of 100,000 jobs, barely 30,000 remained. Entire secondary economies died. Mass unemployment spread in watchmaking centers like La Chaux-de-Fonds, Le Locle, Biel, and Grenchen.

The industry is threatened – and is protected by the state.

This collapse was textbook. The Swiss, steeped in tradition and spoiled by success, had missed the technological leap to battery-powered quartz movements. Although the innovation originated in a laboratory in Neuchâtel, the Swiss couldn't imagine the electronics taking over. A chip, a battery, a display: That wasn't really a watch, the watchmakers said.

But they hadn't reckoned with the industrially ambitious Japanese, who, while among their best customers in the top segment, were attacking in the lower and middle segments. It was a company like Seiko that had begun importing "Swiss-made" watches 100 years ago; it was Citizen Watch Company and Casio Computer Co. from the Far East, and US corporations like Texas Instruments that rose to become the new masters of the industry and utilized the advantages of the quartz watch: It is considerably more accurate than mechanical watches, and it can be manufactured industrially at a fraction of the cost.

Swiss export figures reflect the tragedy: From 60 million units (1973), sales shrank to 17 million (1983). Only a few companies, like Patek Philippe or Rolex, were able to stay out of the maelstrom.