1. Conduct an industry (five forces) and environmental (PESTEL) analysis of the watch industry When Swatch emerged in 1983, it was a prime time to enter the watch industry. Existing rivalry and the threat of new entrants were medium, allowing Swatch to thrive. Not one of the many competitors held more than 15% of the total global market, thereby creating medium concentration. In addition, cost conditions, excess capacity and exit barriers, and product differentiation were also medium.
Although there was high diversity among competitors, Swatch’s strategy of differentiation, complemented with the other industry factors, allowed them to enter the industry and profit. Although there were barriers to entry and a high threat of substitute products, Swatch was able to forgo the barriers and create a niche to avoid threats. While low concentration and extreme price sensitivities of shop buyers created high buying power; the power of suppliers was extremely low, enabling efficiencies in production to emerge.
Economic and political tensions were low when Swatch emerged. Swiss political barriers had fallen and the Swiss global reputation remained positive. In addition, economically an increase in consumers’ spendable income, and recent sociocultural desire for fashion, created an opportunity for Swatch to create a niche in the global culture. Constant technological advancements in the industry required innovative teams, legal barriers to protect copyrights and patents, and isolating mechanisms to protect resources and capabilities. 2.
Use Mintzberg’s 5 Ps framework to analyse Swatch’s strategy. How did its strategy evolve? Swatch’s strategy evolved over time through many different stages and most of the 5 Ps of Mintzberg’s strategy framework, see Appendix 3. Overall, however, the strategy began as a strategic perspective change and eventually evolved into a strategic position that Swatch still maintains. The first step in the evolution of Swatch strategy was the introduction of Ernst Thomke into ETA. Thomke brought the strategic perspective of lean operations and a culture of innovation.
Next, Thomke developed the Swatch strategy by implementing a ploy for his engineers to develop the world’s thinnest quartz watch. He then implemented a plan to position the Swatch brand in the little contested low price range market. After working with New York advertising agency, Swatch slightly changed strategy again by refocusing the brand position as a “fun and fashionable” watch for 18-30 year olds who would buy multiple watches for different occasions. Swatch has since dominated this self-defined market niche position. See Appendix 3 for 5 Ps strategy references. . Use Mintzberg’s families of strategies and Porter’s generic strategies to discuss the sources of competitive advantage. ETA conceived Swatch as a watch-making company with their core business located midstream according Mintzberg’s families of strategies. ETA focused on production and design of their new brand of watches. When Thomke became managing director of ETA, he fostered a culture of innovation and cost efficient production. ETA took a differentiation position in the industry; focusing on image, design, and price of the Swatch watch, Appendix 4.
Initially, the Swatch division used elaborated the business by using a diversification strategy of making cheap, fashionable watches for a previously underserved stylish, 18 to 30 year-old market niche. Swatch accomplished this by implementing new technologies, teaming with clothing designers, and improving assembly efficiencies. After implementing these strategies, ETA extended their core business through vertical chain integration, increasing control on distribution and marketing of Swatch watches. Using this strategy, Swatch produced almost $45M in sales in 1985.
In 1986, Swatch tried to reposition the core business by diversifying. They attempted to move from providing Swatch watches to creating a Swatch brand of items, Appendix 5. This change in strategy ultimately failed and Swatch refocused on watch design innovations. 4. What were the strategic threats and opportunities facing swatch? Examine and analyze swatch’s response to these threats and opportunities? ETA faced many strategic threats and opportunities, Appendix 6, when they conceived the Swatch business unit.
However, Thomke asked the basic entry decisions questions and came to the conclusion that competing in the low cost watch category was the most attractive opportunity. Thomke moved forward with a vertical scope corporate strategy through a new market and new product diversification strategy. ETA engineers created a low cost quality watch by using economies of scope. The use of joint R&D and quartz technology combined ETA’s tangible and intangible resources to create operational relatedness. Thomke utilized strategic relatedness by using common anagement capabilities through manufacturing efficiencies and financial access. These resources allowed ETA to compete in the high and low market watch categories and attain a competitive advantage in the low price watch niche. Thomke brought in New York advertising agent Franz Sprecher who coined the name Swatch. Swatch’s entry modes were exporting, wholly owned subsidiaries and the joint venture model by using shops in shops in classy department stores, jewelry stores, sports stores, and fashion boutiques. 5. Identify the key success factors to survive in the watch industry.
Use the resource-based perspectives to describe how Swatch was able to create and sustain its competitive advantage in this industry. The key success factors for the watch industry are the capital resources needed to fund operations, strong technical skills/knowledge for product development, product differentiation, value chain cost efficiencies, strong brand recognition and distribution channels. For Swatch to create and sustain its competitive advantage, unique valuable resources are needed to maximize their organizational capabilities.
These resources are comprised of tangible, intangible, and human assets, Appendix 7. The combination of their capabilities derived by these resources and the industry key success factors helped Swatch develop a strategy which provided advantages over others. The four cornerstones of RBV (resource heterogeneity, ex ante barriers, ex post barriers, and resource immobility) provide insight as to how their advantage was gained. Swatch’s engineering and partnership with fashion designers provided a key asset. Also, their product innovation which created a market niche allowed them to gain early mover advantages.
Furthermore, patents, advertising, promotions, and continuous product innovations created barriers for duplication. Promotions of key individuals, patents, and copyrights also protected their assets.? Appendix 1: Five Forces Analysis Appendix 2: PESTEL Analysis In addition to the elements described in the contextual layer for the PESTEL analysis (political, environmental, socio-cultural, technological, economical, and legal), both the five forces and PESTEL analyses consider the type of industry a company is in by evaluating the “task environment. ” Swatch
Global buyers all ages, shop-in-shops in classy department stores, ports, and gift and fashion boutiques. For electronic watch needed integrated circuits and quartz crystal timing devices. Utilized components from the leading US semiconductor house, Texas Instruments. US chip makers, National Semiconductor, Motorola, TI, and Hughes. Japanese firms Seiko and Citizen -Mass production techniques -Took over medium price sector worldwide US Bulova Corporation -First battery powered electronic watch- extreme accuracy, but high cost (Accutron) -High cost -Patented tuning fork mechanism
Timex -Mass producing pin lever watches -Extremely low cost -Massive TV advertising -US and European sales Imitation firms and black market products Human and Other Resources: Personnel, including a strong managing director, innovative engineers, and high quality marketing team. Physical assets include buildings, capital, and global locations. Intangible assets include a strong research and development department, recognition, copyrights and trademarks, and technological innovations. Appendix 3: Mintzberg’s Five Ps of Strategy Definition of Mintzberg’s 5 Ps of Strategy Plan – intended course of action — analysis to understand industry and firm level performance drivers is critical •Position – the way a firm relates to its environment — there must be some fit between environmental conditions and a firm’s actions •Perspective – a firm’s actions reflect the way managers in a firm see themselves and the world around them, their core values – reflect internal strengths and weaknesses, firm-specific history •Pattern – sequence of unintended actions — some things cannot be planned for, but a firm’s responses to unforeseen contingencies may nevertheless embody a consistent logic or set of principles •Ploy – maneuver to outsmart opponents — and survive competition for resources and customers i “Thomke rationalized production, closing nine factories and reducing the number of models to about 250. Layers of management were cut out and a more innovative culture was actively encouraged. ” ii “Thomke challenged his engineers to make the world’s thinnest quartz analogue watch, a feat claimed earlier by Seiko. ” iii “Thomke decided to avoid the middle ground dominated by Japan, instead setting his team the target of making a quartz watch to retail for no more than SFr. 50 (then $US25). iv “The team decided to downplay its technical prowess in favour of associating the name with a concept of fun, excitement and fashionability (and perhaps disposability) aimed at people between 18 and 30 who would be encouraged to buy two or three for different occasions” v “Swatch brand has created and sustained a substantial, wholly new market niche defined by an original/authentic, classic, fun-and-fashion concept with which it is uniquely associated. ”? Appendix 4: Distinguishing The Core Business ETA’s Differentiation position ?Image ?Fun and fashionable ?Design ?Worked with fashion designers ?Changed design twice a year ?Price ?Low price range, not lowest ?Utilized cost efficiencies in production ?Disposability ?
Appendix 5: Reconceiving The Core Business ETA’s Reconceiving the Core Business ?The formulation of the Swatch brand ?Clothing and footwear ?Umbrellas ?Sunglasses ?Too ambitious and was discontinued in 1988 ?Refocused on watch innovations ?Pop Swatch ?Maxi Swatch ?Recco Reflector ? Appendix 6: SWOT Analysis SWOT Analysis OpportunitiesThreats “Growth Opportunities”“Defend you territory Low cost watch categorycheap reliable watches Nontraditional distributionengineering- quartz/assembly StrengthsChanging designs twice a yeargood quality at low cost ultra-thin mechanical movementprice markdown by retailers US Marketing- concept of fun imitation by other manufactures Leave it to others”“Strategic Exit” medium price watchesReduction of high cost manufacturing technical prowess marketingswatch clothing – after failure of clothing complement Weakness ? Appendix 7: RBV Resources ? References Ansoff Matrix. http://www. tutor2u. net/business/strategy/ansoff_matrix. htm. October 2009. Besanko, Dranove and Shanley. 2000. Economics of Strategy. Second Edition. New York: John Wiley &Sons, Inc. Chapters 1 & 2. Grant, R. 2008. Contemporary Strategy Analysis. Blackwell, 6th Ed. , Ch. 3, 15, 16 Mercado, Welford, Prescott (MWP) 2001. European Business. 4th Edition. Mintzberg, Lampel, Quinn, and Ghoshal. The Strategy Process. 4th Edition. 2004.
Readings 1. 1 & 1. 2 Mintzberg, Henry. “Generic Strategies Toward a Comprehensive Framework” Advances in Strategic Management. 5th ed. Greenwich, CT. JAI Press, 1988. 1-67 Peteraf, M. A. 1993. The cornerstones of competitive advantage: A resource based view. Strategic Management Journal, 14: pp. 179-191. Pitt, Martyn. 1996. “The Rise of Swatch: Revitalizing the Swiss Watch Industry. ” Strategic Innovation: An International Casebook on Strategic Management , Routledge, . Porter’s Generic Strategies. http://marketingteacher. com/Lessons/lesson_generic_strategies. htm. October 2009. Porter, Michael. 1980. Competitive Strategy. New York: Free Press