It is almost the end of the year, and with 2020 also brings the latest chapter of a long running saga within the watch industry. You may recall the ongoing stoush between the Swatch Group and Switzerland’s Competition Commission (WEKO) regarding whether there Swatch Group subsidiary ETA SA would be able to increase supply within the terms of 2013 agreement to phase out movement supply to third parties.
ETA SA is based in Grenchen, and the local newspaper reported that WEKO’s secretariat has issued a provisional directive that the Swatch subsidiary be (temporarily) banned from supplying mechanical watch movements to third parties for 2020. In 2019 ETA SA sold half a million mechanical movements to Swatch’s competitors. The ruling supersedes a settlement between Swatch Group and WEKO in 2013 that set out a staged reduction in the delivery of ETA movements to other brands to around half the 2013 volume by the end of this year.
There is an exception – deliveries to small to medium-sized watch companies (250 employees; annual turnover < EUR 50 million and/or an annual balance sheet of < EUR 43 million).
The October 25, 2013 press release had stated – “This agreement allows Swatch Group to gradually reduce the supply of mechanical movements. The delivery obligation lasts until December 31, 2019. Based on the average of the years 2009-2011, Swatch Group and ETA have to deliver 75% of the sold quantities in 2014/2015, 65% in 2016/2017 and 55% in 2018/2019 , In addition, Swatch Group and. ETA to treat all of its customers equally. The SME clause also makes it possible to deviate from this regulation in favor of the affected customers in special hardship cases. If the market conditions develop significantly differently than assumed, WEKO reserves the right to reassess the delivery obligation.”
WEKO has commenced an evaluation process, with the review expected to be completed by Summer of 2020 at which point there will be a final ruling. In the meantime, its competitors such as Sellita will be the beneficiaries.
Swatch can deliver to smaller watchmakers, and the company is freed of any obligation to supply third parties, Comco Director Patrik Ducrey said by phone. The regulator said it expects to make its decision around next summer, though the provisional measure can be extended to the end of 2020.
The Swatch Group pulled no punches about the situation, issuing the follow press release (available at this link) :
The Competition Commission (COMCO) wants to prohibit Swatch Group or its subsidiary ETA from supplying mechanical movements to third parties in 2020. COMCO has always obligated ETA to supply its customers with movements and now it intends to prohibit it from doing so for the whole of 2020.
The provisional measures adopted by the Competition Commission (COMCO) are incomprehensible and unacceptable. Above all, they are unnecessary because the situation in the market for Swiss Made mechanical movements has changed drastically since the settlement of 2013. Furthermore, they reinforce the positioning of a new dominant player.
With its decision, COMCO is also interfering in economic policy and is restructuring the entire Swiss watchmaking industry. In doing so, it is exceeding and violating its authority. In view of the negative financial repercussions that these decisions will entail, Swatch Group reserves the right to claim damages. Swatch Group requests that the settlement reached in 2013 be terminated as planned on December 31, 2019.
Inexplicably, these provisional measures are based on a false and outdated premise. Since the signing of the settlement between COMCO and Swatch Group in 2013, the market for mechanical movements in Switzerland has changed fundamentally: ETA is no longer the market leader in this sector. Due to the settlement reached in 2013 and the will of Swatch Group, production volumes and capacities have been reduced year after year.
At the same time, other players significantly increased their own production levels and, as in the case of Sellita, far exceeded those of ETA. In 2019, Sellita produced and supplied one million mechanical movements (roughly twice as many as ETA), making it the new market leader in this sector. Accordingly, customers are no longer dependent on ETA. It is absurd and unacceptable, given the new situation, that COMCO is now completely prohibiting ETA from supplying its customers with movements. The provisional measures have no legitimacy. The prerequisites for a delivery ban have not been met.
With its decision prohibiting ETA completely from making deliveries to third parties in 2020, COMCO is effectively driving ETA out of the market (exceptions for SMEs are stipulated in theory, but de facto impossible). On the other hand, Sellita will become an even more dominant player due to its production volume. COMCO has thus reshuffled the cards for the industry and is, in effect, making economic policy by completely restructuring a strategic market area. However, this contradicts its mission and its authority. One of COMCO’s mandates is precisely “the prevention of state restrictions on competition”. In this case, however, it has created such a restriction itself and is giving even more clout to an already very dominant player.
It is also very surprising that the main arguments for these provisional measures are fully in line with the wishes expressed by Sellita in the course of the proceedings. The terms used by COMCO in its official communication correspond, practically word for word, to those used by Sellita. This raises the question of whether the COMCO Secretariat can be influenced or is even already under outside influence and whether it still takes its decisions completely independently.
The timing of the decision is also problematic. The COMCO Secretariat apparently took neither the urgency of the dossier nor the planning timeframe into account. However, the deadline set at the end of 2019 has been known to COMCO for six years within the framework of the settlement. Swatch Group has repeatedly tried unsuccessfully to draw COMCO’s attention to the urgency of the situation and has insisted on the absolute necessity for the Commission to take a definitive position on this matter. Swatch Group officially called COMCO’s attention to the matter no fewer than six times between September 25, 2018 and August 27, 2019. Other players in the watchmaking industry have also warned COMCO in view of the approaching deadline. In vain.
Not only for Swatch Group but also for all its customers whether larger companies or small and medium enterprises (SMEs) it was extremely important to know what would happen in this matter and whether and in what quantities they could purchase mechanical movements. For planning reasons alone. COMCO’s decision, and this is just a provisional measure, will officially be announced only tomorrow. This means only 12 days before the end of the year. From an industrial point of view, this is absurd.
How is it possible to plan and prepare seriously for the 2020 financial if COMCO suddenly decides at the end of 2019 to change the previous conditions fundamentally by prohibiting ETA from supplying its customers? Swatch Group and its customers generally plan their future production twelve months (or more) in advance. It is customary to place orders for movements no later than the 30th of June for the following year, which COMCO itself acknowledges. We would like to point out that Swatch Group has always stressed that it intends to continue its deliveries beyond the end of 2019, choosing its own customers. The other players in the watch industry who expect ETA products to equip their watches in 2020 are now in a very complicated position. Starting with SMEs, which ETA cannot supply due to COMCO’S dictates. But how can a watch be sold without a movement?
What will tomorrow bring? In addition to the many obstacles that COMCO has imposed on the industry for 2020 – with repercussions until 2021-22 due to delivery deadlines – uncertainty will prevail for many months and investments will be slowed down. The Commission is unlikely to take a final decision on this sensitive matter of mechanical movements until sometime in 2020. At this stage, COMCO has not yet announced any timetable.