Independence Day? Tag Heuer’s Movement Future

Independence Day? TAG Heuer’s Movement Future

Last Updated on June 22, 2019 by Calibre 11

Unless you follow the business pages closely, you may have missed the result of a court case last month in the Federal Administrative Court in Berne. Calibre 11 doesn’t normally devote a lot of time to court cases, but this one is different as it confirms changes to the Swiss watchmaking industry that will impact all players- and in particular, volume producers such as TAG Heuer.

Independence Day? Tag Heuer’s Movement Future

The Court upheld a decision made by the Swiss Competition Commission (known as Comco) to allow Swatch Group to begin reducing supply of its finished movements and components from 2012. This decision is the latest chapter in a series of court cases that go back more than 10 years, that ultimately have one aim: for Swatch Group to be able to pick and choose to whom and when it supplies movements and components.

We interviewed TAG Heuer CEO Jean-Christophe Babin to bring you an insight into how these changes may impact TAG Heuer, and came away with the view that while the road ahead will no doubt be a difficult one for many brands, “independence” for TAG Heuer opens up a lot of new opportunities.

Before we get to that, let’s go over the background of what is changing at Swatch Group and why.

An Overview of Swatch Group

Independence Day? Tag Heuer’s Movement Future

Swatch Group started life in 1983 as SMH (Swiss Corporation for Microelectronics and Watchmaking Industries Ltd) and was created by amalgamating the two vast Swiss watch conglomerates SSIH and ASUAG, as recommended by the consultant hired by the Swiss Banks- Nicholas Hayek.

Apart from the well-known watch brands (including Omega, Tissot and Longines), SMH also included every mainstream Swiss movement manufacturer- ESA, ETA, Lemania, Valjoux and others. As well as the movements, SMH also included suppliers of almost all key components, Hairsprings (Nivarox), Dials (Rubattel et Weyermann and MOM le Prélet), Cases (Favre et Perret and Rueding) and hands (Universo). Even today, it is impossible to make a watch in any significant volume without buying at least some key parts from the Swatch Group.

While a few high-end brands continued to make their own movements through the 1980s and 90s, the majority of the Swiss watchmaking industry relied on SMH for supply of ETA movements. Importantly, because SMH held a monopoly position in the supply of many components, SMH could not choose who it supplied. If you wanted to start you own watch brand, Mr. Hayek had to supply you with movements, even if it was in competition with his watch brands.

Without a doubt the ability to rely on ETA for movements saved many Swiss watchmakers in the 1980s, but by the 1990s when industry profitability had stabilised, innovation at many brands- including TAG Heuer- had stagnated. Why invest in components, when you could just buy off the shelf from Swatch Group? Clearly it was an industry dynamic that couldn’t last.

Swatch and Comco

Independence Day? Tag Heuer’s Movement Future
In the early 2000s, Swatch Group set out a clear strategy: it no longer wanted to be forced to supply Ébauches (movement blanks completed by customers), finished movements or even components to its competitors unless it chose to do so.

The first target was the supply of ébauches. In 2002 Swatch Group announced its plans to stop the supply of ébauches outside the Swatch Group, an objective that took eight years to achieve, given a series of negotiations with Comco that reduced supply over several years.

Having won that battle, Swatch turned its focus to finished movements and components, negotiating in 2009 with Comco to scale back the supply of movements to 85% of 2010 levels. Not surprisingly, many watch brands and component manufacturers who rely on Swatch Group appealed this decision- and it was that appeal that was heard in Berne on 6 September 2011.

At that Appeal, the Court rejected the application from the 12 appellants and therefore supported the original Comco decision that Swatch Group could reduce the amount of mechanical movements and movement components it supplied to third-party companies from next year.

There are now interim measures in place that allow Swatch Group to reduce the supply of mechanical movements to 85 % of 2010 levels and supply of regulating components- hairsprings and balance wheels- to 95% of 2010 levels. And as we’ll explain below, it’s the reduction in supply of these regulating components that is causing major heartburn among Swatch Group’s competitors.

Why Hairsprings Matter

While Swatch Group dominate the supply of finished movements, there have been a number of viable volume competitors emerge over the last few years. It is estimated that there were 5.5 million mechanical movements made in Switzerland last year, with Swatch Group accounting for more than 3 million of these.

But, growing fast is Sellita with 500,000 units and Soprod with an estimated 200,000, with the remainder of the volume made by the brands themselves- Rolex, Zenith, TAG Heuer and the haute horology brands. So, while ETA is dominant, it has less than 60% of the movement market, meaning that there are at least some alternatives.

But the picture is very different on Hairsprings, where it’s estimated that Nivarox (Swatch) control more than 80% of the market and is the only volume producer. The Hairspring is a thin spiral of metal alloy that controls the oscillation of the balance wheel. It’s a key part of the regulating mechanism and used in every automatic watch movement except one- TAG Heuer’s prototype Pendulum movement. Put simply, if Swatch doesn’t supply Hairsprings to Sellita and Soprod, then those companies are out of business.

So, while Comco is unlikely to allow that to happen, there is going to have to be some major investment by movement suppliers- and soon. Analysts at Kepler Capital Markets believe that deliveries of parts and movements from Swatch will come to a complete end by 2018. Maybe this will never happen, but if you run a watch company, you have to plan on the basis that it might.

Interview with Jean-Christophe Babin

Independence Day? Tag Heuer’s Movement Future

To get TAG Heuer’s perspective on the Comco decision and its implications, Calibre 11 spoke to CEO Jean-Christophe Babin.

Calibre 11: The reduction in supply from Swatch Group has been in the making for some time- when did TAG Heuer start planning for these changes?

Jean-Christophe Babin: Well, first, some background to help you understand, because in all fairness, you need to put the Comco decision in context. Ever since TAG Heuer was re-launched in the mid-1980s it has relied on ETA for both its Quartz and mechanical movements [automatic movements], even though until about 2000 it was mainly a Quartz relationship.

In the early 2000s when I joined, I gave a very strong push to being back mechanics, and as we were trading up, to propose more and more watches, especially Chronographs, with mechanical movements. So from 2001 to the 2006/7 period, we’ve grown the mechanical part of the brand at a very fast rate and from a few thousand movements back in 2001 to around 200,000 mechanical movements by 2006/7, mostly from ETA.

So, we have received from Swatch Group, ETA and Mr. Hayek Senior and Junior very strong support in the early 2000s through to recently to transform TAG Heuer from a mainly Quartz brand, to a brand with both and having almost only mechanical movements for our Chronographs.

Seeing this big development back in 2005/6, Mr Hayek very kindly told me “Look Jean Christophe. I understand your ambition and the growth potential of TAG Heuer, but want to tell you well in advance that we as Swatch Group are reaching ourselves 100% of our installed capacity and so as a consequence, in the future we won’t be in a position to further support your growth if you keep growing that way”. So, Mr Hayek Snr was very fair with me, giving me notice well in advance that I should look for other solutions, because his factories were full, and so he was hardly going to build extra capacity for a competitor, which was understandable and fair.

C11: And is that when the planning started?

JCB: Yes, and this is why today, TAG Heuer is quite ready and fine with what is going on, because we started from 2007/ 8 onwards to diversify very actively our mechanical movements supply, developing on the one hand new partnerships and also developing our own internal capacity.

To make a long story short, yes today Swatch Group is an important supplier to TAG Heuer for mechanical movements, but it’s not the only one and it’s not the largest one either- it’s as big as our second-largest supplier. We have Swatch Group and also very strong supply from Sellita, especially in the field of watches- not so much in Chronographs, because they started their SW-500 programme quite recently, so they’re a very important supplier for us.

We’ve also re-started a collaboration that we had historically with Dubois Depraz, so now all the Monaco’s except for the V4 and the Monaco 24 are powered by Dubois Depraz. We’ve intensified the collaboration with our sister brand Zenith, who supply the movement not only for the Grand Carrera, but also the Monaco 24 [Both Calibre 36]. And we have a relationship with Soprod for some Grand Carrera movements, such as the GMT Big Date [Calibre 8].

Independence Day? Tag Heuer’s Movement Future

And finally, we have invested heavily in the first step of our Calibre 1887 programme, with a theoretical installed capacity of 50,000 units per year. This year, I think we will produce around 25,000 and next year will be between 40-50,000, so by next year we will have hit our full internal capacity.

And then, this is not including our Haute Horology movements- V4, Mikrograph, Mikrotimer, but that’s a totally different team and business units that reports to R&D, while the mainstream watchmaking reports to Operations.

C11: OK, so on the finished movements front there has been a lot of diversification, but Swatch’s recent case with Comco also limited the supply of components, and in particular Hairsprings, which places those alternative movement suppliers in a tough position, because almost everybody relies on Swatch Group for Hairsprings….

JCB: OK, so this year you will have 5.5 million mechanical movements produced in Switzerland, of which Swatch Group produce maybe 3-3.5 million. But when it comes to assortments, they are producing perhaps 4.5 million of the 5.5 million, so you’re right that the majority of Swiss movements have Nivarox assortments, with the exception of some manufactures who have their own assortments in very small volumes and Rolex [See Rolex’s Spiral Parachrom below], which is apparently making 50% of its requirements internally.

So, Nivarox is the only scale producer- you can find assortments here and there, but they can make maybe a few thousand or a few tens-of-thousands assortments per year.

C11: So have Swatch group indicated that they will continue supplying Hairsprings to external customers?

JCB: Well, that’s a question for Swatch Group. If I read the Comco statement, which is all I have, they say that for 2012 they will reduce the supply by 15% for movements and 5% for the assortments- that’s for 2012. After that, no-one knows, but you can extrapolate those reductions over the next 5, 7 or 10 years….

Independence Day? Tag Heuer’s Movement Future
So, coming to assortments, it’s obviously a big issue, because -5% when you are looking to grow your business over last year, so there’s a gap between a 5% reduction on one hand a double-digit growth ambition on the other hand.

So the question, and it’s a fair question, is what do we do? We have started some collaborations some years ago with some other sources that I can not disclose right now, which might not replace Nivarox, but could at least bridge the gap as long as its -5% per year. Hopefully, Nivarox will never go to zero, but whether that happens may depend on what Comco says. But to defend your business, you must work on the worst-case, which says that maybe in the future we will have no ETA movements and no Nivarox assortments.

So, we are investing in several directions, which are complementary, which is what we did with movements- on the one hand partnerships and we assessing what if we were to do it internally [Manufacture Hairsprings and Regulating mechanisms]– not everything, but like with movements where we combined external partners with internal production, why not the same for assortments too?

But there is one differences- with movements, the landscape was already there: Dubois Depraz, Sellita and Soprod’s of this world with already significant scale and capability. But today with assortments in Switzerland there is no-one we can mention with significant scale. So, on assortments the challenge is tougher, which is probably why the ComCo said “-5%” and not “-15%”, because for the assortments it will take more time

C11: And is this something you look at just as TAG Heuer, or more broadly as part of LVMH?

JCB: Certainly we have co-ordination across several dimensions, one of the key ones being components supply. So when we talk about assortments, we obviously try and work out the requirements of Hublot, plus Zenith, plus Bulgari, plus LVMH, plus Dior Watches and we try and find a solution that meets the growth targets of all of our brands.


Given the intensity of the rivalry between Omega and TAG Heuer, it’s reasonable to expect that Swatch Group won’t be going out of its way to look after TAG Heuer’s interests any more than Comco says that they have to. Fortunately, TAG Heuer today is part of the broader LVMH Group, which gives it the financial backing and scale to invest heavily in technology and manufacturing resources if that is what’s required.

Given the complexity and skill of producing Hairsprings, it would be an amazing 20 year journey under LVMH ownership if the TAG Heuer Carrera of 2018 was not only powered by an innovative in-house movement, but controlled by an Assortment also made in-house. As we’ve pointed out before, it’s a long, long way from where the brand was at the turn of the century.



Nicholas Hayek: Swatch Group

Spiral Parachrom: Rolex

Other: TAG Heuer