Sunday, August 12, 2007

From Ebauches SA to ETA SA: 75 years of Swiss movements

ETA, which is nowadays part of Swatch Group, is the largest Swiss manufacturer of movements, including the expensive mechanical movements appreciated by the amateurs of high horology. Behind these three rough letters, more romantic denominations like Valjoux, Unitas, and Peseux denote some hidden treasures, one would like to discover.

ETA was not established in one day. The birth of such an industrial concentration actually even required the energetic intervention of the Swiss Confederation itself. Curiously this enthralling history is difficult to reconstitute. Only many partial documents exist (see bibliography), but there is not a single comprehensive account relating its history since the creation of Ebauches S.A. in 1926 until today’s Swatch Group.

Please read the following essay: you will discover there hopes and dramas, splendid successes and treacherous cowardice; a summary of Switzerland’s soul and of life itself.

Chapter 1. Genius’ stroke: establishing of a private limited company (SA):

1921: Clock and watch makers are by nature individualistic: entrenched at their "bench”, at the practice of watch making, each single one tends to keep his individual know-how secret and intends to manage his business by himself. In fact, when a crisis occurs, as now at the beginning of 1921, he shall try and manage individually to market his own products at more or less discounted prices and by more or less legal ways: most criticisable behaviour being the "chablonnage", i.e. the export of all the unassembled parts of a movement, avoiding all federal laws prohibiting the sale of Swiss movements out of the Confederation. Obviously the chablonnage is an unfair competition against the manufacturers of complete watches, the famous "Manufactures", which, at this beginning of the 20th Century, have started marketing in increasing number their own watches under their own brand: Omega, Zenith, Longines, etc, etc.

1924: In a trial to “discipline” the profession, these “Brand” manufacturers create in 1924 the FH Federation of Swiss Watch Manufacturers. The situation is complex, establishing & implementing the right strategy difficult. The movement, the famous Swiss movement, which now the whole world envies, is the basic problem, comprising so many different parts from so many basically different production methods & sources. There are the “Ebauches”, manufactured by large companies with hundreds of employees. There are the lever “assortiments”, the balance wheel, the balance-spring, the various jewels, the mainspring: all these small parts being manufactured by a multitude of micro-companies, sometimes a simple workshop at the corner of a barn.

1926-1927: The solution is to create the “Union of the Annex Branches of the Horological industry “UBAH”, in 1927. The objective is to encourage the self-discipline and to narrowly supervise quality, costs & prices, in order to avoid the self-destructive cycles of price collapse followed by price inflations & vice versa. Step by step, the application of “UBAH’s” philosophy slowly grabs in.

Meanwhile, the “Ebauches” makers’ struggle is complicated by the sheer size of the financial issues. In January 1925, 26 Ebauches manufacturers try to find some unity. That was a waste of time and effort, as one year later one of them unilaterally lowers its prices drastically. At this stage, the Swiss banks’ involvement is necessary (heavily implied in the financing of these large factories they obviously favour market stability). Mandate is given to the Swiss Fiduciary Limited Company of Basle to find a proper solution.

The Swiss banks do not have a reputation of audacity. However they are willing to actively support a stroke of genius: December 27, 1926, in Neuchatel, it is not an association, not a manufacturers’ union, it is a Limited Company of private law. And with the assistance of the banks it is rich, very rich, and hence powerful.

Ebauches S.A. was born out of the willingness for cooperation with the Swiss Banks of the then three biggest manufacturers: AD. MICHEL SA, Grenchen, created in 1898 by Adolphe Michel and Jean Schwarzentrub, A. SCHILD SA, also in Grenchen, created in 1896 by Adolf Schild-Hugi, and FHF “Fabrique d’Horlogerie de Fontainemelon SA”, Fontainemelon, created in 1793 by Isaac and David Benguerel, associated with Julien and François Humbert-Droz. At this stage, these three factories manufacture more than 75 % of the Swiss Ebauches. A. SCHILD SA, for example, employs more than 2100 people.

When Ebauches SA invites to its table of negotiation, it is not for idle talks, it is to speak about mergers, which it can easily finance. One after the other, numerous small manufacturers yield to Ebauches SA’s offers. In 1927, nine companies are bought off: Hora, Sonceboz and Charles Hahn, the manufacturer of the “Landeron” stop watches’ movements. In 1928 ten others follow, amongst which: Felsa, Venus, Root, Bovet, Optima. In 1929, eight more, including Urania and Postala.

As a positive result of this concentration, those & the “Brand Ebauches manufacturers” are able to agree upon and sign in Bern on December 1, 1928 the “convention de chablonnage” which regulates in a drastic way the export of “chablons”.

But that was a bit too early.

The still independent Ebauches manufacturers, called the “dissidents”, feeling unconcerned, do not follow the rules and export “chablons” at an increasing rate, provoking a glut on the market, just at the moment when the 1930 depression entices the United States of America, then first market of export for Swiss watches – otherwise the cantor of liberalism - to increase by 300 to 500 % their customs duties, leading watch making individualism to prevail again.

With the result that, in December 1930, the “convention de chablonnage” is voided.

Chapter 2. From the Holding Company to the Super Holding Company.

1930: at the beginning of the Thirties the situation of the Swiss Watch Industry is dramatic indeed. Bankruptcies follow one another, nearly 20 000 watch makers are unemployed. Watch Industry related Swiss Banks and Associations then decide to take a further calculated gamble, recognising that the strategy, which governed to the creation of Ebauches S.A., was correct. Simply, it had not been carried out fully, i.e. until the complete concentration of the Ebauche manufacturing. Following action plan is accordingly decided:

1. Creation of a Super Holding Company with equal financial participation between the Watch Industry and the related Swiss Banks,
2. Take over of the majority of the shares of Ebauches S.A. by the super holding
3. Financial participation of the Swiss Confederation,
4. Concentration of the other essential movement parts, i.e., lever assortment, balance wheels, balance-springs and acquisition by the super holding of the majority of the shares of all related companies

Thus on August 14, 1931 the Super Holding: the "Allgemeine Schweizerische Uhrenindustrie A.G.", in short "ASUAG", is created - also a Limited Company by Private Law -, and its first President is nominated: Mr. Hermann Obrecht.

The first and urgent task for the ASUAG is to secure the necessary financing: carrying out the foreseen concentrations requires a lot of financial means. The analysts are precise: ASUAG misses 13,5 million (1931) Swiss francs to accomplish its task. Times to activate item three of the above action plan: obtaining the financial participation of the Swiss Confederation.

It is very unusual that a State helps out financially a private law limited company. But the situation is exceptional: there are an impressive number of clock and watchmakers unemployed. Also, the watch industry, in Switzerland, is considered differently as any other industry: it is a National Treasure, which convey in the whole world an image and values, whose repercussions for the country largely exceed the export sales turnover of the Swiss watches alone!

September 11, 1931, upon lengthy negotiations, the Swiss Confederation joins ASUAG as a shareholder with an investment of 6 Mio CHF, granting simultaneously a free loan of Mio 7,5 CHF, refundable per annual instalments of Mio 1 CHF as from 1934.

From now on the ASUAG has the necessary power to reach its goals very quickly.

1932 the sub-holding "Fabrique d'Assortiments Réunies SA" "FAR", uniting all lever assortments' manufacturers, as well as the sub-holding "Fabrique de Balanciers Réunis SA", "FBR", uniting all balance-wheels' manufacturers, are created. The same year Ebauches S.A. takes over Manzoni, Moser, Peseux, Fleurier, ED Kummer S.A. (Atlantic watches) and two mixed factories (movements and complete watches) which deserve a special mention: A. REYMOND S.A. and ETERNA.

Auguste Reymond created his Watch Factory in Tramelan in 1898. The company grows rapidly and establishes itself as a Brand Manufacture in 1906 by manufacturing its own Ebauches firstly in Les Bioux, then later in Tramelan. In 1918 the company is incorporated as A. Reymond S.A. or ARSA. In 1926 it purchases the factory Unitas Watch Co, also in Tramelan. At the time of the merger with Ebauches S.A. in 1932, the company will be divided into two: ARSA for the watches, Unitas for the Ebauches.

A similar procedure is adopted for Eterna. Joseph Girard and Urs Schild had joined in 1856 to manage a factory of Ebauches in Grenchen. In 1870 the company occupied more than 300 people and the Eterna mark started being used as from 1876. Upon Urs Schild's death, Max Schild takes over and the company named Schild Frères Cie in 1891. In 1929 it produces more than 2 million parts and employs more than 800 people. At the time of the affiliation with Ebauches S.A. in 1932, the name Eterna will be reserved for the watches (Eterna SA) and the Ebauches manufacture will become ETA S.A.

1933, in spite of all these considerable efforts, 22 companies remain "dissenting", including nine Ebauches factories. The Swiss Confederation then legislates: in March 15 1934 the Federal Law called "Decrees of the Federal Council tending to protect the Swiss Watch Industry" is published and enacted. Henceforth it is prohibited to start any new watch making company without a licence and it is prohibited to export "chablons" outside of the prevailing legal agreements.

The Swiss Watch Industry is under control as from now on.

The merging of companies into the related holding companies shall continue but at less constant space. Fortunately the economic situation is improving and the demand for watches starts to increase again. There will be all the same, amongst others, the absorption of Champagne in 1938, of Derby, Precimax, Gigantic in 1941, of Glycine in 1942 and Valjoux in 1944. Mythical Valjoux S.A., to which Swiss Chronographs owe so much, was called Reymond Frères at the time of its creation in Bioux, in the Valley of Joux, by John and Charles Reymond, in 1901. Explaining the origins of the initials R engraved on the movements. The company specializes from its start in the creation and the manufacture of the mechanisms of stop watc*hes and manufactures its own Ebauches since 1910. In 1929, John's sons Marius and Arnold take over and incorporate the company as Valjoux S.A. In 1942 the company manufacture at least 60 000 complete Ebauches yearly, before passing under control of Ebauches S.A. in 1944.

Chapter 3. Golden age to the premises of the great crisis

Between 1945 and 1960 the Swiss Watch Industry shall benefit of fifteen years of a trend of continuous growth. The annual production of watches and movements is more than doubled, increasing from 18,8 to 41 million units. The protective measures prohibiting the establishment of new Ebauches factories are extended at the beginning of the years 1950, then softened thereafter and abrogated on January 1st, 1966. But what probably saved the watch making industry in the years of crisis shall now provoke some negative results : the remaining independent “Brand Ebauches Manufacturers” experience the greatest difficulties in competing against the power of the trust Ebauches S.A. They shall start disappearing gradually, starting with the Ebauches Angélus, Excelsior, Universal, Movado...

At the beginning of the 1960s Switzerland will be confronted with a strong push of foreign competition as the watch making industry was rebuilt in the majority of the countries where it had seriously been impaired during WWII. France and Germany regain a strong position in their respective own market. The United States of American as well as Japan are increasingly successful in exporting their watches, thanks to companies of significant size (Timex, Seiko, Citizen, Orient) producing cheap watches per million units. In Switzerland, the watch making industrial fabric is very thinly spread out: there are more than 3000 watch making companies, 80 % of them counting less than 20 employees!

Now has come the time for further concentration on the level of the finished watches. The ASUAG, again with the assistance of the Swiss banks, launches a further concentration campaign

1966 Chronos Holding is created with the buy-out of Cyma in Tavannes and a participation in Gruen. 1968 the Synchron group is created, gathering Ernest Borel, Doxa and Cyma. In 1971 ASUAG creates a new sub-holding, General Watch Co (GWC), in order to manage the newly bought-outs companies and brands: Certina*, Edox, Eterna, Mido, Oris* and Technos. (*which shall abandon their own Ebauches manufacturing facilities). The same year it buys out Longines, already owner of Record and Rotary.

The concentration on the movement manufacturing level also continues: in 1967 Ebauches S.A. buys-out Durowe, Germany and Sefea, in Annemasse, France.

All goes then for best, the production equipments turn to full mode, in 1974 Switzerland shall manufacture and export more than 84 million watches.

However, the future perspectives are dark, very dark indeed. The upsurge of the Quartz is the generally accepted sole reason for the crisis, which will strike head-on the Swiss Watch Industry as from 1975.

But Swiss Quartz was developed relatively early: in 1974, already a good number of the exports were already Swiss Quartz Watches. In fact the Swiss Watch Industrialists probably did not expect the impressive & sudden fall of the average prices, which led to a brutal disaffection for the mechanical watch. Because the nature of the watch business had changed: in fact the speedy rules of the electronics industry prevailed on those, by nature more sedate, of the precision mechanics industry.

But quartz is not alone responsible: in 1973, the first oil crisis provokes the 1974 start of a planetary economic recession. Simultaneously, the Swiss Franc’s value starts increasing considerably against all major world currencies: within a few years it will gain 70 % of its 1973 value.

The situation becomes dramatic: between record-breaking year 1974 and 1983, the number of watches and movements manufactured in Switzerland shall decrease from 84,4 million to a mere 30,2 million: a steep downturn of almost 65 %. Hundreds of companies shall disappear; tens of thousands of jobs are destroyed. The ASUAG can only apply defensive solutions out of despair: in 1978 ETA and Schild merge, the Synchron group is dissolved, Borel, Doxa, Cyma are sold. In 1980 the number of “calibres”, i.e. movement types, manufactured by Ebauches S.A. is drastically reduced from 136 to 40. The same year ASUAG loses more than 44 Mio CHF. In 1982, all Ebauches manufacturing companies owned by ASUAG are merged into ETA SA, Oris is sold back to its previous owners, and the losses exceed Mio 156 Mio CHF.

We are now at the very edge of the precipice and oblivion.

But now I must introduce here a new actor, another giant with clay feet: the “Société Suisse pour l’Industrie Horlogère”, shortly called SSIH.

Chapter 4. From alpha to omega

The SSIH was born on February 24, 1930 through the association of “Louis Brandt and Frères S.A., Omega Watch Co” in Biel/Bienne, and of the “Fabrique d'Horlogerie Charles Tissot et Fils Charles” in Le Locle. No need for any further introduction for those well known manufacturers. They merge their assets in this difficult period, in order to rationalize their Ebauches manufacturing and coordinate their marketing and sales policies. However, they both miss a type of movement, which becomes very fashionable at the beginning of the 1930s: the chronograph (stop watch). At this point in time, Marius Meylan managing director of “Lemania Watch Co”, which had been created in 1884 by his father-in-law Alfred Lugrin, located at the Eastern part of the famous “Vallée de Joux”, approaches the SSIH, resulting in the 1932 Lemania buy-out by SSIH.

The SSIH shall quickly become a major player of the Swiss Watch Industry. In 1948, Omega’s Centennial, the SSIH employs 1600 people and has an output of more than 500 000 watches. Within the following years the SSIH shall not cease growing: 3000 staff at the beginning of the years 1960, more than 7000 at the beginning of the years 1970 with an output of more than 10 million parts. This growth is generated in good part by the integration of the following companies: Marc Favre in 1955, Eigeldinger & Cie in 1957, Rayville S.A., manufacturers of the Blancpain watches in Villeret, in 1961. SSIH’s interest in Rayville SA is concentrated on their remarkable ladies’ movements and not the Trade Mark Blancpain, whose marketing is quickly abandoned. In 1961 still, SSIH purchases Cortebert’s the industrial manufacturing capacity, in 1965 occurs the buy-out of Langendorf Watch Company, the manufacturers of “Lanco” watches. In 1969, as a means to try and fight back the worldwide onslaught of Timex and Seiko in the field of economic watches, SSIH takes over Aetos, a sizeable economic lever manufacturer, and two years later the “Economic Swiss Time Holding”, short ESTH (created in 1967), the largest Swiss manufacturer of “Roskopf” pin lever watches, encompassing Agon, Buler, Continental & Ferex. The buy-out of Hamilton in both Switzerland & U.S.A., between 1971 and 1974, shall be considered as the indisputable proof of the supremacy of Swiss Watch industry on its American equivalent.

But for the SSIH, as for the whole Swiss Watch Industry, times have changed radically: in 1975 the sales fall by more than 20 %, in 1976 by more than 30 %. The following year, Tissot has to abandon its own Ebauches manufacture, and in 1979 the sales drop again by more than 20 %. Compared to 1971, this leads to a manpower reduction of 2000 people. And the 1980 results are alarming: a drop of 63,6 %! The Swiss Banks are again complied to intervene: the three most concerned constitute a steering committee and hire a specialized management consulting company: Hayek Engineering AG, owned and managed by a so-called Nicolas Hayek. The suggested solutions are brutal indeed: Rayville/Blancpain is dissolved, Buler, Lanco, ESTH are sold. Even Lemania is yielded to a group of shareholders, including Piaget. In 1982 the Blancpain trademark is sold for only 18,000 CHF to a certain Jean-Claude Biver, who was in charge of the jewellery watches at Omega...

Then, Nicolas Hayek decides to make a take-over move of both agonising Titans...

Chapter 5. Fusion and rebirth

The idea of merging ASUAG and SSIH together had been envisioned since the Swiss Federal Council had 1980 favoured the signing of a cooperation agreement between the two Titans. 1981, SSIH yield its own quartz sector to ETA. Nicolas Hayek’s strategy is based on matter-of-fact marketing logic in form of a pyramid: at the base there are the cheap watches manufactured in very great quantities. To secure an essential base to this level there is ETA, therefore the ASUAG. It is thus ETA and its boss Ernst Thomke who leads the realization of the Swatch concept, as successfully as everybody knows. At the top of the pyramid there are the exclusive & expensive watches, which must correspond to a trademark with strong & long worldwide established notoriety: it will be Omega thus the SSIH.

The merger shall take place between 1983 and 1984. The new group, called ASUAG-SSIH, employs more than 12,000 staff and makes more than 1,5 billion Swiss francs sales turnover. It comprises a "finished products" segment with the trademarks Omega, Longines, Eterna, Rado, Hamilton, Certina, Tissot and Mido. The "movements and components" segment is constituted by ETA, which gathers from now on all the companies of Ebauches SA, and is responsible for the manufacturing of the Swatch and Endura’s “Private Label” watches. In the industrial field, two other segments complement the organization.

In 1984 the situation starts to improve: ASUAG-SSIH makes a small benefit, 26,5 million CHF, compared to 173 million losses one year earlier. However, Omega, expected to be a statue of profitability at the top of the pyramid, is still loosing money. Eterna, ARSA, Atlantic are sold off.

Then, in 1985, all of a sudden the drama reaches its peak: Nicolas Hayek, heading a group of investors, repurchases 51 % of the capital of ASUAG-SSIH, incorporates it into the “Société Suisse de Micro-électronique et d’Horlogerie SA”, in short SMH, and becomes its Chairman.

The new company shall become the formidable success story, known to everyone. Sales turnover and benefit increase regularly; in 1992 Blancpain is repurchased together with its affiliated Ebauches Manufacture Frederic Piguet SA. In 1997 Calvin Klein Watches are created and the SMH becomes Swatch Group SA.

And Swatch Group grows bigger.
And the large majority of the Ebauches now bear the trademark ETA.

Don’t you wonder if some people soon should start feeling aggravated?

by Claude Girardin, in NAWCC Internet Horology Chapter 185


vman said...

This is very interesting! Thank you for gathering all of this information and putting it in one place.

CG said...

I appreciate that you have kindly indicate me as the source of the text, which you have quoted.

I hope that you shall not mind that I have allowed a friend of mine to us it also on its own blog.

Best regards
Claude Girardin

xyunbekannt1313 said...

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Thank you for the dates, it helps me for my wor for school!

xyunbekannt1313 said...

if somebody wants pictures of the factory or the house of Jean Schwarzentrub or Adolf Michel I have some