Exploring the major structural changes that drastically transformed the watch industry in 1927

The 1920s saw remarkable growth in the global watch industry. At the time, one in two watches in the world left Swiss factories, but two phenomena were about to dramatically transform the industry: the arrival of the wristwatch and the emergence of new competitors outside Switzerland. Pierre-Yves Donzé, Professor of Economics at Osaka University, introduces the major structural changes of the time.

The evolution of the Swiss watch industry since the Roaring Twenties

　In 1927, the global watch industry was in the midst of a period of powerful growth. After World War I, the global economy underwent a short but dramatic transformation, entering a period of rapid growth known as the "Roaring Twenties," which would eventually come to an end with the Wall Street Crash and the Great Depression.

　Although large watch manufacturers emerged in the United States, Germany, and Japan, Switzerland maintained its dominance on the world market. Almost half of the world's watch production left Swiss factories. The Swiss watch industry was at its peak. That year, Switzerland exported 18.5 million watches (including movements alone). The Swiss watch industry was experiencing dynamic growth and was confident of a return to the peak of the 1910s and continued expansion.

　But growth was not synonymous with stability. In the mid-1920s, two phenomena fundamentally changed the competitive landscape of the global watch industry: the arrival of the wristwatch and the emergence of new competitors outside Switzerland.

Marketing Innovation - Wristwatches

　The year 1927 saw a major shift in products and markets: from pocket watches to wristwatches. Wristwatches accounted for 40% of Swiss watch exports. Though still a minority, the shift that began at the turn of the century was inevitable and irreversible.

　Rather than debate the thorny question of who invented the wristwatch, it's better to look at a key paradigm shift that occurred during the Civil War: between 1920 and 1940, wristwatches rose from 25% to 85% of Swiss watch exports.

　This change was not merely technical or industrial, but primarily concerned marketing. Watch manufacturers created a new market for women's watches and affordable timepieces that were practical for everyday wear. For women's watches, the watch became a fashion accessory: it went from simply telling the time to adorning the wrist.

　Watches for everyday use also became increasingly popular, as can be seen from the figures for Swiss metal exports. Until 1927, watches made from precious metals (platinum, gold, silver) accounted for an equal share of the market as watches made from iron or nickel. However, from then on, the number of watches made from precious metals fell sharply (less than 5% in 1935), while the number of watches made from iron or nickel grew exponentially. This latter category was dominated by Roskopf watches, simple and inexpensive mechanical timepieces. The shift to wristwatches thus accompanied the democratization of consumption.

　This change in the nature of products posed a major challenge to watchmakers. Swiss watchmakers were able to adapt relatively easily, thanks to the flexibility of their suppliers, who were able to quickly bring new types of movements and cases to market. Meanwhile, the major American manufacturers, who had a virtual monopoly on the domestic market at the time, were slow to grasp this shift in demand. Waltham, the leading American manufacturer, remained focused on pocket watches for many years, and this inability to adapt was one of the reasons it filed for bankruptcy in 1949.

Reaction to democratization

　However, mass consumption of wristwatches was by no means a universal phenomenon. Some manufacturers chose to break away from this trend and position themselves as luxury brands. Geneva-based companies like Patek Philippe and Vacheron Constantin refused to standardize their products through mass production. They pursued technically superior, niche products that distinguished them from the "junk watches of La Chaux-de-Fonds," as François-Antoine Conti, a member of Patek Philippe's board of directors, put it in 1926. However, these manufacturers were small, family-run businesses that were increasingly becoming niche players in the watch industry.

　A major innovation in fine watchmaking came from Rolex, which was founded in Geneva by Hans Wilsdorf in 1920. During the 1920s, Rolex partnered with the Aigle movement factory in Bienne to produce high-quality wristwatches industrially. In 1926, Rolex filed a patent for the hermetically sealed watch case, which became known as the "Oyster."

　Based on this, Wilsdorf began various activities. First, he increased his advertising. On November 24, 1927, Rolex took out a full-page advertisement in the Daily Mail, Britain's leading conservative daily newspaper, introducing the Oyster model as "a wonder watch that can withstand the elements."

　Additionally, the Aigle movement factory worked to improve its processes to ensure the industrial production of high-precision movements, and the percentage of watches with operational reports, as recorded by the Bienne Watchmaking Bureau (Bureau de Contrôle des Montres), rose from just 10.8% between 1926 and 1927 to an average of 63.1% between 1932 and 1937. Finally, in 1927, the Bienne factory hired Jean Mathil, one of the city's best independent adjusters, to run its own in-house timekeeping department.

The emergence of new competitors

　The industrialization of watchmaking was not limited to Switzerland. At the time, the British watch industry was in decline and France was struggling, but the United States, Germany, and Japan were experiencing significant development in their watchmaking industries. The establishment of large-scale companies and the utilization of technology imported from Switzerland, such as watch parts and machine tools, were the two pillars of growth for this industry. For example, in Germany, the merger of Junghans and two other companies between 1927 and 1928 created the world's largest clock factory and a major watch manufacturer. In Japan, Hattori Watch Shop, the predecessor of Seiko Watch, built a modern factory after its old building was destroyed in the Great Kanto Earthquake of 1923. By 1927, it had approximately 2000 employees.

　Switzerland's reliance on technological expertise is also evident in the structure of its watch exports. The share of movements in Swiss exports rose from 5.4% in 1890 to 30.1% in 1927, meaning that one in three watches sold at the time was a movement. Final assembly took place in workshops abroad, leading to the emergence of companies like Bulova and Citizen, which competed with Swiss brands.

　Joseph Bulova, a jeweler who established a presence in New York in 1875, established a branch in Bienne in 1911 to secure watches. This branch began production during the Civil War and obtained several patents for watch cases and dials in Switzerland between 1924 and 1929. This clearly demonstrates the internalization of know-how and its gradual return to American territory. In 1930, Bulova opened an ébauche factory in the United States, establishing itself as the largest watch manufacturer in the United States. Following Bulova's example, other American entrepreneurs attempted to emulate this model, but they were not as successful as others. For example, the Gruhn brothers, originally from Cincinnati, acquired a stake in the Aigle movement factory in Bienne and became directors, but this partnership also failed due to the Great Depression.

　The second major company to benefit from technology transfer from Switzerland was Japan's Citizen Watch. Rodolphe Schmid, a watch merchant from Neuchâtel who had been based in Yokohama since 1894, opened a small watch assembly factory in 1908, producing cases and other components. By 1927, he had nearly 200 employees and was Japan's second largest watch manufacturer after Seiko. Three years later, he purchased a small workshop owned by a Japanese watch merchant, and Citizen Watch was born.

Measures taken by the Swiss watch industry

　The Swiss watch industry could not remain passive in the face of technology transfer and the emergence of competitors from other countries. In 1927, component manufacturers came together to form the Union of Branches Annexes of Horlogerie (UBAH). The following year, an agreement was signed with watch and movement manufacturers, which, among other things, banned the export of components and aimed to keep know-how within Switzerland. This was the beginning of the "Statut horloger" (Statut horloger) association, which controlled the Swiss watch industry until the early 1960s.