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Watch production - What you should know about investing in in-house timepiece production

Watch production What you should know about investing in in-house timepiece production

In-house movements have been a significant selling point for mechanical watches, but Sean Li ponders whether this is still the case given their proliferation and the current challenging market.

WorldTempus reproduces this article by Sean Li, originally published here, with kind permission of Hong Kong Tatler.
High-end mechanical timepieces are often accompanied by a technical specification sheet that would not look out of place with an exotic sports car. Virtually every detail is broken down—the dial, case, buckle, strap—you name it, it will be mentioned.
There is one term, though, that has been the subject of much discussion recently: in-house, in relation to the genesis of the heart of the watch, the movement. Long-time collectors nod knowingly over timepieces with movements designed and built by the brand in-house, watches that have traditionally carried extra cachet relative to those with a more generic provenance.
However, it’s not long ago that the industry relied on a handful of movement producers; brands were happy to use them to power even high-end, exclusive watches. Let’s examine why in-house has become such a focus, and whether it translates into a strong sales argument.
Designing and building a movement from scratch is easier said than done—even today with the help of computers in the design and prototyping phases. So watchmakers generally turned to a common source to get the movements in kit form. They would adapt the kits, or ébauches, to their own specifications, either in the hand-finishing alone or by the swapping of some key elements or the inclusion of modules to bring different complications into the watch.

One of the largest suppliers of movements is ETA SA, a company that dates back to 1793. It happily sold ébauches destined to being customised, sometimes extensively so. ETA formed a common base for a very large part, if not the majority, of the watchmaking industry, both quartz and mechanical.
However, it is owned by one of the major watchmaking conglomerates, the Swatch Group, which has many brands within its portfolio, most of them very well-known, such as Breguet, Blancpain, Omega and Longines, to name a few. To ensure its own brands had sufficient components for production, the group announced in 2002 that it would gradually reduce the supply of ébauches to external companies. This caused general uproar. No one at the time was prepared to build their own movements, and other suppliers were not available to meet the growing demand.
That doesn’t mean the production of ébauches, at ETA and elsewhere, has dried up completely; it’s simply that such production no longer forms the majority, particularly at the very high end, of the mechanical watch industry. Brands with sufficient resources have virtually all built their own in-house capability, which has created an interesting conundrum: Given that in-house movements are now the norm, do they warrant the cachet they once carried, and do they add value in the sales argument?

It’s perfectly understandable that watch aficionados would want their precious timepieces to be as exclusive as possible, and part of that privilege is knowing that the exclusivity extends to the very heart of the watch.
The capability to manufacture movements in-house came with a significant added cost; the brands had to make big investments in machinery and manpower, and this cost was passed on, often at a premium, to the clients. However, the past two years have painted a very different picture. Insatiable demand has suddenly dwindled to a mild craving rather than a rush to the buffet table.
Watch sales have been falling for months, with Asia hit particularly hard, and there seems to be no light at the end of the tunnel yet. What does this mean for all this in-house manufacturing capability?
There has certainly been a move towards showing that in-house doesn’t necessarily correlate with high prices. Brands that started investing a long time ago are reaching a level of maturity that enables them to produce in sufficient quantities while managing costs, leading to more accessible watches while still equipping them with in-house movements.

It seems that the focus on in-house as a premium selling point is no longer applicable, given that it’s less exclusive, and that the market conditions are indicating that fewer clients are willing to pay a premium; they’d rather have well-made, dependable movements at more accessible price points.
Investment in in-house production has led to a significant amount of innovation in the watch industry, with new movements and materials being developed on a continuous basis. Perhaps it’s time for the industry to turn this arms race around, and find ways of collaborating and sharing this knowledge and production capability to the benefit of the industry as a whole and ultimately its clients.

This article was originally published in Hong Kong Tatler's July 2016 issue.