In chapter 2 we talk about market structure and how this may influence operations and the supply chain. There’s a fascinating article that highlights this issue in The Economist, discussing the survival of the Swiss watch making industry. The average price of a Swiss made watch is $685, compared with a $2 one made in Asia that works just as well (according to The Economist). This premium price is achieved due to the reputation Swiss watches have and the belief that they are hand crafted by expert watchmakers. But this belies the dominant role that one firm has in their production.
Swatch has one third of the Swiss watch market with its own brands. But more interestingly, it has 70% of the Swiss watch movements market and 90% of the balance springs market. In other words, it makes many of the parts that other watch makers use. And it is increasingly becoming frustrated that competitors are using their precision parts to make watches that directly compete with Swatch’s own brands. So far its attempts to reduce it B2B supply have been frustrated by the Swiss government. But it is a situation that is unlikely to be sustainable.