The FINANCIAL — No sector of the Swiss economy has such a strong export focus as the watch industry, nor has any other sector benefited more from the boom in the emerging markets, according to the study titled "Swiss Watch Industry – Prospects and Challenges", published by Credit Suisse.
Between 2010 and 2012, watch industry chalked up average export growth of 17% per year, by far outstripping all the country's other industrial sectors. Watch exports soared to an all-time record volume of over CHF 21 billion in 2012 despite the strong Swiss franc and the euro crisis. They now account for almost 11% of total goods exports, so the watch industry is Switzerland's third largest export sector after the pharmaceutical and mechanical engineering industries, according to Credit Suisse AG, one of the world's leading financial services providers.
The Swiss watch industry's sales markets show broad geographical diversification, and quick focus on the luxury segment are the main factors which led the industry's success, according to the Credit Suisse economists. The chemical/pharmaceutical industry and the food industry are the only Swiss export sectors with better diversification regarding countries.
To some extent, however, the Chinese market now represents a risk concentration for the Swiss watch industry. The latest slowdown in growth is mainly due to weaker demand from China. The first eight months of 2013 saw nominal watch exports to mainland China plummeting by 17% year-on-year – yet over the same period, the number of watches exported rose by 9%. This suggests that larger quantities of cheaper Swiss timepieces are being exported to China. Demand for Swiss watches is being curbed not only by the slowdown in China's economic growth, but also by policy measures to combat corruption and advertising restrictions on luxury goods. Seen in the context of skyrocketing growth over recent years, however, the decline in exports to China should be assessed as a normalization rather than a slump. The economists at Credit Suisse anticipate that the rapid increase in the affluence of the Chinese population over the longer term will more than compensate for the short-term impact of these policy measures. China is likely to become even more important as the main export market for Swiss watches in the coming years. The Free Trade Agreement negotiated between Switzerland and China is also set to play its part here.
After China, the strongest growth can be expected from the US, which is already the second most important sales market – and one that harbors vast potential. Mature European markets such as Italy, Germany and the UK are especially likely to lose relative importance. On the other hand, many emerging markets offer alluring prospects of growth for the Swiss watch industry. Vietnam, India, Russia, Ukraine, Malaysia and Mexico are singled out as the export markets likely to post the strongest growth in the future, and the greatest potential is ascribed to India and Russia. Brazil, Argentina, South Africa, Thailand and Turkey are also flagged to move up in the export rankings. However, most of the emerging markets are starting out from very low levels. High import duties and taxes on watches create barriers to entry in many markets. Consequently, the Swiss watch industry has a major interest in concluding Free Trade Agreements with such countries, according to Credit Suisse AG.
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