The quartz crisis and its significance for the watch industry
By Info Watchmaster, 29 July 2022
Hardly any other term in the watch industry is as infamous as the so-called Quartz crisis. This chapter in the history of the wristwatch was more than just a small scratch on the dial of horology. Quartz movements triggered a structural change that is still underway today. All the far-reaching developments and trends that emerged after the quartz crisis are in many ways a direct reaction to them. But what exactly disturbed the rhythm of the watchmaking industry?
The watch industry before the quartz crisis
The rise of Swiss watches
In the 60's, the German and contemporary watch industry was in its prime. As a result of its neutral attitude during World War II, Switzerland gained a clear advantage and was quickly able to make an international name for itself in the watch industry. Rolex, Breitling and Omega were sold to concessionaires as house and court brands and all over the world. In particular, expansion into the American market was instrumental in their success.
German watchmakers begin rebuilding
Germany also restructured quickly after World War II. Smaller industrial regions such as Pforzheim and the Black Forest were hard hit, but slowly began to regain stability. The market was large enough so that many smaller brands in West Germany were able to specialize and acquire monopolies: Junghans was known for its chronometers, Hanhart became a supplier to the German military and Sinn developed industrial watches. In East Germany, however, Glashütte, known for several watchmakers, was converted into a large industrial production plant to serve a larger market, but the quality of their products would be maintained.
Japan's fight for its place in the watch industry
After the Second World War, Japan's once flourishing watch industry lay in ruins and had to be rebuilt. Although there were national production targets for the often small and medium-sized manufacturers, these targets often remained unattainable because they were not subsidized. The Dodge Plan, which was implemented by Joseph Dodge in 1949, was initially successful in guiding Japan away from inflation, but resulted in a graded goods tax on Japanese watches, which again caused the industry a severe setback.
It was only during the Korean War in 1950 that the Japanese economy experienced a marked upswing. The watch industry was able to import the most modern machines from Switzerland and to renovate many companies from the ground up. Production increased accordingly: whereas around 700,000 models were produced in 1946, 1.7 million models were produced by 1961. Japan also caught up quickly in terms of know-how and research and succeeded in producing the first automatic watch in 1955. In the following years, the quality of Seiko and Orient watches matched that of Swiss watches, but without enjoying the same worldwide prestige.
The race for the first quartz watch
The predecessor of the quartz watch, the Accutron, was developed in 1954 by the Swiss engineer Max Hetzel for the American company Bulova. When Hamilton launched another battery-powered watch, the Hamilton 500, in 1957, the Centre Electronique Horloger in Switzerland and Seiko in Japan were determined to follow the trend.
The design of a quartz watch
Before we continue with its history, it is important to understand the basic design and function of a quartz watch: a quartz watch works on an electronic or electro-mechanical basis and is usually powered by a battery . A circuit causes the quartz crystals, which specify the rate of oscillation in a watch, to vibrate. In a mechanical watch, the balance wheel would perform this function. These oscillations are highly uniform at a standard of 32,768 Hz, which is significantly higher than that of mechanical watches, which explains the phenomenal precision of quartz watches. A quartz watch loses about 0.5 seconds per day, whereas a mechanical watch may lose up to 30 seconds.
ROLEX QUARTZ MOVEMENT
The first quartz wristwatch
In 1964, Seiko unveiled its Crystal Chronometer QC-951 as an official timepiece in Tokyo. This suggested that Japan would win the race. Although the QC-951 was still a pocket watch, it was followed by the Seiko Astron in 1969 – advertised with the slogan "One day all watches will be made in this way" – the first quartz wristwatch.
In 1970, the first Swiss venture was launched with the Ebauches SA Beta 21 caliber – and was received with little public approval. Instead of investing in a better marketing strategy, the Swiss watchmaking industry decided to abandon the project and to go the traditional mechanical way, instead relying on their market share and excellent reputation.
The quartz crisis as a consequence of a miscalculation
The quartz crisis was the result of one miscalculation. Between 1970 and 1983, Swiss watch companies decreased from 1,600 to 600 and employment fell from 90,000 to only 28,000 jobs. Smaller workshops and family-run businesses primarily had to file for bankruptcy by the dozens.
Japanese and American companies, on the other hand, pursued the quartz trend and were able to gain important market shares. The USA was well ahead of Japan in technological terms due to microelectronic research, which was funded for space travel. Companies such as Texas Instruments and Fairchild Semiconductor succeeded in mass producing affordable watches, which led to a boom in the watch industry in the USA.
The Japanese computer manufacturer Casio began producing quartz watches in 1974 and was soon to develop into one of the most successful Japanese brands. Orient also became specialized in increasingly flat watches.
HUBLOT CLASSICS 1581.1
The path out of the crisis
At the beginning of the 1980's, watch manufacturers in Switzerland also realized that changes were necessary. The recovery of the Swiss watch industry was shouldered in particular by two men: Ernst Thomke and Nicolas G. Hayek. In 1978, Thomke was hired by ASUAG (Allgemeine Schweizerische Uhrenindustrie AG), the second largest watch group after SSIH (Société Suisse pour l'Industrie Horlogère), to restructure the production of movements. Thomke decided to simplify the production process and brought all its suppliers together to form a new company, ETA SA, which is still known today for its raw movements. He reduced both production costs and the number of employees and began to speed up the conversion to quartz movements – and with great success, which soon became clear.
In spite of this, the domestic watch industry initially continued to lose market share and was dependent on the help of Swiss banks. They commissioned Nicolas G. Hayek, the owner of Switzerland's best-known management consultancy, to develop a plan to save the brands. Hayek's solution was to merge ASUAG and SSIH into one group and to outsource the production of the plants to ETA. The brands themselves were to concentrate on concept, design and marketing. The brands agreed and in 1983 the two largest Swiss watch groups merged to form Swatch Group SA – now the largest watch group in the world.
Thomke and Hayek were to be brought together by Swatch - both then and now the flagship of the Swatch Group. Thomke soon had a plan for a model, which he developed under the code name Delirium Vulgare. ETA made its debut in 1978 with Delirium, one of the flattest watches ever. Thomke planned to invest the engineering knowledge gained in a low-cost, rapid-production watch that would yield a high profit margin. Instead of the circuit board, the movement was to be built directly on the case back. The case itself should be made of plastic. The problem: Thomke needed investors, but the banks refused the money. So he presented his idea to Hayek, with whose help he could secure the financing. The Swatch was launched in 1983 along with the company and gained popularity due to its affordable price, wide range of designs, and neon wristbands.It was the success that Switzerland needed.
The quartz crisis was also devastating for Germany. The watch industry in the Black Forest, once the heart of the German watch industry, nearly disappeared altogether. In Pforzheim, the attempt was also made to form a group based on the Swiss model, but in the end the local watch industry went bankrupt. The previous monopoly shares also dissolved, which posed financial problems for many companies. Other brands such as Kienzle or Dugena managed the successful transition to the quartz watch and became two of the best-known German brands. The German Haute Horlogerie, which until then had had its home in Glashütte, disappeared completely when mass produced models such as the Meisteranker were produced and sold in West German mail-order chains like Quelle and Tchibo.
It was not until reunification that Glashütte returned to its workshops and companies such as A. Lange & Söhne, Glashütte Original or Nomos Glashütte made the watches of German manufacturers internationally fashionable once again.
Consequences of the quartz crisis
Structural change and new markets in the watch industry
The long-term consequences of the quartz crisis are evident from the fact that quartz movements are now established and manufacturers such as Breitling, Omega and TAG Heuer also offer selected models and collections in quartz. Quartz watches have meanwhile become an independent line of business that is operated alongside mechanical watches.
Grand Seiko, Seiko's branch for high-end timepieces such as the 9F, presented a handmade movement in 1993 with the best combination of a quartz drive and mechanical movement to date. The date changed exactly with the second and the hands were extended to the edge of the dial, which was not possible before. A precision wheel also enabled it to counter external factors such as temperature.
While Thomke and Hayek welcomed the quartz movement, their ideas were met with resistance from some management departments. In 1983, Jean-Claude Biver, an advocate of mechanical watches, bought the rights to the name Blancpain from Omega nd revived the brand by relying exclusively on mechanical movements. Although most of the market shifted its focus to quartz movements, Biver realized that there was a loyal customer base that would continue to pay higher prices for vintage mechanical watches. This inspired brands such as Patek Philippe, Rolex, Cartier, Vacheron Constantin and Audemars Piguet to follow suit and rely on mechanical movements as well. This mechanical revolution led to a vintage boom and formed the basis for today's luxury watch market.
VACHERON CONSTANTIN VINTAGE CAL. 1009/39
Even the "Big Five" quickly realized that the Asian market had become one of the most important markets for luxury watches. For example, Hong Kong ranked first among the most important markets in 2018 in the annual survey of the FH (Association of the Swiss Watch Industry), reporting 3 million Swiss francs and a substantial 19.1% increase over the previous year. China and Japan followed in third and fourth place respectively. The major Asian powers also succeeded in establishing themselves as manufacturers. Although Switzerland has been able to regain its leading position, it no longer has the monopoly that it once enjoyed.