Hi,

Please excuse a raw amateur if this question is too elementary.

Being one of the "downsized" white collar auto industry workers, I have always wondered why U.S. manufacturing companies always "surrender", and either outsource their manufacturing overseas, or just plain go out of business.

Watches are a great case in point: About 35 years ago, the Swiss watch industry faced a life-threatening crisis with the advent of cheap, Asian-made quartz movements. The Swiss fell back, regrouped, and came back, so that today there is a thriving Swiss watch industry. About 35 years ago, the U.S. watch industry faced a life-threatening crisis from cheap, Asian-made watches and clocks - and just died.

So, what am I missing? Why have the Swiss (and Germans) been able to maintain a labor-intensive industry such as watchmaking along with many others while the U.S. manufacturing industries disappear one after the other?

Thanks for your thoughts.

Your question fired off a real flashback for me. Around 1978, my Company supplied QC systems and equipment to Texas Insrtruments to assure 5-sigma production quality of a quartz LCD watch T.I. designed to sell for under $10 retail.

On a flight home from the triumphant watch production startup (in a Mexico plant), I met Mr. Ryusho Nagai, First Executive V.P. and Managing Dir. of Kyocera San Diego. Mr. Nagai was setting up operations to make ceramic digital watch modules at the old Honeywell computer plant in San Diego and expected Kyocera to sell them for 10-12 dollars each to US watch manufacturers.

After looking at his modules, I showed him my "new T.I. digit watch" that cost less than $3.00 finished and was already going to market at a MSRP of under $10.00. Of course he was ready to jump on the knife, but later (1986) when Coors Porcelain golf brained management (YES including that beer-brained kid you see on TV ads sometimes) wouldn't accept our market forecasts and refused to play ball on making ceramic hard memory disk substrates even after we had packed 1 Gigabyle in a 40mm COORs substrate, I renewed my friendship with Mr. Nagai who created manufacturing facilities to make over 10 million hard disks a day and that is largely why we can communicate like this right now!!

We are the world's greatest innovator's, yet we lack the blind nationalist drive in this country(which the Asians carry with a passion) that we need to survive the long haul. Instead we cave in to our own passion driven by our Godless Megabanks for profit at any price. The thoughtless financial hemorrhaging that has caused in North America is what is now shifting the world balance of power to Asia.

Suggestion, Take up watch making, its easy, challenging, fun and you can be your own boss!

When a country can make people work for nothing, and live in hovels, it can be done. However, in this country, we expect to live a little better than that. Naturally, it cost more, and that takes away the competition.

Cheap is the name of the game lately, and we are seeing the results of that. We are paying in a new way. We send out all of our merchandise and try to make money in a new way. It cuts our throat, but hey, it's all about making money.

Like David said, it's all about the mega profits.

It didn't work, and now we are a nation that has no industry to speak of. We are not even self sufficient anymore.

Now if I told you what I REALLY thought, many would think I was nuts, so I will pass on that one.

Anthony,

As a Detroit-area resident not affiliated directly with the auto industry (and not originally from Detroit), I am a bit more on the outside looking in. (Though for full disclosure, my wife was a Ford employee who voluntarily left a few years ago and is flourishing running her own little business.) Add to that that I have a career which has allowed me to travel 30 or so times to China and elsewhere in Asia and Africa the last 15 years, I will try to answer your question based upon my actual experiences. To do so requires that I explain a little how our cultures differ...so I will apologize in advance for my coming diatribe.

In general, I think that Asian managers are much better at looking at long term goals and desires than are their counterparts in the US. With this in mind, they are less apt to get boggled-down in monthly or quarterly results (positive or negative) and keep their eye more on the ball for the long-term good. (Perhaps 50 years of 5-year plans will do that to a nation??) They also don't get side tracked with stock-options, public offerings, etc. the way American managers do. Remember, they also truly bought into Demming philosophy of continual improvement LONG ago whereas most American manufacturing didn't, so this is also a big part of it.

To think that Asian companies are not interested in profits is wishful thinking... or perhaps some odd form of reverse racism? They are happy to rake-in long-term profits (TOYOTA), but are unwilling to make silly Wall Street required gestations because of short term needs which they have already planned for and resolved.

Speaking of racism, I also get a bit annoyed when I hear the argument that Asians live like animals "in hovels". The reality is that they do indeed live different than many of us...but to guage this as worse using only our pseudo-intellectual western bias is naive. As we sit here in our 4000+ sq. ft. homes (which likely requires a crazy ARM or STUPID sub-prime financing to afford, not to mention both parents as endentured servants for the next 3 decades... and all the while Johnny and Sara are being raised by Oprah reruns or a unqualified babysitter...), it might be easy to think that 3 generations living in a 1200 sq. ft. apartment is worse-off. However, when one considers that both parents OFTEN do not need to work to support their lifestyle... is this really worse-off? Add to this that the children are raised with a TRUE respect for their elders (the grandparents they adore who live down the hall in the same apartment) as well as their customs... and which family system is stronger? This system also means that families are able to save large percentages of their income, much more than Americans. They also have VERY large disposable incomes... and spend it often on modern high-tech gadgets and luxury worldwide vacations -- all of which make our world smaller, and makes them better able to understand a changing world market. In comparison, VERY few American's travel much farther than Orlando...and, god forbid, if we do go overseas we complain the whole time that the #*@& foreignors don't speak English! Not an issue for the Asians, as they likely speak 3 or 4 languages at leasst well enough to ask directions.

All of that said, I think some of us here who collect American watches from the 20's and 30's might suggest that you have a look at what competition did to our US watchmakers before and after WWII. If something does not change very soon, I will be very surprised if the same does not happen to our auto industry too... and a new VEBA-deal with the UAW willl matter little. When one remembers that many Asian nations still have a 25% unemployment rate, I see little other possibilities unless we all have the stomach to stop shopping at Walmart and Target... and our government starts severely limiting access to our markets through tariffs and severe quota restrictions.

PS: Another interesting side-effect I seldem see in Asia is healthy people begging for money. (Sadly, the the vast majority of beggers I have seen have been seriously deformed by birth defect, war, fire, or lepracy.) In Asian society, typically if a family member is homeless and hungry, they are folded back into the family and helped internally. In our culture, this just does not happen very often... and what a shame.

Regards,

I believe an explanation is in order.

I WAS referring to the SLAVE labor we hear about all the time, not Asians in particular.

I have no ill will towards any nationality, and it is still true, that some do pay almost nothing for work done, and live very poorly, AND THOSE are the ones I was referring to. Sorry, I should have explained that more clearly.

Next, I may not have the "smarts" some do, but I am smart enough to know not to use pseudointellectual western bias on anyone.

I have respect for my elders, and am building a home that I plan on having paid off when it's done, so that my mother will never have to worry about who is going to care for her, if the need be, and that I will never again be beholding to the money grubbers. (the banks)
I raised all of my children myself, with only temp jobs, when it did not interfere with my family. I save money, and I will take in any family member that needs anything.

To say that WE are only interested in profits, is a solid statement in my way of thinking, and I don't think we can say any longer, that we don't practice the terrible habbit of using anyone that will take a poor mans dollar. It's a fact.

Of all the foolish things I am in this world, I am NOT racist.

I think it's a shame that this country can pass on our jobs to others, NO MATTER WHO THEY ARE, and we do it every day.

Working hard is not enough anymore, and that is the shame of it all.

Ever REALLY wonder why we are selling out?

I do, and it is not pretty.

I doubt that many would believe what I think anyway.

Sheila -- I'm afraid you misunderstood me. I was not referring to your comments (other than the "hovel" one, at least.) in particular

The sad truth is that we all have been raised on pseudointellectual western bias, it encompasses us and we don't even realize it. Take something as simple as a map on the wall of most US classroooms. How do we explain that theses maps depict the US and Europe in the center, and the East hemisphere split into 2 pieces -- the result of long-standing bias. On the majority of these same maps, the northern hemisphere is 30% larger than the southern... bias! The continents of Europe and North America are depicted far larger than reality... compare to any nation on or near the equator....bias. I mean, is Australia REALLY on the bottom of the world? From space it is all relative...

Most of this bias is institutionalized and long standing. As far as slave labor goes, show it to me please! IF this exists, is it any different than the chain gangs which still exist in prisons in some US states??

I agree that maps are not true to the real world.

Slave Labor is alive and well even in America.
Try a search and you will find any number of sites that will show you what is going on, and although just a book, take a look at the book mentioned below written on the subject at Amazon. Read the reviews.

Nobodies: Modern American Slave Labor and the Dark Side of the New Global Economy (Hardcover)

It mentions the living conditions, the wages paid, and the greed involved.

In my first post, I must add, that most of my disgust was focused toward those who contribute to these actions, not the people who suffer from them.
There is no guarantee that we, as Americans, will live any different than anyone else in the world, we only THINK it is our right, and it's not. We have the right to persue (sp) happiness and what we think is a good life. (some don't win)

In todays world, I only see the evolution of the very wealthy, and then there is everyone else, and most are just trying to keep up with the gas pump, the groceries, and a mortgage. Sounds like a good way to keep us focused on the here and now, and not what terrible things are really going on huh? Who doesn't watch the Fed rate, the unimployed numbers, and so on, and not the long term issues.

It's my opinion that we are downsizing the United States, and I also believe the cheap labor is the path to this current move. Most of our automobiles are outsourced, clothing is from all parts of the world, and the only textile in this country, in abundance, is from towels and linens.

Even Opra is in a dispute over child labor, as many others have had to deal with!

I know that most only think of the world in light of how they were taught, and we could use a much broader view of how things really are.

The sad truth is, that we are already working on a global scale, and we are not really ready for it. To me, that's sad.

It's sad that competition is what creates all of this, and the bottom line is, selling us out to make a profit, in any manner, including many US citizens, be it in another country, or right here in the US. That's reality.

PS Not taken personally, just strong opinions here. Good for thought.

An interesting discussion, but I would like to pull it back to the topic of the watch industry. What did Switzerland do / not do that allowed it to retain a thriving industry, as opposed to the U.S. companies? Thanks.

Anthony,

In my opinion, and that's all it is, the US watch industry died in the 1950s, not the '70s. I know that Elgin, Bulova and Hamilton produced watches here until the '60s, and that Hamilton hung on in name until being taken over in the '80s, but the end of American watchmaking as a force in design and manufacturing ended with the failure of Waltham, Gruen's demise (after their short-lived US production venture, and the surrender of Elgin and Hamilton to the tide of imported Swiss movements. By the time the Asian invasion of cheap quartz watches started, the American companies were largely (apart from Hamilton) just electronics firms with watchmaker's names.

Watchmaking is highly capital-intensive, and the labor involved is very specialized and requires something more than normal "blue-collar" labor. For many years, the Swiss have had a more refined system of technical education, with more direct government subsidy, protection and control. They've also had a business environment that has been uninterrupted by war and relatively immune to business cycles, allowing a more stable place for these skills (and the tools they use) to develop.

There were two things that saved the Swiss industry in the 1970s and 1980s. One was the fact that the top-end of the market had been abandoned to the Swiss and they still occupied the luxury watch niche, even though it was a much smaller segment then than now, and those companies managed to survive due to the lack of competition at their price point. If Rolex or Patek had been American firms, this conversation might not be taking place, as there wasn't any viable Asian (or electronic) competition for their traditional products. Most of the upper-crust companies stayed around long enough to be acquired by one of the conglomerates, and a few are still independent.

The other event was the creation of the Swatch... an inexpensive, Swiss-Made, plastic cased, good quality, quartz watch with reasonable water resistance. The marketing genius was the use of innovative styles in collectible series, and a price low enough to make it feasible for people to own multiple watches, and the Swatch (or several of their many, many styles) became a fashion must have for younger consumers in the '80s and '90s.

The success of the Swatch led to a company that wisely acquired just about every watch concern that came along (Hamilton, Omega, Valjoux, ETA, Longines, Lemania, Rado, Tissot, Mido, Breguet, Blancpain and Glasshute Original among others). This system has been emulated to some extent by Richemont (Cartier, Jaeger-LeCoultre, Baume & Mercier, Vacheron-Constantin and Officine Panerai), and by the Movado Group (Movado, Ebel, Concord, ESQ and Coach). Swatch has also taken over most Swiss manufacturers of watch components, including movements, dials, case parts, hands, batteries and crystals. Not encumbered by US anti-trust laws, these companies have secured and husbanded Swiss power in the industry.

Regardless of the broad brush that some would use to cast all of us as short-sighted, egocentric, ethnocentric, ugly Americans, the American watch industry was as much doomed by our success in World War Two (which gave those companies lucrative government contracts and high protective tariffs, thus dulling their competitive edge) as it was by any culture of greed that some seem to believe is uniquely American. I just don't see parallels between the current American corporate environment and the failings of the American watch industry.

And all the world maps that I've seen that were printed in foreign countries (including the vintage USSR map that's on my classroom wall) put the home country in the center. It'll be hard to convince me that this is evidence of anything other than mapmakers wanting to sell to a local audience.

Hope this makes a bit of sense.

Cary

This is treacherous ground on which to tread, but I ask all of you who yearn for protectionist barriers to free trade to take a deep breath.

Free trade automatically directs the production of goods and services to the best and most efficient producers, making the world a richer place.

Protectionism no doubt preserves jobs. Workers in uncompetitive industries may believe they would be better off, and might be better off, if tariffs or other trade barriers protected their employers from competition, but their country will be worse off than if it and its trading partners did not have those barriers. Protecting uncompetitive industries with such barriers subsidizes them, through higher prices, direct overnment grants, or acceptance of lower quality. We have tried protectionism. It was one of the causes of the Great Depression. It was one of the causes of World War II (read Steven Tooze's excellent economic history of the Third Reich, The Wages of Destruction).

The costs of protectionism usually are more diffuse and less visible than the pain of the displaced workers of uncompetitive industries, which is why the clarion call for raising protectionist barriers will always have a strong political appeal. Yet, despite the claims of would be protectionists, the standard of living in the United States is not declining and we have so little unemployment that we are a magnet for "undocumented" workers seeking work.

US watch production died out because others were making watches better or cheaper, but the US is presently competitive in many industries. In a free market economy, unburdened by protectionism, failure is the ultimate fate of every company that does not remain competetive, and that's a good thing.

Cary, Thanks for the well-thought-out answer. It seems that in some ways we were the victim of our own success (i.e. WWII). I wonder if there is room for a high-end watch industry to slowly re-emerge over the next 30 or 40 years (such as Mr. Murphy's wonderful RGM Watches).

Ethan, thanks for your input; I ain't buyin', however. The only reason businesses flow to other, third-world, countries is not efficiency or being the best, but LOW WAGES - period. Usually, quality and engineering design take a back seat to the sales cost. (Would you care for a bit more antifreeze in your pet food, or lead paint on your toys, sir?)

As far as protectionism, I would like to point to the failed economies in those two economic basket cases that have very high, informal tariffs and government support - Korea and Japan. Both these countries have (and have had for decades) very formal government organizing structures. If these countries want to enter an industry, the government puts a project together to get their companies into it, much like the Gemini / Apollo Moon project of the 1960's. Also, goodness help a Japanese or Korean who buys a non-Korean or Japanese made item - it brings shame on the family.

As far as high employment current in the U.S., yeah, Wal-Mart is hiring. I saw a sign yesterday in a local coney island restaurant that said, "Now hiring - all positions". Sorry, the statistics may look good, but I don't equate an unskilled job making $8.50 per hour with little or no benefits to a highly-skilled watch manufacturing job (for example) that could command $25 an hour with decent benefits, that has disappeared.

Near future; Many foreign workers have the highest output in the world, but cannot afford their own produce because they are so underpaid. The USA cash/credit hemmorhage breaks down and stops as the dollar becomses so weak that the "exporting nations" can no longer afford to sell the USA OR THEIR OWN WORKERS!
The financial nut is only broken by an IMS banking system that governs national credit in an open world market AND enforces minimum wages in the "exporting countries" Then the large consumers (North America and certain european countries) learn to pay more up front and conserve some at home.
LOOKIT! our degenerated "service economy" is being outsourced!

Anthony -- amazingly, this $25/jour job does not exist in the US auto industry... or at least it did not until the recently signed contracts. The average auto worker in Detroit is closer to $50/hour plus benefits than to $25. Sadly, because of this around here there has not been much incentive for kids to go to college --- as until recently job security and salaries of working in a plant was much greater, and without the need for student loans.

David -- I think one thin that Henry Ford did get right was the notion that his employees needed to make enough money to buy the cars they were building. His political leanings were a different story...

Rick - Thanks for the input. Actually, I was referring to a theorethical manufacturing job in a still-extant watch industry, not the auto industry. And your comment on $50 per hour - Hmmm, that would be $104,000 per year. I don't know of any line worker making those kind of bucks, unless your talking about the handful of plants that are making extremely popular products (not many of those) and the workers are being loaded with overtime work.

Maybe you meant the overall cost of the worker to the company (I think that this is known as the "burden rate"); if you roll in the benefits and costs then you might get to around $50 per hour. Or, if you throw execs into the mix, then the average pay goes way up. At any rate, the hourly rate for the workers does not seem to be a factor in the watch industry, or auto industry, in Switzerland and Germany. If anything, Germans and Swiss are paid even morely highly than their U.S. counterparts.

I am many weeks behind in may reading of this board but will take a stab at this question since I have given it alot of thought.

As a close observer of Elgin's corporate history and by having access to many company records at the Elgin Area Historical Society archives I am often asked this same question.

My best, short answer is this. The American industry in the 1950s was largely dead, execept Elgin and Hamilton. Elgin tried to survive by deversification and and vertical integration. And this approach kept them more or less profitable until the late 1960s when the people most interested in watch making lost control of the company to debtors and an early version of corporate raiders.

Elgin was an importer of watches by the late 1960s, using foriegn made movements. After that they turned into a company that licensed the name off to other importers. Essentially they had no watch making infrastructure in place when the quartz revolution hit.

The Swiss had many advantageous to deal with the new world of quartz. As a nation they had a very strong need to stay in the watch making business. It was one of their main industries. They had people who see that they needed to consolidiate many firms into a giant company. They found a way to specialize in niche markets. They had government support of the industry in terms of schools, favorable taxes, active promotion, etc. They were still in business when the early 1970s arrived while the American firms were all but gone. So they had a good head start, but they were also very skillful at finding a way to survive when the crisis hit.

Another question naturaly arises: Had the quartz revolution took place in the early 1960s when Elgin had a fighting chance to survive would have it survived? Probably not, in my opinion. It did not have the capital to retool. And it did not have the other support systems in place that helped the Swiss had in the 1970s.

The clock ran out on Elgin, before the revolution took place.

I have this book on my wish list Manufacturing Time: Global Competition in the Watch Industry, 1795-2000

Rick

Interesting comments, Bill. I found the following comment of yours especially thought-provoking:

"They {the swiss} had government support of the industry in terms of schools, favorable taxes, active promotion, etc. "


In speaking in general manufacturing terms, this exists here also, at least government-supported universities and corporate tax breaks for selected companies. What I think is missing in the U.S., and not in Switzerland, is the desire to maintain an in-country industry, both on the part of the governmental bodies and of industries. Our state, local, and federal governments give tax breaks to companies, and tax support to universities. Then they say to the companies, "How you run your business is up to you - whether you put your factories in Indiana, or India, we won't interfere."

Also, I believe the earlier poster hit on something when he said that the U.S. was riding the crest of the economic wave in the decades following WWII, and didn't really get concerned about losing a whole industry here and there. There was some much work, and so many business opportunities, that no one spotted the trend.

This is a most interesting thread. All good points to ponder.

The watch industry is experiencing "horological Darwinism." The watch production moved rather quickly from the English to the Americans and then to the Swiss, the Japanese, and now the Chinese make most of the watches.

The Swiss continue to hang on the high end, but for how long? Brands like Credor, Seiko's high line, are not available here yet. They might give the Swiss a real run for the money. They are beautiful watches.

Many of the components of Swiss watches are made in Asia. Oddly, the Swiss brands sell very well in Asia in direct competition with the domestic brands.

I do agree that WWII and some unfair trade advantages put the end to U.S. watch manufacturing. Perhaps some tarriffs would of kept Elgin and Hamilton from being knocked out or bought out by the Swiss.

We have become a country of bankers and administrators. Maybe we don't need to make everything.

Economics, obviously not one of my strengths.

This is how Hamilton Watch Co. died. In about 1959 a person from Reading, PA, who ran a mutual fund secretly purchased 51% of the Hamilton voting stock. As the majority owner of Hamilton, he had the board of directors stocked with his people and demanded a large dividend be paid to stock holders. This dividend exceeded the profits that the company made, so they had to borrow the money to pay the dividend. They soon exhausted their local credit and had to go to the Swiss to borrow the money to pay this outlandish dividend. As they borrowed more and more from the Swiss, the Swiss wanted more say as to how the company was run. Eventually, Hamilton owed them so much money, the Swiss declared ownership of the company. This whole process took about 15 years.

So Hamilton really fell to a stock raid. Many other American companies had similarly failed to such raids. Hamilton was partly at fault. If your stock is expensive, it is very difficult and expensive to pull off a stock raid. Hamilton was weak. It had warn out its equipment and its employees during WWII. It was unable to sell watches to the private sector during WWII, and it fell many years behind in development of private sector watches. The Swiss were neutral in WWII and had several years to advance, coming out of the war, Hamilton had to play catch up the Swiss had automatic watches and many other advances. Hamilton also made bad choices, they desided to buy automatic movements and then buy the Swiss factory rather than design their own. They had two electric watches in development and went with the wrong one, because they thought jewelers would not go for a watch with a tuning fork instead of a balance. They started to release product before all the kinks had been worked out in an effort to catch up with the Swiss.

All in all, Hamilton lasted over 75 years. That is a long time. They produced some great products over those 75 years.

Just some facts and thoughts on the death of a great American Watch Company.

Don

Two more short comments:

1. Regarding the book Manufacturing Time: The Global Competition in the Watch Industry. The author had certain facts in error regarding Elgin's history and drew incorrect conclusions from some of these. Notably, she under estimates Elgin's financial strength the period of 1920 to 1960. Nor does she give adequate credit to fine management and well run factory Elgin had until almost the very end. The book is essentially the same theme as Landes' earlier work Revolution in Time, in some respects, perhaps not as good.

2. I have toured some of the Swiss watch factories and gained considerable insight into their history from discussions with my journalist friend Lucien Traub and his many books and articles onthe global watch industry. The Swiss really put forth an effort to bolster their watch industry and to nurture it. They did this over the course of the last 135 years, perhaps more. They promoted practices that the US government frown upon, especially in the late 19th and early 20th century, and again in the mid 20th century. These were practices that American anti-trust laws would not permit. The Swiss encourage cooperation at almost all levels of the industry. They supported schools specially dedicated to horology. The government helped sponsored competitions to improve watchmaking, manufacturing technology and metalurgy. In contrast American makers fought tooth and nail to just to get tariff protection from their government, let alone an subsidies. In the USA watchmaking was just one small industry. In Switzerland it was their major industry and an important part of their identity.

"We have become a country of bankers and administrators."

Quite true, Scott. For an aging baby boomer like me, this discussion is pretty much academic - I have scraped by in several companies for the last 30+ years, and I have put away my nest egg, such as it is. What worrys me is the next generation coming up behind, who still are in the beginning of their careers. With internet-connected transactions, you don't need to have a bank or administration building locally. Why pay a banker or administrator in Boston $180,000 when you can have someone on the other side of the world do it via computer for $6,000? In twenty years, we may be saying, "We WERE a country of bankers and adminstrators, just like we were a country of watchmakers a generation or two before that."

- Want fries with that cheeseburger?

I agree 100%. Unfortunately we have had a fire sale on US assets with our commercial real estate going in the 1980s and many of our companies being sold. I saw in the news today that Dubai is interested in buying banks and financial interests in the US because they are so reasonably priced due to the mortgage crisis, Citibank and Merrill Lynch are names mentioned.

I think we need to focus a little more on ourselves and a little less on the rest of the world or we will end up a shell with no value.

We may end up with on one to buy the fries.

Rick