Starting Jan. 1, though, the company will begin to cut back, and possibly eventually end, its sales of the inner workings to competitors to concentrate on producing watches with higher profit margins and to make sure it has enough supplies on hand for its own brands, including Longines, Omega, Tissot and Breguet.
Swatch’s move, which was approved by Switzerland’s competition authority, is being challenged in court by nine watch companies, many of them small and without the financial wherewithal to produce their own movements.
The plaintiffs predict that several companies will disappear because they have few other options for the parts, which must come from Switzerland to keep the lucrative “Swiss made” label. They also argue that if Swatch goes through with its withdrawal, the result could be as wrenching to the Swiss watch industry as the arrival of Japanese digital watches, which almost led to the industry’s collapse in the 1970s.
The dispute is fanning resentment of Swatch’s clout and size in an industry that is showing exceptional strength, as demand from Asians who want to communicate their wealth and taste overcomes the worldwide economic downturn and the strong franc.
“A lot of companies will cease to exist while Swatch, the monopoly operator, will simply get stronger,” said Peter Stas, the Dutch co-owner of Frédérique Constant, an independent watch company in Geneva that is one of the plaintiffs.
Mr. Stas acknowledged that it would have been nearly impossible for him to start out in watchmaking 23 years ago without access to Swatch’s production platform.
Swatch’s revenue last year of 6.44 billion Swiss francs, or about $6.95 billion, makes it by far the world’s largest watchmaker. The company insists that its goal is not to strangle competitors. And it argues that its withdrawal will require rivals to raise their spending on manufacturing, thereby strengthening the quality and competitiveness of the Swiss watch sector as a whole.
“In no other industry do you have one company supply all the critical parts to the people who then compete directly with it,” Nick Hayek, Swatch’s chief executive, said in an interview this year. Swatch said it had no further comment on the issue.
The Swiss watch industry is on course to easily surpass the record 17 billion francs’ worth of watches exported in 2008, according to Jean-Daniel Pasche, president of the Federation of the Swiss Watch Industry. The group includes about 500 companies, ranging from the behemoth Swatch to boutique companies that make about 100 timepieces a year but sell them for more than $300,000 each.
“We are thankfully in a situation where demand, particularly from Asia, is growing faster than supply,” Mr. Pasche said.
Swatch’s dominance of watch manufacturing dates to the early 1980s, when Nicolas G. Hayek, father of the current chief executive, was entrusted by banks to take over two indebted watch companies. He merged them and turned the combined business into a mass-volume production platform for what the company’s Web site describes as “a low-cost, high-tech, artistic and emotional ‘second watch’ — the Swatch,” as well as for other brands.
The merger received the blessing of the competition authorities and was seen as a last-ditch attempt to save a sector whose work force had shrunk almost two-thirds in 15 years, to 33,000 employees in 1984.
Employment has since climbed back to 49,000, and watch companies now face the problem of recruiting enough qualified staff to meet their orders.
In June, the Swiss competition authority ruled that Swatch would be allowed to lower its deliveries of mechanical movements to third parties next year to 85 percent of the 2010 levels, pending an antitrust investigation and a final ruling on whether Swatch could stop supplies altogether. That ruling is expected in the second half of next year.
Mr. Hayek’s arguments are even endorsed by some former executives turned competitors.
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