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EPHJ-EPMT-SMT: Killer prices

Subcontractors (or rather co-contractors as they put up with the ups and downs of the sector) are sometimes victims of "attempted economic murder". Warning: beware of floor prices!

By Joel Grandjean

Between 14 ­­­­­­­-17 June 2016, over 850 co-contractors will attend Switzerland's greatest annual professional fair at Palexpo in Geneva – the EPHJ-EPMT-SMT, founded by André Colard and Olivier Saenger 15 years ago. While not all of them work only in watchmaking, they are all interested in it. This humour column is dedicated to them.

The era of blessings

Watchmaking has a lucky star for, despite all its detractors, it cannot be relocated to anywhere else. Indeed, it is so well established in and within Switzerland that even products’ worth depends on where they are made. Hence, a product from Thonex is worth much more than one from Annemasse and the same applies to Plan-Les-Ouates and Saint-Julien; Meyrin and Pays de Gex; Le Locle and Morteau or Besançon, and Le Sentier and Les Rousses.

EPHJ-EPMT-SMT 2015, Palexpo Geneva Over 850 co-contractors will attend Switzerland's greatest annual professional fair at Palexpo in Geneva

This atypical characteristic of globalization has saved jobs, and unwittingly, decades of know-how. And that in spite of financial groups’ efforts to move leading brands as close as possible to the borders in order to hire employees from neighboring countries, i.e. lower-pay labor. Indeed, the truth is that the costs of labor – and of living – are quite high on this side of the global village, and margin deficit is always compensated by profit from global demand, which will not settle for less than "Swiss made" if it can afford to pay for it.

This state of grace is a blessing. It isn't the result of a planned marketing approach or a visionary strategy. Rather, it calls for respect of the high value that has been put on the products throughout history and that is based on something that goes far beyond price. Thus, we need to make sure that financial groups and their shareholding mindsets do not use watchmaking to cut the branch on which the entire sector relies, or even to dangerously chew on its leaves, as they have relentlessly been trying to do so far.

Serial acquisitions: not everything is for sale!

In the last decades, financial groups have first acquired brands and then they have verticalized everything. That is, they have undertaken a sort of in-house expansion through suppliers: hiring a well-known subcontractor here or filling a workshop with skilled craftspeople there.

Watchmaking's great challenges, round table of 2015  “Watchmaking’s great challenges” – round-table June 2, 2015 with Xavier Comtesse, Philippe Dufour, Joël A. Grandjean, Jean-Daniel Pasche 

However, the reason why supplier subcontractors caught the attention of groups is a set of values that just cannot be bought. One such example is excellence. Excellence is not developed in one day. It is a progressive quest, which often stems from the will to serve a demanding customer. It is first and foremost a state of mind. Even better, excellence is the result of experiments that are not only carried out in high-end watchmaking. Will these shareholders of luxury even be able to fathom that high-end brands experiment and work with the middle and low-end spectrum?

Having said that, it is precisely excellence that drives financial groups to pay high prices, thus following their paradoxical short-term vision.

They do not realize that a few years of working only for them or for the brands they own will inevitably result in those “expensive” subcontractors losing some of the skills they took decades to develop.

Tracking the discount murderer

The very fact we were explaining watchmaking and territory earlier prevents financial groups from reaching out to other countries too much. So much the better! The fact remains that nothing is stopping them in their race for maximum profits within the borders. And sometimes their actions are unfortunate because they are detrimental for the rest of the sector. They run the risk of damaging its DNA forever. One way to do this is the floor price technique. Of course, price negotiation makes sense in any commercial exchange. It can even force some to step out of their comfort zones and to try new processes and techniques that will help them increase profits.

Watchmaker at work Watchmaker at work during the 2015 fair

However, this hardcore discount hounding, carried out by a handful of practiced and skilled "professional buyers" from other sectors is downright vile.

Approaching a co-contractor with a juicy order only to then ask them for discounts is purely and simply undermining their livelihood. In the long run, co-contractors will be seeing the ground being taken from underneath them.

For co-contractors to remain independent nowdays they need not only to develop skills that captivate leading brands but also to step out of the shadows, make themselves known and communicate. In other words, they need to exist. When the time is right, this new old approach – it will after all be the result of a long tradition of discretion – will allow contractors to hold their ground, or at least to cave in only a little. They must also be strong enough – or at least make believe they are – to resist taking too many orders from one client only. If these orders are made too regularly, and even in too much quantity (which is a common strategy), the co-contractors' structure will have no other choice than to be passed on to its client. Especially if the client threatens to stop ordering – it's a well-known strategy. But independence also has a price: co-contractors must remain at the service of their clients from every segment in order to preserve their skill range. They have to be strong enough to resist the "attempted economic murder" that is waiting to strike behind the floor price policy.

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