Wrist Watches Industry - Innovation, Technology, and Market - Term Paper Example

Innovation, Technology and Market--Wrist watches Industry The influence of technological change and innovation in any industry is undoubtedly important. The wristwatch industry is especially affected by this. This essay seeks to acquire proof to this theory. Drawing from the lessons in history of the wristwatch market, the role of innovation and technological change in determining the market dominance of any given company in the wristwatch industry. Another lesson from history indicates that lacking sensitivity to present and future needs of consumers will have its consequences especially in today's world where consumers are more exposed to knowledge and advertising from competitors. Up to the middle of 19th century, it was the English and Swiss watchmakers who ruled the wristwatch making industry. Nevertheless, the English and Swiss watchmaker's dominance in the wristwatch industry would have been subjected to various threats due to innovations occurring from the rest of the world. For example, the Swiss watchmakers were repeatedly unable to react properly to these emerging innovations in the technological aspects of wrist watch design. The industry serves as a proof that many watch-making companies across the world would often do the same mistake repeatedly. These companies often were unable to detect the trends and cycles of the changes in watch-making technology in order to get prepared for it. The great examples of these technological changes were the 'Quartz technology' and the 'following shift of emphasis to fashion has had dramatic impacts on the watch industry' (HEGARTY and CORNER, 1996). Japanese watch-making companies were able to grasp the opportunity that the Quartz technology has to offer which made them more dominant than Swiss companies. However, the later emphasis on design and fashion on wristwatches brought back the glory and dominance back to Swiss watch-making companies. The development of Quartz technology made Japanese companies dominant for a while. Japanese companies were so overwhelmed by their successes that they were unable to detect the upcoming trend in wristwatch industry, which is emphasis on fashion and style. These new trend was dominated by the Swiss companies for the next 10 years (HEGARTY and CORNER, 1996) Wristwatch companies, both Swiss and Japanese alike, were unable to respond well to the threats that were coming their way when they were in their dominant position which unable them to understand future needs and preferences of wristwatch buyers. 'The Swiss and English did not recognise the threat that machined watches with interchangeable parts were to them and they lost large market share in the Nineteenth century. It took almost half of a century for Swiss companies to recover market share up to and during WWII' (HEGARTY and CORNER, 1996). However, Swiss companies' efforts to take back the watch industry proved to be successful at the turn of the 20th century. The introduction of the Dingley Tariff Law enabled companies such as Bulova, Benrus, Gruen, and Longines-Wittnauer to 'assemble watches in the U.S. with Swiss movements'. The Swiss developed more accurate techniques and founded their factories on the knowledge acquired by Mr. 'Favre-Perret's visit to the U.S'. It was the Swiss companies' focused on advancement in mechanical parts and development of 'complications such as calendars, chronographs (stop watches), and self-winding models' that helped them sustained their dominance. On the other hand, Rolex, with the development 'first water resistant watch in the 1920s and the first automatic winder in 1931' contributed to Swiss dominance. Moreover, Swiss watchmakers made smaller wristwatches with more accuracy and reliability. As a result, 80% of worldwide wristwatch market was won back by two Swiss companies by the conclusion of the Second World War. Even though 'Allied factories' re-focused to wristwatch production after the second world war, Swiss watchmakers still have the control of at least 50% of the wristwatch market. 'By the end of WWII with competition from the Swiss and U.S. assemblers most of the U.S. watch companies founded in the 1860s and 1870s were out of business' (HEGARTY and CORNER, 1996). Further new technological innovation threatens Swiss dominance when Timex developed a used hardened alloys to enable more cheaply and un-jeweled movements of wristwatches. Wristwatches used to have jewels for pivot points to avoid the 'wear and tear of metal'. This all began when 'Norwegian refugee Joakim Lehmkuhl. Mr. Lehmkuhl took over running Waterbury Clock Company' in 1942, 'which would later become united States Time Corporation and then Timex'. Mr. Lehmkuhl also further 'innovative distribution channels outside of the traditional jeweler's network'. As a result, one-third of wristwatches bought in the US were Timex by 1962. Come 1973, Timex dominated 45% of the U.S. market and 86% of local production (Landes, 1983b, p.340; HEGARTY and CORNER, 1996). As for the Quartz innovation, it was Seiko and Citizen that led the Japanese dominance of the wristwatch market. In the U.S., it was Timex that dominated the market from the middle of 1970s to midlle of 1990s. However, 'In 1995 the Swiss took over the lead in world watch production with 38 million units shipped versus 30 million for Japan a decrease from 39 million in 1994'. Whilst in 1984, Swiss worldwide 'production of watches decreased to lesser than 10% from 40% in 1974 before the supremacy of the quartz technology' ("Swiss watchmakers fight back", 1984, p.26; (HEGARTY and CORNER, 1996). During this time, the Swiss watch industry has been declining the more it postponed its adoption of technology innovation such as electronic wristwatches during the 1970s ("Swiss watchmakers fight back", 1984, p.26). The Swiss companies were not able to identify the needs of wristwatch users and they often do not have reliable channels of distribution. Swiss companies were only able to take back their dominance in the watch industry right after they put emphasis on fashion and style trends. And with the introduction of Swatch, the Swiss gained back their dominance after 13 years of declining influence in the market (HEGARTY and CORNER, 1996). Factors that affected innovation in the wristwatch industry Innovation and technological change is the by-product of interrupted 'advancements preceded by long periods of incremental improvements' (Burgelmen et al n.d.). This explanation precisely explained the long period of advancements to watches of mechanical parts before the speedy introduction of quartz technology in the late 1970s. In other words, the leap to 'new technologies and innovations are the result' of discontinuity of technology (Foster, 1986; Tushman and Moore, n.d., p.215-228). This speedy leap from an old technology into a newer technology is referred to as 'chaotic sequence of events' (Quinn, 1986, p.124) that often happened in a non-linear pattern. These 'chaotic technical discontinuities' are influenced by the complexities of the product technology and the phase of the development of the said innovation (Burgelmen et al n.d., p.156; HEGARTY and CORNER, 1996). Innovations and new technologies are often developed from 'outside of the industry of the dominant technology' and it is often difficult to recognize the interruption of technology from within the industry itself (Tushman and Moore, n.d., p.215-228). As an example, the 'quartz technology it was developed by the Swiss with large investments at CEH but not capitalized on by them'. This is due to the fact that criteria for weighing a new technology are often not known primarily. Japanese companies were considered as outsiders and had nothing to lose but all to win by further introducing the quartz technology despite the fact that only 6% of Japanese use wristwatches of quartz technology by 1974 (HEGARTY and CORNER, 1996). Due to the fact that Swiss companies were unable to recognize the changing needs of consumers, much of the budget and efforts of their research and development were still devoted to the development of mechanical designs. This represents almost two thirds of Swiss research &Development budget. On the other hand, Seiko and Citizen were enjoying the fruit of success of the quartz technology. From 1974 to 1978, 'a dramatic increase in product technology and a corresponding ten fold increase in Japanese quartz output from one million eight hundred thousand to nineteen million seven hundred thousand units' (HEGARTY and CORNER, 1996). Product life cycle Just like any other products, innovations and market in the wristwatch industry can also be explained by The Product Life Cycle (PLC) which is based upon the 'biological life cycle'. In the Product Life Cycle theory, a product 'gains more and more customers as it grows after a period of development it is introduced or launched into the market. Consequently', 'the market stabilises and the product becomes mature; then after a period of time the product over-driven by technological change and the emergence of better 'competitors', 'it goes into decline and is eventually withdrawn'. However, most products fail in the introduction phase. Others have very cyclical maturity phases where declines see the product promoted to regain customers' (The Product Life Cycle (PLC), 2006). There is always no accurate prediction on how the product would progress through various stages. There are some products do remains and develop to higher stage almost foreever. Marketers therefore must have numerous 'techniques designed to prevent the process of falling into the decline stage'. 'In most cases however, one can estimate the life expectancy of a product category'. Consumers 'respond' to new technology in distinct manners. Diffusion of innovations theory, pioneered by Everett Rogers, and other diffusion models proposes that different people have different status of preparedness to adopt new innovations and 'that the characteristics of a product affect overall adoption' (Product life cycle management, 2006). Technology life cycle Innovations and new technologies often follow the same 'technology lifecycle'. There is often an excitement at the beginning of a new innovation or new technology, However, only time can proved whether such excitement would last or not because it is always difficult to recognise at the early phase whether the excitement is more than normal (Technology life cycle, 2006). From a layman's point of view, the technology life cycle can be devided into five different phases (Technology life cycle, 2006): 1. Bleeding edge - A technolgy that has the potential but still has to prove and demonstrate itself. 'Early adopters may win big, or may be stuck with a white elephant' (Technology life cycle, 2006). 2. Leading edge - A product proven to be usefull but still not well-known and only few have the know-how of its technology (Technology life cycle, 2006). 3. State of the art - When the technology is at its peak and dominate its category(Technology life cycle, 2006). 4. Dated - When product is still usefull and available but an emerging product is already ready to replace it (Technology life cycle, 2006). 5. Obsolete - When the product is replaced by a new innovation or new technology (Technology life cycle, 2006). Price-elasticity of demand. Another explanation for the fate of the wristwatch industry is the Price-elasticity of demand theory. 'The price elasticity of demand (PED) is an elasticity that computes the responsiveness of the quantity demanded of a good to its price. Price elasticity of demand is measured as the percentage change in quantity demanded that happens in response to a percentage change in price. Generally, the lower the price of a product become, the higher shall be the demand for such product by the consumers, making the price elasticity of demand negative (Case & Fair, 1999: 110). Due to the fact that 'the denominator and numerator of the fraction are percent changes, price elasticities of demand are dimensionless numbers and can be compared even if the original calculations were performed using different currencies or goods' (Price-elasticity of demand, 2006). The appropriate strategy required to launch it in the market. Launching of a new innovation, like in the wristwatch industry, is often a new challenge even though it is planned carefully. It is therefore essential to recognize the type of consumers the product is intended for which could include the consideration of the distribution method strategies in pricing also ("Frost & Sullivan's new product", n.d.). Moreover, competitors and the base of the consumer must be extensively studied before launching a new technology or new product in order to make sure that there is a real demand for the product that no other product or technology filling the need. Should there are other products offering the same innovations, the strategy then is to identify the holes in the competitor's strategies and product features also. Test marketing for a new innovation or product using 'customer surveys to analyze customer reactions', can greatly influence the product launching strategies (Frost & Sullivan's new product", n.d.). Therefore, a successful product launching is to recognize the needs of the consumers of wristwatches as in the case of the wristwatch industry. The greatest strategy is to recognize the needs even before the consumers know it themselves (HEGARTY and CORNER, 1996). We are now living in a very high-tech world. The invention of the computers enabled the Research and Development department of watch-making companies to do calculation and modeling at a faster pace. The impact of computers had on Research and Development of new technology can also be seen in almost all modern day consumer products such as cars, televisions, cell phones, and etc. Cell phones, with its trend of convergence, wherein everything that a person needs is now in the palm of his hand including a calendar or clock, wristwatches seems to be obsolete or even became more of an optional jewelry. With this trend, together with the emerging competition from Chinese companies, wristwatch makers need to be more vigilant and creative in coming up with new ideas to make wristwatch an 'in thing' again. History had shown that the wristwatch industry is a very volatile market. Therefore companies, whether Japanese or Swiss, should need to recognise the seen and even unforeseen needs of consumers if they want to remain in the dominant position. And also it is important to note that 'innovation' in design is what matter most and emphasis on it will ensure the company's dominance in this competitive market. References Burgelman, Robert A., Modesto A. Maidique, and Steven C. Wheelwright. (n.d.). Reading from Strategic Management of Technology and Innovation, 2nd Ed. P.186 Case, Karl E. & Fair, Ray C. (1999). Principles of Economics (5th ed.). Prentice-Hall. Foster, Richard N. (1986). Timing Technological Transitions. Technology in the Modern Corporation: A Strategic Perspective, edited by Mel Horwitch. Pergamon Press, Inc. p.219. "Frost & Sullivan's new product launch market engineering research and analysis." (n.d.). Frost & Sullivan's. Available from:http://www.frost.com/prod/ servlet/mcon-typical-prod-launch.pagtitle=New+Product+Launch [Accessed 15 March 2006]. Hegarty, Aran and Tysons Corner. (1996). INNOVATION IN THE WATCH INDUSTRY ENGINEERING MANAGEMENT 255 MANAGEMENT OF RESEARCH AND DEVELOPMENT. THE GEORGE WASHINGTON UNIVERSITY. Available from: http://www.timezone.com/library/archives/archives0097 [Accessed 15 March 2006]. Landes, David S. (1983a). Revolution In Time, The Belknap Press of Harvard University Press, Cambridge, Ma, p.319. Landes, David S. (1983b). Revolution In Time, The Belknap Press of Harvard University Press, Cambridge, Ma, 1983, p.340 "Price elasticity of demand." (6 March 2006). Wikipedia. Available from: http://en.wikipedia.org/wiki/Price_elasticity_of_demand [Accessed 15 March 2006]. "Product life cycle management." (2006). Wikipedia. Available from: http://en.wikipedia.org/wiki/Product_life_cycle_management [Accessed 15 March 2006]. Quinn, James Brian. (1986). Innovation and Corporate Strategy: Managed Chaos. Technology in the Modern Corporation: A Strategic Perspective, Edited by Mel Horwitch. Pergamon Press, Inc. p.124 "Swiss Watchmakers Fight Back",(1984). Dun's Business Month, January, Vol. 123, No. 1, p.26 "Technology life cycle." (2006). Wikipedia. Available from: http://en.wikipedia.org/wiki/Technology_lifecycle [Accessed 15 March 2006]. "The Product Life Cycle (PLC)." (2006). Marketingteacher.com. Available from: http://www.marketingteacher.com/Lessons/lesson_plc.htm [Accessed 15 March 2006]. Tushman, Michael L. & William L. Moore. Readings in the Management of Innovation, 2nd Ed., Ed, p.215-228 Read More