Is Graft Crackdown Hurting Swiss Watchmakers?

on June 25 2015 | in Daily Headlines Trending | by | with No Comments

It’s almost a knee-jerk reaction to say that the 8.9 percent drop in Swiss watch exports in May was connected to the introduction of Apple Watch. Yet the Chinese attack on corruption may be more to blame.

Early indications are that Apple Watch isn’t one of the company’s runaway successes. The research firm Slice Intelligence says the company has sold about 2.8 million of the devices since April. If that’s true, they are going at the rate of about 1.5 million a month. That’s not many compared with the iPhone — 61.2 million smartphones were sold in the first three months of this year — and even with the iPad (12.6 million units sold in January through March). Of course, it’s still a lot compared to the Swiss watch industry, which exports a little more than 2 million timepieces a month, but then China makes 175 million watches a month, and Swiss factories are still humming.

The under-performance of the industry is just as easy to explain by pointing out that May 2015 had two fewer working days than May 2014, and the shortfall is roughly equivalent to two days’ exports. In Europe, despite the calendar factor, Swiss watch exports grew 3 percent in May and 9 percent in the year to date as a weakening euro boosted tourist numbers. That growth hasn’t been hampered by the Apple Watch or even the strong Swiss franc.

Yet globally, the Swiss watch business isn’t growing. That’s due to a steep drop in sales in Hong Kong, its biggest export market. Exports to the Special Administrative Region dropped 33.6 percent in May, after a 30 percent decline in April. That kind of catastrophe can’t be explained by exchange rate vagaries or even the general slump in Hong Kong retail, caused by the declining number of tourists from mainland China.

The best explanation probably has to do with the role Swiss watches play in corruption.

In 2013, Xiaohuan Lan and Wei Li, of China’s Cheung Kong Graduate School of Business, discovered that luxury watch imports have increased dramatically every time China had its regular, once-in-five years power transition:

“During leadership transitions,” Xiaohuan and Wei wrote, “officials who are eligible for promotions have incentives to send gifts or money to officials who have influence over official appointments. When a new leadership team is expected to be installed, business people and officials also need to establish new connections and to form new official-business ventures.” There’s even a Chinese expression for this transition-related corruption: huan jie fu bai.

Watches play a big role in these exchanges because they are small (and therefore easy to hand over inconspicuously) but expensive — the median price of a luxury watch in China is $5,000 — and easy to resell if necessary.



Read more at Bloomberg View.

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

« »

Get Your Copy of the June 2015 China Consumer & Retail Monthly

Follow Us

Daily Updates By Email



Latest Posts

Scroll to top
x