competition in China's watch industry, especially in
the low end, is prompting more makers to shift to
mid range and even high-end production. More
companies are also developing or strengthening
in-house brands to distinguish themselves from rival
makers. The fact that the industry is saturated with
similar-looking products provides further motivation
for upgrading designs.
But compared to suppliers in other segments of
China's fashion industry, watchmakers have been
slower in taking the step to upmarket production.
This is mainly because the watch industry suffers
from a shortage of skilled R&D technicians and
designers. As a result, most watch suppliers still
focus on low-end, OEM production.
The shortage was not a problem before, with most
China suppliers concentrating on low prices and high
volume. But even as global consumption of fashion
the largest product line at most factories
in the country
grew 4.5 percent in each of the
past two years, overall watch exports from China
have started to decline.
Exports in the first seven months of the year
totaled US$460.9 million, down 7.7 percent from the
same period in 2004. The number of pieces shipped
fell 13.7 percent to 418.6million.
Last year, China exported 956.9million watches
worth US$977.4 million. Although export sales
increased 2.5 percent, the growth rate was
significantly lower than the 22.4 percent registered
in 2003. Even volume growth has slowed. Where total
outbound shipments increased 10 percent in 2003,
they rose only 5.4 percent in 2004.
Export growth rates have been declining due to
decreasing demand for low-cost models. The low-end
watch segment has become saturated with a large
number of suppliers offering similar models. This
has prompted many suppliers to move up the value
chain in order to remain competitive and attract
Many companies, however, cannot take this step
easily due to the lack of skilled designers and
skilled R&D technicians. Most fashion watch designs
have a one-year shelf life. While seasoned designers
can come up with fresh, innovative styles every
month, less-experienced ones mostly do slight
modifications on existing models.
Production of tech watches and high-end sports
watches, on the other hand, requires a higher level
of technology which most China makers still do not
To attract skilled technicians and designers,
some companies are offering them salaries up to 30
percent higher than that paid to assemblers. But to
do this, they have had to freeze pay levels for the
rest of their workers.
Developing and marketing their own brands
internationally is not an option for most China
suppliers, as it requires large sums of investment
and few makers have the marketing expertise to
effectively position their products.
For these reasons, those companies that are
producing more upscale designs, moving to OBM or
both, are usually large companies with an
established local brand. Apart from being able to
export all or the majority of output under their own
brands, a number of these suppliers have been able
to develop tourbillon watches, which until very
recently only watchmakers in Switzerland were
capable of making.
Some of the smaller China companies are also
taking steps to move upmarket, but they are offering
high-end watches on a limited scale and in low
Although more suppliers are improving their
models, low price is still seen as the main
competitive advantage of China. Even though exports
of watches have slowed down, the country remains a
top choice for buyers from around the world,
particularly for low-end and mid range designs.
China is the world's largest export manufacturer of
watches, producing almost the entire output of
low-end watches. Among the estimated 1,000registered
makers in the country, more than 70 percent export
watches either directly or through traders. On
average, makers export about 65percent of their
output, mostly to the US, Europe and Asia.
About 60 percent of watchmakers in the country
are locally owned and one-fifth are Hong Kong-owned
or invested. There are also several Taiwan-owned or
invested watchmakers in China. Supported by the
island's long history in IC, PCB and electronic
component production, most Taiwan-owned or invested
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