The Rise of Japanese Watches How the Swiss Lost

The Rise of Japanese Watches (& How the Swiss Lost)

At the time of Japan’s opening up,   almost all of the world’s watches came from  either the United States or Switzerland. The Swiss sought to keep their secrets from  leaking out to other countries. But those   secrets still got out, and with them Japan became  one of the biggest makers of watches in the world.

In this video, we are going to look at the  start, rise and peak of Japanese watches. ## Beginning At the turn of the century, the watch  world had been divided between the US   and the Swiss. But the ways in which  the two succeeded were very different.

In the United States, a small number of big  companies like Waltham Watch and Elgin Watch   produced hundreds of thousands of pocket  watches for domestic consumption. These simple,   cheap watches were made with screw automation  technology adapted from sewing machines. The Swiss watch industry, on the other hand,  

Was the total opposite. The industry  consisted of many small companies   contributing to a wide range of high-precision  time pieces – so a little more high class. In 1901, Swiss statistics found that there were  663 watch-industry firms, employing 24,858 people. The largest company, Longines,  employed just 853 of that.

In 1905, Longines produced  130,000 pieces. In comparison,   Waltham was producing multiples more  pieces annually just a few years prior. Swiss diversity had been a strength, producing  many products to cater to everyone’s needs.   All of them were exported abroad. Switzerland   dominated the pocket watch export market  – with something like 93% market share.

## Timepieces in Japan When it came to building up  railroads, telegraphs or the military,   Japan rapidly adopted Western  technologies. The government’s   overarching goal was modernization.  They wanted to catch up with the West. So back then, clocks were all the rage  as it fit in as part of their overall  

Modernization movement. When Westerners  first started importing watches into Japan   during the 1860s, the items were mostly  seen as deluxe goods for the social elite. In 1868, Japan reported that 1,185 wall clocks   and just 300 pocket watches  were imported into the country. By 1887, over 700,000 clocks entered Japan.  

They were installed in hospitals,  schools, town halls, and post offices. ## Clock Factories During this period of time, Japan sought  to wean itself off clock imports from   the United States. Since clocks were  technologically simpler than watches,   the Japanese early clock industry  focused on replicating them.

In 1888, Hayashi Shihei, a timepiece retailer,  opened Japan’s first modern clock factory.   It was a success and Hayashi opened five  more factories in Osaka, Tokyo and so on. Japan’s clock industry rapidly gained  competence in clock manufacturing,   with production volume going from 370,465  pieces in 1905 to 1.2 million in 1922.  

There were over 20 clock factories  on the eve of World War I. At first, domestic demand – and military demand  in particular – drove this market. But Hayashi   started exporting its excess production to cities  of the Far East like Shanghai, Singapore, Hong  

Kong and Bombay. By the 1930s, Japan was a clock  exporting power with 35% of the total market. ## Watches in Japan Over the same time period of time,  people started wearing pocket watches.   In 1887, it was estimated  that just 0.8% of Japanese  

Regularly wore watches. That number grew to  4.2% in 1897, and then finally 10% in 1907. As pocket watches got popular,  Japanese companies sought to make them.   The biggest of which was a Japanese company  called Hattori & Co, founded by Hattori Kintaro.

Hattori learned the watch industry at the  age of 13 in a clock dealership in Tokyo.   Then in 1877 at the age of 17, he opened up his  own shop – which repaired and resold watches. In 1881, he married the daughter  of a watch trader. He purchased a  

Shop from his new father-in-law and started  selling imported Swiss and American watches. To acquire his product, he rode the  railroad to what is now Sakuragicho   Station in Yokohama to meet  with Swiss trading houses. When the Japanese clock boom arrived,  Hattori saw the opportunity and in 1895  

Opened his own factory, making wall clocks  and then high-end grandfather clocks.   He gave that factory the name: Seikosha. ## Import Substitution A mechanical watch uses very small,  precision-made parts assembled in a   painstaking process that took a lot of time  and skill. A watch’s heart and soul are its  

Movements or movement parts – the parts  that keep the watch ticking accurately. Japanese watches couldn’t compete  with Swiss and American companies.   They weren’t as thin, accurate  or reliable as their competitors. They also cost more than their imported  competitors. The selling quantities  

Were not high enough for the Japanese  factories to gain economies of scale. These Western imports had poured into the  country so freely because in the mid-1800s, Japan   and the United States signed an unequal treaty  opening up several treaty ports in the country.  

But in 1899, that treaty lapsed and Japan  regained sovereignty over their trade relations. The Japanese government then  immediately embarked on an import   substitution policy – raising tariffs to deter  imports and protect domestic manufacturing. Before 1899, silver and nickel watch  imports had a 5% tariff, pretty low.  

After that year, those rates went up to 25% and  then 40% in 1906. The Japanese did similar actions   for bicycles, machine tools, hydroelectric  turbines, sewing machines, and automobiles. ## Chablonnage Protected from Western imports, Hattori’s  watchmaking business took off. From 1906 to 1930,  

His clocks took 48% of the domestic  market and his watches, 85% of the market. Government protection and high tariffs were  definitely part of the reason why he did so well.   But not the only one. Hattori’s company  improved their manufacturing capacity   by focusing on automating a small  number of select Swiss-inspired models.

Hattori’s company released 25 watch types  between 1895 and 1937. Just three of those   types sold well: The 1909 Empire pocket watch  and two wristwatches – the Laurel and the Seiko. To gain expertise in producing these, Hattori  hired engineering labor from Tokyo universities   to disassemble Swiss watches and  learn how to put them together.

And more importantly he sourced raw  watch parts from Switzerland – which   weren’t subject to tariffs. From 1915 to 1935,  Switzerland provided 69% of Japan’s watch parts. This practice of first importing  disassembled watch movement sets   and putting them together inside the  borders was referred to as “Chablonnage”.  

Named after the word “Chablon”  which means “movement sets”. From 1895 to 1899, Japan imported   22,500 watch movements from the United  States and Switzerland. Then in 1900,   the first year of the tariffs on finished  watches, Japan imported 122,000 movements. And then in 1905, 250,000.  

By then Japan was importing far more  movements than finished watches. ## Citizen The Swiss watch industry became  concerned – rightly so – that   Chablonnage would be their long term downfall.   Transferring critical watchmaking expertise  to other countries. Here’s another example.

In 1894, a Swiss citizen – Rodolphe Schmid  – settled in Yokohama and opened a trading   company. His company first started out by  importing and selling complete watches,   but changed after Japan raised the tariffs. In 1908 after the second  round of tariff increases,  

He began importing Chablons into Japan. There  at his workshop in Yokohama, Schmid finished   his watches with cases imported from his  family’s watch case factory in Switzerland. Then in 1910, Schmid shifted the entire  process – case making and all – to Japan,   which infuriated and alarmed members  of the Swiss watch industry. In 1912,  

He moved his Yokohama factory to Tokyo  where his company started to get very large. In 1930, under sketchy and uncertain  circumstances, Schmid acquired a watchmaking   workshop called Shokosha. That workshop  was renamed to the Citizen Watch Company,   a name Schmid had owned since 1918.  Citizen would rise to become the  

Japanese industry’s second significant  watch maker after Hattori & Co or Seiko. ## Cartel What happened in Japan was  the sum of all Swiss fears.   In 1935, Hattori’s watch factory  became the single largest in the world.   And what’s worse, Hattori and Citizen  started expanding abroad. One advert read:

> “Our watches are Japanese made. The Japanese  worker’s extraordinary aptitude for any type   of fine, painstaking work as well as  his exceptional output are well known.” With watch exports declining throughout the 1920s,   the Swiss reorganized their  industry into a cartel. Parts suppliers signed agreements  called watchmaking conventions,  

Making it so that they can only  do business with each other.   A holding company was set up – named ASUAG – to  purchase all the various movement manufacturers. In 1934, the government stepped  in, eventually controlling all   watchmaking activities and monitoring all  exports of watch parts and machine tools.  

Chablonnage was made illegal. This largely managed  to achieve its goals. For the next few decades,   the Swiss watch industry enjoyed high profits and  a consistent 50% share of the global watch market. ## The War The 1930s also saw a market transition  from pocket watches to wristwatches.  

Watches also gained new features  like self-winding movement,   calendars, and waterproof cases. All the  while become smaller and more complicated. Then came World War II. Most watch companies with  the exception of the Swiss halted their production   and saved their metals for the war effort.  Many companies were drafted into producing  

Precision tools. The Swiss stayed neutral,  giving them a leg up in the global market. America’s watch companies struggled in the  wake of the War, unable to compete against   cheap Swiss watch imports. Despite  new tariffs from the US government,   the American watch industry entered a  long term decline and consolidation.

Hattori & Co pushed hard to  get through that post-war slump   and compete on an even footing against the  Swiss. They copied Swiss machine tools,   studied Swiss methods during trips to Europe, and  worked through loopholes in the cartel system. By 1966, Hattori would eventually  produce mechanical watches that performed  

As well as their Swiss counterparts –  establishing themselves as world leaders. But at the same time, the company  sought to bring to market a new type   of watch. One that would completely  disrupt the mechanical watch world. ## The New Watch

The technology principles behind the quartz  watch have been around for a long time.   In the 1880s, Pierre Curie, husband to  the legendary Marie Curie, discovered   that if you applied pressure or alternating  current to a quartz crystal it vibrates. And it vibrates at a very consistent  number: 33,000 times a second. Such a  

Property could be leveraged to make timepieces  far more accurate than any mechanical clock. Then in 1927, an engineer at Bell Labs  created a high-precision quartz clock   the size of a whole room. Ultra-accurate timekeeping hadn’t  been his intention with the device,  

But he did note that it could  serve as one. In the years since,   a quartz crystal-making industry  sprung up to supply radios. Then in 1960, watchmaker Bulova  – one of the big two American   watchmakers left standing – rolled out  the first commercial electronic watch.  

They unveiled the Accutron with a big  marketing blitz across 13 US cities. Accutron wasn’t quartz powered, but rather  used a 360 hertz tuning fork. The watch was   10 times more accurate than a mechanical  watch while using far fewer discrete parts.

Accutron’s tech was developed by the Swiss  scientist Max Hetzel, who only turned to   the American watch markets after he couldn’t  interest anyone in Switzerland with his ideas. Bulova with the Accutron turned out to be one  of those cases of first-mover disadvantage.  

They stuck to their tuning fork technology even  after it became clear that quartz was the future.   They were eventually acquired  by the conglomerate Loews. But the Accutron nevertheless shocked the  industry and kicked into motion a surge of   technological development in electronic watches  across the United States, Japan and Switzerland. ## Making the Quartz

In 1959, Hattori – now Seiko – formed a new  team to commercialize quartz timekeepers.   With the transistor’s commercialization, small  circuits can now feed power into a quartz crystal,   measure its oscillations, and  translate them into second pulses. Their first goal was to have  a portable quartz chronometer  

In time for the Tokyo Olympics in 2021 … oh wait I mean 2020 … no it can’t be that … 1964! There we go. Somehow this group of ragtag mechanical  engineers managed to ship this electronic   quartz-based chronometer. After that they set  out to miniaturize the technology into a watch.

The watch they eventually produced was  a mishmash of ill-fitting components.   Without access to advanced integrated circuits,  they created a hand-soldered hybrid circuit   made of 76 transistors, 29  condensers, and 84 resistors.   The original in-house team at Seiko had actually  failed to master the CMOS production process.

So they outsourced the work  to the American firm Intersil.   Intersil completed the project and signed  over their process knowledge to Seiko. Seiko produced much of their transistors  in-house but occasionally tapped capacity   at the country’s big producers:  Hitachi, NEC, and Toshiba. The Seiko Astron SQ went on sale  in Tokyo on Christmas Day 1969  

For what would be $31,000 today. This elegant  limited-edition gold watch had a simple,   functional look, but the  thing heralded a revolution. Seiko chose to market the Astron with the line:   “Someday, all watches will be  made this way.” They were right. ## The Hamilton

The Astron was revolutionary, but its sales  numbers the first few years did not set   the world on fire. In 1971, Hattori  announced that they sold just 3,000   Astrons. Digital watches needed another  piece before they really stormed the gates. Out in Pennsylvania, a company called Hamilton  Watch was working on their own quartz watch.

Seizing on a new technology  called Light Emitting Diodes,   they ditched the hands and dial completely  and just displayed the time and date. Hamilton called their Pulsar a “wrist computer”  – decades before the Apple Watch became a thing.   It was first released as a P1 version in gold,  

Taking a luxury fashion angle to  offset the high cost of production. But it really took off when James Bond wore  a P2 version in the movie “Live and Let Die”. Never watched that one. More  of a Sean Connery fan myself. Anyway, by the mid-1970s LED quartz  watches had become the market standard.  

In 1974, world consumers bought 650,000  LED watches and analysts predicted that   number would rise to 10 million in a few years. LED watches would eventually  give way to LCD watches,   due in part to their better  battery life consumption. ## Quartz Crisis

Various integrated circuit firms and traditional  watch companies rushed into the digital quartz   watch category. They were excited to find a  killer app for which they can sell their chips. For instance, Texas Instruments sold a digital,  solid-state LED watch for between $95 and $175   in the same retail outlets who  sold their calculator products.

Even Intel had their fingers in  the watch pie for a little bit.   In 1972, the company acquired digital  watchmaker Microma and made smartwatches. Casio was another one of those companies,  having started as a calculator company.   They went head to head with  US firm Timex at the low-end,  

Offering their low priced models  in drug stores across the country. Japanese watch exports into the United States  – a critical Swiss market – exploded. Export   value grew nearly 10 times over,  reaching 26 million USD in 1975.   Watches were nearly 20% of total Japanese exports.

Swiss exports stagnated and their  market share plummeted from 83%   at the start of the 1970s to just 20% in 1980. By 1985, Japanese watch exports into the United  States totaled $373 million. Seiko, Citizen,   and Casio watches had effectively pushed  the Swiss out of their most valuable market. ## What Happened

It is important to note that Japanese  mechanical watches were as good as Swiss   watches before the Astron came along. Hattori’s  acquisition of Swiss technologies and expertise   is a reflection that export restrictions  don’t always work as planned. But the Swiss watch industry really fumbled the  industry shift to quartz despite long being aware  

Of the technology. They had even demoed their own  prototypes in 1967, 2 years before the Astron. But the Swiss took a great deal of pride  in their mechanical heritage. And their   sprawling industry structure of many small firms  worked against them. No individual Swiss company  

Had the resources, initiative, or broad  expertise to build such a thing on their own. A mechanical watch – and a consistently  accurate one – is hard to make. You   needed trained artisans and painstaking  effort. A digital watch made with modern   semiconductor production methods overwhelms  all that human training with titanic scale.

Quartz watches ended the Swiss grip on the  global watch industry. As late as 1974,   they had 40% of the global market. Ten  years later, that share shrank to just 10%.   By 1983, over half of the country’s  watchmakers had gone bankrupt. ## Conclusion

Due to necessity, the Swiss had also shifted to  Quartz technologies. And for a brief period of   time it seemed like mechanical watch production  techniques would be lost to the sands of time. But the Swiss mechanical watch industry has made  a bit of a comeback since then – having recognized  

That their products have value beyond just  accurately keeping the time. Restructuring into   the Swatch Group, the Swiss created luxury watch  brands, and have since thrived in their niche. The Japanese watch industry on the other hand   peaked in the 1980s. Challenged by  industrial competitors in Hong Kong  

And then China, the industry stagnated  and relocated their manufacturing abroad. They have since struggled to return  to the peaks of their glory years.   But that is a story for another time.

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