Pierre-Yves Donzé and Rika Fujioka
The luxury business has been one of the fastest growing industries since the late 1990s. Despite numerous publications in management and business history, it is still difficult to have a clear idea of what “luxury” is, what the characteristics of this business are, and what the dynamics of the industry are. With no consensus on the definition of luxury among scholars and authors, the concept thus requires discussion. Luxury is commonly described as the high-end market segment, but the delimitation of the lower limit of this segment and its differentiation from common consumer goods are rather ambiguous. Authors use different terminology to describe products in this grey zone (such as “accessible luxury,” “new luxury,” and “prestige brands”).
Despite the ambiguous definition of “luxury,” various companies have described their own businesses in this way, and consumers perceive them as producers of luxury goods and services. Research on luxury business has focused mostly on four topics: (1) the evolution of its industrial organization since the 1980s (the emergence of large conglomerates such as Moët Hennessy Louis Vuitton SE or LVMH, and the reorganization of small and medium-sized enterprises); (2) production systems (the introduction of European companies into global value chains, and the role of country of origin labels and counterfeiting); (3) brand management (using heritage and tradition to build luxury brands); and (4) access to consumers (customization versus standardization). Lastly, new marketing communication strategies have recently been adopted by companies, namely customer relations via social media and the creation of online communities.
The Swiss watch industry has enjoyed uncontested domination of the global market for more than two decades. Despite high costs and high wages, Switzerland is the home of most of the largest companies in this industry. Scholars in business history, economics, management studies, and other social sciences focused on four major issues to explain such success.
The first is product innovation, which has been viewed as one of the key determinants of competitiveness in the watch industry. Considerable attention has been focused on the development of electronic watches during the 1970s, as well as the emergence of new players in Japan and Hong Kong. Yet the rebirth of mechanical watches during the early 1990s as luxury accessories also can be characterized as a product innovation (in this case, linked to marketing strategy rather than pure technological innovation).
Second, brand management has been a key instrument in changing the identity of Swiss watches, repositioning them as a luxury business. Various strategies have been adopted since the early 1990s to add value to brands by using culture as a marketing resource.
Third, the evolution of the industry’s structure emphasizes a deep transformation during the 1980s, characterized by a shift from classical industrial districts to multinational enterprises. Concentration in Switzerland, as well as the relocation abroad of some production units through foreign direct investment (FDI) and independent suppliers, have enabled Swiss watch companies to control manufacturing costs and regain competitiveness against Japanese firms.Fourth, studying the institutional framework of the Swiss watch industry helps to explain why this activity was not fully relocated abroad, unlike most sectors in low-tech industries. The cartel that was in force from the 1920s to the early 1960s, and then the Swiss Made law of 1971, are two major institutions that shaped the watch industry.