With 800,000 citizens, Rome was arguably the biggest, most influential city in the mighty Roman Empire. Yet, on August 24, 410, “the eternal city” fell to a horde of Visigoths at the gate and suddenly, the Romans didn’t seem quite so invincible anymore. Like the Romans, the primacy of the Swiss watch imperium appears unassailable and like the Germanic tribes which grew technologically and economically to challenge Empire, it appears that Citizen’s acquisition of Frederique Constant is yet another industry milestone which makes some purist collectors nervous. The real question is – should they be?
Should Watch Lovers be nervous of Citizen’s Acquisition of Frederique Constant?
As it stands, Citizen’s acquisition of Frederique Constant isn’t the first for the group nor the first Swiss brand to be controlled by a foreign entity. Thus far, China Haidian owns Corum and Eterna. While Citizen had previously acquired La Joux-Perret and Arnold & Son. So, the phenomena isn’t entirely new. For some watch collecting purists, the nervousness then is the result of perceived “dilution of the Swiss label” but let’s talk about reality over perception.
Reality of Citizen’s Swiss Acquisitions
The May 26 announcement of Citizen’s acquisition of Frederique Constant is part of company’s Global Plan 2018 where Citizen outlined multi-brand strategy of acquiring Swiss brands in order to cement its brand portfolio by offering consumers a spectrum of watches to complement its own namesake brand by adding mid-tier luxury watches like Frederique Constant and Alpina, to haute horlogerie from Arnold & Son and DeMonaco.
For Peter Stas, owner of Frederique Constant group, there were clear benefits for the arrangement given that his children were determined to pursue careers outside the group. As a result of Citizen’s acquisition, Frederique Constant gains:
- Funding under a stock listed corporate owner
- Enabling fresh capital injection for investments and potentially a booth in Hall 1.0 by Basel 2017
- Augmenting their horological smart watch with advanced electronic calibres where Citizen is already a pioneering maker
- Greatly expanded distribution thanks to Citizen’s global network
“We have a great opportunity to expand the sales of Frédérique Constant through our current distribution channels of Citizen branded watches, particularly in Japan and the U.S. With the acquisition of Frédérique Constant, the Citizen Watch Group will be able to augment its portfolio of brands and occupy the space in the markets where some of our competitors operate and further expand the presence of the Citizen brand in the market.” – Toshio Tokura, chief executive officer of Citizen Watch Co., Ltd.
Perception of Foreign Owned Swiss Watchmaking
Can we all agree that with any rational acquisition, the corporate motive is profit? Granted, some companies have been absorbed with the intent of removing a competing brand but we can agree that as brand custodian, Citizen’s stewardship of Prothor, the holding company of La Joux-Perret (manufacturer of movements and modules), Prototec (component maker), and high-end watch brand, Arnold & Son; has been exemplary thus far?
La Joux-Perret produces modules for a large swathe of the Swiss watch industry including but limited to Baume & Mercier, Louis Vuitton, Corum, Hublot, Montblanc, Panerai, Jaquet Droz, Franck Muller, Girard-Perregaux, Carl F. Bucherer and many others; with over 10 years of full orders and close to maximum production, the incentive to sell to Citizen (the world’s 4th largest watchmaking concern) was predicated on long-term industrial vision and 5 years on, after the change of owners, none of the major watch brands have complained of reliability issues with their supplier.
In 2011, Mikio Unno, President of Citizen Watch Co. Ltd., declared to trade magazine Europa Star that Citizen’s acquisition of Manufacture La Joux-Perret was to fuel production capacity for their house and Swiss-licensed brands, in essence, it would seem that Citizen not only has a ‘profit incentive’ but also a production quality incentive.
Hearts and minds…
Thanks to investigative journalist Masayuki Hirota, watch insiders learnt from anonymous Seiko sources that the early Soprod A10 movement was unofficially based on the Seiko cal. 4L. While not raking up the whole TAG Heuer misunderstanding again, it might be worth considering Japan’s position as supplier of some ebauche and hairspring components to European watchmakers is not inconsequential, any move by Citizen Watch Co. would therefore be to prepare and position their new holdings to further supply Europe with authentically Swiss products. Therefore, with eyes set on capturing Swiss minds (and consumer’s hearts), it would be counter-productive to dilute the cachet of Swiss-made by rocking the boat.
Understanding Talent and Cultural fit
When John Sculley, former Chief Executive of Apple Computers was asked whether he regretted calling for the vote which ousted Steve Jobs, he confessed that coming from a mega-corporation like PepsiCo, he valued administration over creativity and that he didn’t understand the costs that would have come with losing the company’s founder and vision.
With Citizen’s acquisition of La Joux-Perret, Frédéric Wenger retained his position as CEO; for MBA graduates, it’s textbook Mergers & Acquisitions 101 – the best way to acquire a brand is to partner it. This entails keeping an acquisition structurally separate and maintaining its own identity and organization. In essence, the main drivers of the business persist with the same power and autonomy while receiving the benefits of an alleviation of immediate cashflow and operating concerns and enjoying the synergy and momentum that comes with an enthusiastic new business owner. In short, the acquirer isn’t “owning” in so far as gaining a partner in a strategic alliance.
With Citizen’s acquisition of Frederique Constant, all while present management personnel (including Stas) and staff will continue to hold the same positions for 5 years after acquisition pending their decision to renew thereafter.
Perhaps this approach is best summed thusly, when Tata Group’s chairman Ratan Tata acquired South Korea’s Daewoo Commercial Vehicle Company in 2004: “Tata Motors will operate Daewoo as a Korean company in Korea, managed by Koreans, it will work as part of a global alliance with its Indian counterpart.” Even with Citizen’s acquisition of Frederique Constant, the company would be operated as a Swiss company in Switzerland, managed by its Swiss founders.
By avoiding the unintended consequences of integration, the acquirers don’t lose human and social capital or the team’s industry- and company-specific knowledge; in fact, they can also harness knowledge and best practices that for the benefit of both parties. All of this is evident in Citizen Watch Co. Ltd.’s behaviour with their previous buys.
More often, when companies end up with little operational autonomy after they’ve been acquired, it’s because the buying company doesn’t really understand the acquisition’s business; in this case, Citizen is to Japan what Swatch is to Switzerland. With Citizen’s acquisition of Frederique Constant, you can bet the same creative and organisational autonomy which made the acquired brands profitable companies will continue.
Existing prejudices, real or imagined, perpetuated by media extolling Swiss/German/French qualities inherent in culture and DNA still make such M&A propositions a dicey exercise. The cultural and genetic identity of a luxury brand is so inexorably tied with production and ownership that ultimately, majority of the reactions will be emotional rather than rational.
While there are obvious differences between “owned” and “made-in”, the average consumer is likely to not make that distinction because of emotional bias. In this respect, ‘Chinese made’ is at the moment the same as ‘Japanese made’ was in the fifties and in this century (after 40 years reckoning) we already accept Grand Seiko as an exemplar of Japanese high horology on par with the best that Switzerland can muster. In fact, some Swiss watchmakers like Kari Voutilainen even admit that some artforms like Urushi marquetry are skills that can only be found in Japan. Ultimately, buying expensive timepieces like all luxury goods is all about the “feeling” and logic goes out of the window but we can take comfort in the fact that historically, quality eventually speaks for itself (regardless of who owns the production facility) and we can get ahead of the curve by getting over our snobbish selves.