“We should be somewhat more confident”

“We should be somewhat more confident”

Plea for an autonomous industrial policy instead of always eyeing foreign countries

An interview conducted by Hans Peter Künzi, Radio SRF, with Swatch CEO Nick Hayek

Mw. He has required renown all over the world, and in Switzerland he achieved a truly great thing – the entrepreneur Nicolas Hayek (1928-2010). When the watch industry, a cornerstone of the Swiss economy, was on the verge of ruin, he set out, together with ETH engineers and supported by Swiss banks, to regenerate it by means of the production of an inexpensive plastic watch by the name of Swatch (Swiss Watch). Today the Swatch Group owns many of the traditional Swiss watch brands and numerous production sites which produce all the small individual parts required by the watch industry – and produce them without exception in Switzerland. Since his death, his son Nick Hayek – like his father an impressive personality – has been directing the Swatch Group.
In a radio interview with Radio SRF Nick Hayek he shows himself to be a Swiss entrepreneur who takes his responsibility seriously. For Hayek, the first priority is not profit, but his concern for Switzerland and its industry. He is an entrepreneur who uses his powers to advance Switzerland as an industrial location, one who sees that it is precisely the characteristics of the Swiss model like its federalism and its direct democracy provide considerable benefits for a strong economy. In short, he is one among those – many other – citizens who contribute to society. Below we have compiled some excerpts from the interview.

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Radio SRF: He is the face of the Swiss watch industry: Nick Hayek has been the CEO of the Swatch Group, the world’s largest watchmaker, for 13 years. Since Thursday, the watchmakers have been presenting themselves again in Basel, at the “Baselworld”, the world’s largest watch fair. 1500 exhibitors from around the world show their watches and to some extent their jewelry here. […] Nick Hayek, we are conducting a conversation live here in Studio Basel because naturally, you are also here in Basel these days. But you are obviously not that much of a fan of this great exhibition, right?

Nick Hayek: Look, it is important that this fair is in Switzerland. Switzerland is the most important country when it comes to watchmaking. But I grew up with the Swatch, the Swatch brand. The Swatch brand would not actually exist, if it were up to the dealers. Basel is a dealer exhibition. For the dealers, the American dealers said at the time, the early 80s: Oh, that’s nonsense, a plastic watch - nobody wants that, it is far too cheap. Whoever will want a Swiss made watch that is cheap? [...]

“Switzerland is the most important country when it comes to watchmaking”

You said that there are people there offering a big bluff. So what is the entire Swatch Group doing there now?

Well, we have a responsibility, you know. Once the Swatch Group was no longer there in Basel. But when you see what industrial strategy the Swatch Group is pursuing – that is, we have 150 factories in the country. We build all of the small individual parts, we are totally verticalised, and not only for the Swatch Group, but also for others, for the entire Swiss watch industry. And that means that we have our brands in all segments and that we want to present them well, and so want to and have to be in Basel; just to show that we are solidly united with the future of this industry. So it’s not about one group showing off and saying, we are the greatest, the best, but instead we all have a common interest – the Swiss watch industry is a real high-tech industry. That is why we are there.

Now the Swiss watch industry is in a little less good shape than it once was: Last year, total exports declined by about 3%, and also for you, for the Swatch Group, sales fell by about 3%. And I think one can say, without exaggeration that the net profit has dropped by about 20%. In this situation any other CEO would be very nervous and quite rattled, but with you one gets the feeling that you are not even really interested.

No, look, we have a different philosophy. As I said, we are an industry and we think long-term and not short-term. We are not interested in what the stock market thinks. It thinks only as far as about three days ahead.

But less profit; that is not only the stock exchange, but it is also your own pocket.

Yes, now you must look (speaking Swiss German), the Swiss franc. We produce and are loyal to this location. Of course, the Swiss franc has an effect on us. But if you look at the overall situation, the Swatch Group makes above 18% operating profit in the watch and jewelery range – an industrial company. Of course in the previous year we achieved 20% or 21%. But the Swatch Group is very solidly funded, has a long-term strategy, and we will not change our strategy at short notice because we have a catastrophically overvalued Swiss franc. What we want is long-term growth and continuation along the growth path; we will invest in innovation and production. For we must in fact have both in Switzerland, we need research and development, and we have that, we are very strong. But we also have to keep the know-how of production here. Therefore, it is not that serious if for once we have 2% or 3% less. 20% does sound terrible, but if you know that we still have more than one billion francs profit in the Swatch group, then – okay – it is bearable.

You have mentioned the strong Swiss franc again. – You seem to love to go on about Mr Jordan, the SNB company boss. Now if you look more closely at last years export figures, by regions, they are striking: Hong Kong, the most important market, minus 23%; China, the third largest market, down by 4.6%, elsewhere in Asia and in the Arab world, Russia, everywhere, it is problematic everywhere, also in South America. By contrast, if you look at euro area countries such as Italy, Germany, France, there is a positive trend. That would allow one to come to the conclusion, that it is not really only the Swiss franc, there are other problems.

Well, now I have to correct some things that you may not be able to know. The export figures are not the sales figures. Those are products that are exported from one branch to another. Secondly, nowadays people travel. That is, the Chinese travel around. Previously to Hong Kong, then there were problems, now they go to Japan, and they go to Europe. And of course they buy the products where it is easier and cheaper. Now, with these distortions in the currency – and I must make a correction here: the hard Swiss francs would be no problem, we all want a good hard franc. But a massively overvalued franc is a disaster – for the industry and for tourism. Now, when you sell your product in Germany or in France, then you have people there who buy your product locally, the French and the Germans, who know nothing about currencies.
You cannot increase the prices of your products by 20% from one day to the next there, otherwise your sales will collapse, i.e. the sales in numbers. So you accept that tourists travel for example to Germany, to France, and then buy your watches there rather than in Hong Kong or in China. But if you later change the proceeds to Swiss francs, then you have a minus. And you also need to analyze this quite exactly. In 2009, for example, we, the entire Swiss watch industry, exported 21 million pieces. In 2015 – if everyone is talking about difficult times – it was more than 28 million units. This is an incredible growth. […]

“The Swiss watch industry […] always had to fight against the 1.17 billion pieces made in the world”

Then let us look at still another topic now. We have already talked about the Swiss franc, and we could probably talk about it for yet another half hour. But as to Smart watches: you have already been here with us once before – that was a year ago. At that time you said, we are not afraid, there is no competition for Switzerland. Meanwhile, more smart watches than watches are sold in our country, especially Apple Watches of course. Has that been a surprise to you?

No, you have to look at the figures. You know, the world watch market is at 1.2 billion. 1.2 billion pieces are sold. Of which the Swiss traditionally has between twenty and thirty million pieces, the Japanese watch industry sixty million. And now you come up with these numbers and compare them to those of the Swiss watch industry. You need to make comparisons with the entire watch industry. In all segments, even in the low price segment, where the Swatch Group is almost alone with Tissot, with Swatch, the Swiss watch industry always had to struggle against the 1.17 billion pieces made in the world. And these are fashion watches, there are smart watches, there are unintelligent watches, there are beautiful watches. We were always exposed to that. Smart watches – those we make. Swatch launched its “credit card” Bellamy watch through our partnership with China UnionPay before Apple in China. We have Touch Zero 1, Touch Zero 2, and as I have said before: Our technologies that we have, which are in many devices as, by the way, it is with Apple, they are not in the smart watches, but in the smartphones they are used, and they come from us.

So one can say you were once a pioneer, in this area, and now you have become totally outdistanced by Apple.

We are pioneering players. But you know, we are in an exceptionally good situation. We are in the market, and we will use the functions of which we see that the consumer wants them. We have a fantastic situation. We can make the integration of functions, independently, in our watches, that is, the watch must remain an ornament for a man and for a woman. And we can integrate the functions that are useful. What would be wrong, and what a few others do, is to buy know-how in America. The know-how is there, at our universities, at the CSM in Neuchâtel, the Swatch Group, we all have the know-how up to the operating system, but there are people who in order to have short-term marketing success, quickly travel to America and shop. [...]

“The Swiss are not extremists, and they do not want extremist politics, neither left wing nor right wing”

Mr Hayek, I want to touch another subject with you briefly, and that is politics. This week we had a major economic debate in Parliament: The left wants stimulus packages, for example, they want to keep the National Bank on the short leash. The right doesn’t really want to do anything except for seeing to it that the conditions remain good. What do you want?

I want Switzerland to maintain its federal system, in which autonomy is delegated down to the people in the cantons, in the communities, in the cities.

Do we need an economic programme now, as the left say?

No, an economic programme is not needed. Look, Switzerland has a problem, and that is the Swiss franc, that is just the way it is, even if I get on your nerves when I say this over and over again. Look, the American National Bank, the Japanese, European, all the national banks have realized that their currencies are important as a tool for their industries. Only Switzerland thinks it can do anything, as it is small and weak. And that is our problem; everything else is fantastic: our relationship with the unions is fantastic, our affinity to the workers, our education system, our infrastructure. We have the best of what there is. And we still have something else that is good: there is no centrally oriented political system which wants to take just any measure to help the economy.

Can we say with regard to National Bank policy, so as to keep the SNB on a somewhat shorter leash – there you tend more to the political left and when it comes to stimulus packages, more to the right? Where do you stand anyway?

You know what? I am a pragmatist. That is what kills us in the world are those who have dogmas and ideologies. What we need as good Swiss citizens … we have both feet firmly on the ground, and we must do what is good for our country and for our workers and for our jobs. Unemployment, that doesn’t work in this country. So we have to roll up our shirt sleeves. And if there are left-wing positions, and if there are right positions – once it’s left, another time it’s right, I’m not interested in that, we act according to what we believe. And if someone from the outside says this is left or right, we don’t care.

Nevertheless – at least once every four years you do have to decide, which party will I choose? Which will you choose?

Actually I don’t choose any parties, I choose people, I look at who is credible and who represents what I think is right. And then I choose the package. I am in

no …

Now we have a new majority since last autumn, a new, larger majority than before. Is this a good thing for you as an entrepreneur, did you cheer that?

You see, I’ve learned that in Switzerland everything always happens en masse. And also when you saw these elections, there is now a bit of an overbalance on the political right. And then sometimes the left has the upper hand. This always gets balanced out again. The Swiss are no extremists, and they don’t want extremist politics, neither left wing nor right wing. I’m not worried about that in the least. And don’t forget our unique system … Whenever I tell our Chinese friends that we have seven Federal Councillors, and they actually come from four different parties! That’s sensational. And that’s the way it must be.

Previously Swiss politics were a symbol of continuity for stability at home and abroad, but now initiatives – whether they then come about or not – repeatedly make the headlines even abroad. The 1:12 minimum wage initiative launched by the left, the SVP mass immigration initiative from the right or now just recently the enforcement initiative … This gives quite a new image of Swiss politics to other countries – to some extent you get the feeling that there is less stability in Switzerland. Is that a problem for you, do you get the impact?

No, do you get that impression? No, I have the impression that people abroad admire Switzerland. Only the politicians, if you listen to the politicians abroad, the German are indeed a good example: When, for example, Switzerland adopted the initiative against rip-offs, these politicians in Germany say, “that’s sensational, the Swiss are so smart! They are so intelligent, they voted against these cheaters.” And then comes the vote on the mass immigration initiative, and the same politicians say, this is scandalous, those Swiss, the way they can be manipulated, the way they have voted!” Well, so what is it now? Is it sensational if it fits into their program, and not so if it doesn’t?

As an entrepreneur, don’t you notice any difference compared to, for example, ten years ago when everything was still a bit different?

On the contrary, I think Switzerland is an example of how things can be done, and many, many people in the world – though not the politicians - find Switzerland a super example. And Switzerland has leadership in many areas, even in technology and, by the way, also in smart technology, and we should be aware of this and be more confident before we try to go shopping a little everywhere in the world, and shop things that we could make ourselves. […]

A sensational new battery – Swiss made!

Finally, I would like to talk to you about something else, not about watches, but about batteries. The company is called Belenos, and it is still relatively small, but it is expected to set the world on fire with their new super battery that will be much more powerful than anything that there is to this day. There is talk of 30% more power and it is easier to recharge as well. What motivates a company like yours to start in such a big way there in a field which is after all essentially foreign to it?

That isn’t so strange. The watch industry – everything is about energy there. You can charge watches – mechanical ones – with your body, the energy coming from the movement. There are even watches that you can get to run with the temperature of your skin. And the same applies to micro-electronics. Everything is miniaturised and consumes little energy, because we are specialists there – touch screen, solar cells. Well – my father is at the origin of this. He always said, and he had this vision: With this mobility, if the Chinese, the Indians, if all these people want to make the same mistakes concerning mobility as we do, then the world will end with all this smog.

Wanted to make a Swatch-Mobil, a car.

So he wanted to make a Swatch-Mobil, a car. Then he founded Belenos, incidentally with the ETH as a shareholder, and with George Clooney as a shareholder, and we investigated fuel cells and batteries. And with the assistance of the ETH we found a new material: Vanadium. And now I’ll tell you what is ideal: Renata is our battery factory and we produce 800,000 units per day in Baselland. And the combination of research and development and our production have led to the result that by July we will be ready to produce a sensational new battery, which has 30% more energy density, which is less dangerous, which can be recharged more quickly – Swiss made!

And it is exactly this battery which we will then be able to use not only for watches and not only for consumer electronics – e-bikes will also be powered this way or, for example, also cars – of course currently the Tesla is just about the measure of all things in Switzerland. There a battery costs around 30,000 Swiss francs. You can drive around with it up to about 400 km and then you have to recharge it and that’ll take a few hours up to half a day, whatever the case may be. With your battery, how much time will that take, for example?

We are specialised to work with lower voltage, and so we can charge our battery faster. Also the materials don’t get so hot, its durability is greater. All this comes from the knowledge of the watch industry. […]

And to some extent you want to deliver this later to China. Then where will all these jobs be created?

To begin with, they will emerge in Switzerland, because we have done the research and we are producing. As I have said before, we are producing 800,000 batteries per day at the moment! I believe there is no other producer of batteries who produces such a lot in Switzerland. But what is important, that is the jobs in Switzerland. In this respect we are pioneers, and we will go forward here. But we also have to change the world, we must also ensure that the batteries that are better actually lead to an altered mobility, and so it may be that there will be a joint venture and that factories which can make these batteries faster will be built at different places in the world.

You have already said that annual sales of ten billion Swiss francs may be possible there. Compared to the sales figures of the whole Swatch Group this is more than you make with the sales of all your watches. When will this be happening?

You’ll have to ask the analysts about that.

I’m asking you, you know better, apparently.

Look, that isn’t important. It’s important that you have the know-how of production, and research and development results are there. Then you see that there are products which really exist. Do you know how many entrepreneurs come to us, small entrepreneurs, medium entrepreneurs, who make e-bikes, who have ideas - you know, all these self-driving cars that are there that need energy, and there you can see what potential is arising in Switzerland.

Nevertheless I am asking you once more, when will the work on this be fully in progress, when will these ten billion be realistic, and how many people will then be working – separately again – in Switzerland?

You know, I am not interested in the money, it is important when we will have delivered the first hundred thousand batteries for a super new electro-scooter or car. And I am sure this will be the case already in 2017.

Your father has come to be known as the one person who actually saved the Swiss watch industry. Might it be the case that you will then be known as the person who has given rise to the idea of electric cars, to an environmentally friendly means of mass transport?

No, this won’t be the case, because it will still be my father, because my father had this vision in 2007. And that has continued till today, because we are stubborn and will not listen to analysts and stock exchanges and journalists.

You want to carry it through?

Not only do we want to, but we will carry it through. We’re entrepreneurs and not marketing fellas.
Then we wish you the best of luck. Mr Hayek, thank you for coming to the Saturday Review.     •

Source: Radio SRF “Samstagsrundschau” (Saturday review), 19 March 2016.

(Translation Current Concerns)

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