Tissot manages to get competitive prices by adapting its suppy to the segments that are between Erwan Rambourg’s Everyday Luxury and Accessible Core ($350 to $1,500). By the way, the chart below shows the distribution of Swiss watches In price segments, based on export figures.
Brands like Tissot need to maintain the distribution commission and markup to cover their marketing, operational and manufacturing costs, so where do they save money? The three informations that will be relevant to my answer are: the 60% Swiss Made law, Swiss wages and manufacturing steps.
Swiss Made is not a marking that brands can willy-nilly print on their watches. There are regular audits and visits of manufacturing plants to make sure that no one abuses the mark.
In 2017, the Swiss confederation introduced a new regulation regarding the “Swiss Made” certification. Prior to that, the only requirements to be able to mark a watch Swiss Made were: A. the obligation to assemble in Switzerland, and B. the obligation to use a Swiss movement.
However, the definition of a Swiss movement allowed for 40% of its cost of production to be spent abroad. The other components of the watch could entirely be sourced abroad or overseas.
The 2017 reform introduced the same type of 40% limit on external components as well. For a brand like Tissot, this means that prior to 2017 they only had to use movements that were 60% Swiss, and all other components could be imported.
With the new regulation, a factory can only import 40% of all components, but there is a loophole: instead of importing finished components, the import semi-finished components and do a little work on them in Switzerland to be able to claim them as Swiss made. With penny pinching calculations, it is thus always possible to circumvent the Swiss Made barrier.
Based on that, you can understand that if Tissot wants to get components at the lowest possible price, the laws about Swiss Made are not going to prevent them from having a lot of the manufacturing work carried out overseas.
Next, let’s look at hourly wages. In Shenzhen, it averages to RMB 47.9 (or $6.85). In Switzerland, there is no official minimum wage, but $35 would be a good placeholder. You can already see that labour is 5 times more expensive in Switzerland. And watch manufacturing is a labour intensive process, so if Rolex steers away from any shenanigan around Swiss origin, they are highly likely to have manufacturing done from A to Z in Switzerland. That means the same component at Rolex will cost 5 times more for Rolex to procure than for Tissot.
German strap manufacturer Di-Modell explains in their catalogue that they can deliver 3 grades of craftsmanship. Their most basic strap design undergo 75 different operations, their premium strap designs undergo more than 150, and their high end designs involve more than 200 steps.
Manufacturing watches is arguably as labour intensive as leather goodsM so you can imagine that as there must be fifty ways to leave your lover, there must be fifty ways to make the same component, and you can at least multiply man hours by 2 or 3.
In mass production, the indices of a dial like the one below will be quickly minted in brass under a hydraulic press and will be mass polished in a tumbler before being plated with a layer of nickel, a cheap silver-coloured material.
Rolex does it completely differently: they mill indices out of blocks of 18K gold, have them polished by and operator and an electric machine, and apply a plating of rhodium, a silver-coloured noble metal that costs more than gold ( Rhodium prices rise to stratospheric levels).
Why go through all that trouble? Because 18K gold is more rigid than brass, which means that the 18K indices are less likely to break off in case of shock. Nickel is not a noble metal, to it might eventually tarnish. Rhodium doesn’t have that disadvantage, as it doesn’t chemically binds with oxygen or carbon and can keeps its lustre for decades.
Here is a Tissot Gentleman, designed to emulate a Rolex Datejust (that you can to see further down). We are comparing an MSRP of $920 and $8,260.
Basically the Rolex costs 9 times more than the Tissot, but based on my explanation you can now understand what all that extra money accounts for.
This Tissot uses an ETA Powermatic movement, which is based on an architecture that was designed at least in 1982, if not earlier. The Powermatic saw its pace lowered to 21,600 alternances per hour (3 Hz) from the original 28,800 (4 Hz), and it receives a balance wheel that is computer controlled and laser cut for perfect poise (the one in gold colour, but it is not 18K gold).
It is fair to say that by now, ETA has probably amortised their R&D investment on this movement.
And here is the Rolex Datejust.
The datejust uses the Rolex calibre 3235, which was only launched in 2015. Almost every so often, Rolex goes through the trouble of designing a completely new architecture.
The balance wheel uses micro metric screws that allow to poise it manually. A skilled operator spends several minutes making sure that each balance works within constraints.
I have only illustrated the amount of work dedicated to mak indices, but you can extrapolate the same attention to detail to all the other components. In the end, even if these articles end up looking superficially similar, a brand like Rolex goes the extra mile to procure expensive raw materials and to process them with Swiss operators.
If you are operating on the Tissot business plan, you are penny pinching. If you are operating on the Rolex business model, it is almost with no expense spared. This is how Tissot manages to make a similar looking watch that costs 9 times less than a Rolex.
