China exported 956.9 million watches worth US$977.4 million in 2004. However, export growth rates in the industry have been decreasing dramatically. Export sales last year increased by only 2.5 percent, significantly lower than the 22.4 percent growth rate registered in 2003. Even volume growth has slowed. Where total outbound shipments increased 10 percent in 2003, they rose only 5.4 percent in 2004.
The downward trend is continuing in 2005. Exports in the first seven months of 2005 were down 7.7 percent to US$460.9 million from the same period in 2004. The number of pieces shipped fell 13.7 percent to 418.6million.
One of the main reasons for the decrease in exports is the decline in demand for low-end watches including promotional models.
The following are some of the key trends we see in China's watches industry:
• Many suppliers are shifting focus to midrange watches to overcome declining demand for low-priced models. Some of the larger companies are also trying to increase exports under their in-house brands, while a few have even started producing high end tour billon watches.
• Even though many watchmakers are enhancing their designs, low-end watches will continue to be China's mainstay for the next several years. This is mainly because of a lack of skilled and experienced designers.
• Rising material and production costs will have a limited impact on export prices, with a large number of suppliers increasing quotes, mostly by up to 5 percent. The majority, however, will keep prices stable.
• The output of multifunction watches is expected to increase substantially in the next 12 months.
Aside from the usual calendar and alarm functions, these watches have value-added functions such as USB flash disks drives, digital cameras, MP3 players, laser pointers, pedometers, heart-rate monitors, radios and even universal TV remote controls.
Watchmakers in China produce promotional, classic, fashion, sports, children's and tech watches. These are also the scope of this report.
While most suppliers offer a range of watches across all categories, some specialize in one or two lines. More than 61 percent of the suppliers in this report produce at least four kinds of watches for export, usually with classic, fashion and sports designs as the major lines. Nineteen percent specialize in one or two categories, usually children's or tech models.
The features and prices of each kind of watch are discussed according to low end, midrange and high end in the Products & Prices section.
The R&D module discusses how makers are improving product development and design capability as a means to be more competitive. The Materials & Components section explains sourcing of movements, modules and other materials, and how this affects overall product quality. The Manufacturing section details the production and QC processes in small, midsize and large companies.
Most watch suppliers in China are locally owned. Sixty-eight percent of companies profiled in this report are private locally owned. Hong Kong-owned or invested companies comprise 22 percent and a few are Taiwan-owned or invested.
Industry Overview
Intense competition in China's watch industry, especially in the low end, is prompting more makers to shift to mid range and even high-end production. More companies are also developing or strengthening in-house brands to distinguish themselves from rival makers. The fact that the industry is saturated with similar-looking products provides further motivation for upgrading designs.
But compared to suppliers in other segments of China's fashion industry, watchmakers have been slower in taking the step to upmarket production. This is mainly because the watch industry suffers from a shortage of skilled R&D technicians and designers. As a result, most watch suppliers still focus on low-end, OEM production.
The shortage was not a problem before, with most China suppliers concentrating on low prices and high volume. But even as global consumption of fashion watches — the largest product line at most factories in the country — grew 4.5 percent in each of the past two years, overall watch exports from China have started to decline.
Exports in the first seven months of the year totaled US$460.9 million, down 7.7 percent from the same period in 2004. The number of pieces shipped fell 13.7 percent to 418.6million.
Last year, China exported 956.9million watches worth US$977.4 million. Although export sales increased 2.5 percent, the growth rate was significantly lower than the 22.4 percent registered in 2003. Even volume growth has slowed. Where total outbound shipments increased 10 percent in 2003, they rose only 5.4 percent in 2004.
Export growth rates have been declining due to decreasing demand for low-cost models. The low-end watch segment has become saturated with a large number of suppliers offering similar models. This has prompted many suppliers to move up the value chain in order to remain competitive and attract more orders.
Many companies, however, cannot take this step easily due to the lack of skilled designers and skilled R&D technicians. Most fashion watch designs have a one-year shelf life. While seasoned designers can come up with fresh, innovative styles every month, less-experienced ones mostly do slight modifications on existing models.
Production of tech watches and high-end sports watches, on the other hand, requires a higher level of technology which most China makers still do not have.
To attract skilled technicians and designers, some companies are offering them salaries up to 30 percent higher than that paid to assemblers. But to do this, they have had to freeze pay levels for the rest of their workers.
Developing and marketing their own brands internationally is not an option for most China suppliers, as it requires large sums of investment and few makers have the marketing expertise to effectively position their products.
For these reasons, those companies that are producing more upscale designs, moving to OBM or both, are usually large companies with an established local brand. Apart from being able to export all or the majority of output under their own brands, a number of these suppliers have been able to develop tourbillon watches, which until very recently only watchmakers in Switzerland were capable of making.
Some of the smaller China companies are also taking steps to move upmarket, but they are offering high-end watches on a limited scale and in low volumes.
Although more suppliers are improving their models, low price is still seen as the main competitive advantage of China. Even though exports of watches have slowed down, the country remains a top choice for buyers from around the world, particularly for low-end and mid range designs.
Industry Composition
China is the world's largest export manufacturer of watches, producing almost the entire output of low-end watches. Among the estimated 1,000registered makers in the country, more than 70 percent export watches either directly or through traders. On average, makers export about 65percent of their output, mostly to the US, Europe and Asia.
About 60 percent of watchmakers in the country are locally owned and one-fifth are Hong Kong-owned or invested. There are also several Taiwan-owned or invested watchmakers in China. Supported by the island's long history in IC, PCB and electronic component production, most Taiwan-owned or invested
Supplier Profile
Fujian Wideplus Precision Instruments Co. Ltd
Fujian Wideplus is a large, Hong Kong owned company established in 1991 to produce quartz analog timepieces, including watch and clock movements. Total sales for all of its products amounted to US$20 million last year.
Fujian Wideplus started increasing its watch output in 2003, the same year it started assembling watch movements. Last year, the ISO9001:2000-certified company sold US$4million worth of watches, all of which were exported.
Export sales grew 200 percent in2004, with Europe and the US as main markets. OEM work takes up 100 percent of export business.
Products
Quartz movements are the company's main product, which accounted for about 80 percent of its total sales in2004. Because of its focus on movements, Fujian Wideplus offers mostly quartz analog watches although analog-digital models are also available. The company does not make mechanical watches.
Classic models account for the majority of watch output. Because the company makes movements in-house, Fujian Wideplus can offer watches priced as much as 30 percent lower than those available from other makers in the province.
Fujian Wideplus only offers low end watches. Apart from quartz analog movements, all components such as straps and cases are outsourced.
Even with the focus on low end, the company invests heavily in R&D, spending as much as US$3 million annually. This, however, is used mainly to develop or improve movements.
Its 15-member R&D team can produce watch samples in 10 to 35 days. To strengthen its R&D capability further, Fujian Wideplushas hired two designers and plans to add more highly skilled staff to this department within the year.
Alloy, stainless steel and plastic are the preferred materials for cases while PVC and PU are used for straps. Watches are packed in cartons, bubblebags and metal boxes.
Manufacturing
Fujian Wideplus operates a 30,000sqmfactory run by more than 1,200workers. The factory has six watch assembly lines on the fourth floor, each with around 600 workers.
Main production processes are plastic injection and molding, watch assembly, quality control and packing. Most of the processes are done by hand with the exception of plastic injection and molding.
Fujian Wideplus follows a strict quality control system and uses timing machines imported from Germany and Japan to check whether products pass the company's standard rate of ± 1 second. The company's 35-memberQC team inspects the watches following AQL 1.0 and 1.5. Its defectrate is one watch per batch of 100.
With the rapid growth in its watch sales and exports, the company will be increasing its capacity by 20 to 50percent in the next 12 months. It will be upgrading its existing facilities to make room for additional equipment and will purchase a new 20,000sqmproperty to boost capacity further.
All this column of information contained in China Sourcing Reports is the result of original, independent and impartial research conducted by Global Sources analysts.
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