Business 10th Edition by Ferrell,Geoffrey Hirt,Linda Ferrell

Exercise 24

Swatch Works to Restructure Company, Supply Less Parts to Competition
The Swatch Group SA is known for its beautifully elegant watches as well as its high-quality and precisely made internal movements and components. These internal parts have generated many sales for the company. At the same time, it has also generated a number of challenges. For several years, Swatch has been appealing to the Swiss Competition Commission to change regulation under the Swiss Cartel Act. The act mandates that Swatch supply movements and components of watches to other watchmakers. In other words, Swatch must provide supplies to its competitors in the watch industry. Swatch wants to stop supplying components to its rivals. Being the main supplier increases Swatch's expenses while allowing its competition to invest more money in advertising, thus stifling Swatch's sales. Repeatedly, the company's requests have been delayed or declined by the Swiss government because of the large market share that Swatch has in the industry.
Swatch and its subsidiaries provide approximately 70 percent of the movements and 90 percent of components to other domestic and foreign brands. Stopping the supply will have a tremendous effect on the entire industry. While the Swiss government has agreed to minimal reductions in Swatch's supplying of movements, cuts to the supply of components cannot be reduced. 17
Why is the Swiss government reluctant to allow Swatch to stop supplying components to its competitors?