Why Are In-House Made Movements Often Ironically More Expensive Than Sourced Watch Movements?

Jason L. from New York City asks:

In the recent years it seems watch brands have been milking the "in-house movement" movement, but how much does it actually cost to develop an in-house movement? How much more does it cost to manufacture that in-house-developed movement in-house?

Since the day of CAD tools and simulations developing a watch movement can be 99% digital with a handful of prototypes (at the final stages of development). It is not like the old days where you needed to have a master watch maker with 50 years of experience to hand draw and fabricate parts for a movement to realize it is flawed and start all over again.

Even worse the milking doesn't stop at the in-house movement claim, because many companies will "allow" the customers to believe because it is a in-house movement that it is also manufactured in house, but many are probably sourced parts from other companies.

This is another one of those watch industry ironies. You are absolutely correct that in most instances when a company brings production in-house it saves costs allowing for a decrease in production costs that should translate into retail price decreases. The opposite seems to happen in the watch industry. At least in the high-end watch industry. There are also a range of nuances of what "in-house" means. Sometimes this term is used when parts are made by sister companies or movements are produced "exclusively" for one brand. It can get dicey.

To a large degree this is another trick to increase the perception of exclusivity and quality. Surely things produced in-house must be better and more beautiful right? Why do I want just another ETA movement? Well ETA makes a lot of movements, but they certainly made a good one. We would say that from a quality perspective ETA is hard to beat. So what you are paying for with an in-house movement is ideally some special features or designs.

However, there is one valid explanation of why in-house movements cost more - at least at first. While the science of building a watch movement has been around for a long time, the art of industrialization is always a challenge. Most brands would much prefer to build a half dozen highly complex tourbillon perpetual calendars than 10,000 simple three-handers. Mass producing watch movements is challenging because parts must be produced with an extremely low level of tolerance and precision. Thus, brands who only in the last few years have decided to go in-house had to buy a lot of new machines, invest in new processes, spend a lot of money learning, hire new people, and sometimes buy or build new facilities. These are all huge expenses that they cannot make up for in volume as most watch companies don't sell in quantities sufficient to recoup a little bit of money in each sale. If you just spend $50 million dollars and you produce less than 10,000 watches a year, you can be damn sure your customers are gonna "feel" the price of those new in-house made movements.

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  • JackForster

    The cost of developing a new movement in-house is actually pretty high, and involves not only the development costs per se, but also the costs of tooling, hiring all the skilled staff necessary (CAD programming, and programming multi-axis CNC machines is a highly skilled trade) as well as investing in all the testing equipment necessary to homologate movements before casing them and sending them out into the world.  It’s even worse if you want to make your own balance springs instead of relying on Nivarox –after all it’s not like you can just go ask the Swatch group how to do it.  There’s a reason the overwhelming majority of watch brands rely on outsourced movements –it’s cheaper and much easier than reinventing the wheel.  Producing your own movement is so expensive and difficult that for most of the history of Swiss watchmaking it was the exception rather than the rule, as a matter of fact –there’s an excellent article on Timezone.com on the ebauche tradition; well worth a read.  Once you do make your own movement (and bear in mind it costs millions to get there, and I’m not exaggerating) you have to recover costs and make a profit; if you’re doing high volume you can amortize the cost of development, R&D, staff, tooling, testing equipment, staff to run testing equipment, oh and don’t forget the additional cost of after sales service for your in-house movement, over a large production run; if it’s a small batch operation you have to charge a lot to make it worthwhile, and then you have to pay for people to finish your watches to an appropriate level for your price point, which ain’t cheap either.  Remember, this is Switzerland, where people have some expectations about compensation and job security 😉 .  By the way I am sure the article above meant to say “because parts must be produced with an extremely HIGH level of tolerance and precision” not low.

  • MarcTravis

    Economies of scale.

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  • notech47

    Manufacturers have to accept that their highest priced watches must share something with more common models to maintain market presence and profitability. Just like most current Rolls Royce cars are BMW based and Bentley’s are Audi based. Neither brand image has suffered and sales and profitability and quality have improved substantially. The watch industry in general, particularly at extreme high dollar levels must follow this type of business model to thrive.

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  • Yojimbo

    thank god you said that. I couldn’t believe the answer wasn’t just something like “Because” with a link to investopedia

  • tknospdr

    “Mass producing watch movements is challenging because parts must be produced with an extremely low level of tolerance and precision.”

    Don’t you mean extremely HIGH level of tolerance?

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