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(Bloomberg) -- TAG Heuer is set to enter uncharted territory this year with plans for a smartwatch that will be its only timepiece developed outside Switzerland.
The brand and others based in the Alpine country will need to work with partners in Silicon Valley to produce such watches as Switzerland lacks the technological expertise to do so itself, according to Jean-Claude Biver, head of LVMH Moet Hennessy Louis Vuitton SA’s timepiece unit.
“We’re not in the communications industry, Switzerland is not, we don’t have the technology,” Biver, 65, said in an interview at his home near the lakeside city of Montreux last week. “If you don’t have it, you can’t innovate.”
Synonymous with timekeeping for centuries, the nation’s watch industry has traditionally used “Swiss Made” as a marketing tool to boost the bonafides of its products, arguing that the term goes hand-in-hand with quality, expertise and innovation. With the imminent introduction of the Apple Watch, the industry faces a challenge to those values.
TAG Heuer, which boasts that “Swiss Made is more than a label at TAG Heuer, it’s a state of mind,” is developing its own smartwatch to help stave off the impact of the American product, which poses the biggest threat for watches priced at less than $2,000, Biver said.
For a smartwatch, “we can’t produce the engine, the chips, the applications, the hardware -- nobody can produce it in Switzerland,” Biver said. “The hardware and the software will come from Silicon Valley. But the watch case, the dial, the design, the idea, the crown, that part of the watch will, of course, be Swiss.”
Fifty percent of a watch’s movements need to be produced in the country in order to win the ‘Swiss Made’ label at present. But the expertise is limited to mechanical know-how, Biver said.
Biver has split TAG Heuer’s research and development business into two departments to reflect the “different craftsmanship.” One department focuses on research and development with watchmakers and watch engineers, the other with engineers of technology. TAG Heuer will be able to reveal partnerships it has formed with other companies to create its smartwatch in the next six weeks, he said.
In addition to functionality expected of a smartwatch -- think GPS and health monitoring -- TAG Heuer’s timepiece will have applications that are specific to its own brand to give it a unique selling point, he said, such as tie-ups with sports it sponsors.
Biver has led brands through transformation before. As CEO of Hublot, he led the introduction of “The Big Bang,” a chronograph that helped the brand to boost revenue under his tenure. Earlier, the executive turned around a moribund brand, Blancpain. He later sold it to Swatch Group AG, and was there tasked with restructuring the Omega label.
The Apple Watch is only one of the threats to the industry this year, following the Swiss National Bank’s decision last week to end the minimum exchange rate between the Swiss franc and the euro. The subsequent surge in the franc means that timepieces that are made in Switzerland will be more expensive when exported outside of the country, as all but a fraction are.
The smartwatch market will probably reach about $10 billion in 2018 from as much as $1.8 billion in 2014, Citigroup Inc. analysts forecast last year, with half of the market in the future coming from traditional watch wearers switching to the tech devices.
One person who plans on wearing the Apple Watch is likely Biver himself, he said.
“It’s a fantastic product, an incredible achievement,” he said. “I’m not just living in the tradition and culture and the past, I also want to be connected to the future. The Apple Watch connects me to the future. My watch connects me to history, to eternity.”
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