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* Japanese companies are major investors in the UK (Adds quotes and detail)
* Company was destroyed in the war, expropriated by the Soviets
* Lange & Soehne now competes with Swiss luxury watches
* Town in eastern Germany hit by rural exodus, low birth rates
By Silke Koltrowitz
GLASHUETTE, Germany, Jan 16 At the age of 66, when many are already enjoying retirement, Walter Lange was setting out to prove great luxury watches do not have to be Swiss.
In a remote corner of what was East Germany, Lange aimed to rebuild a venerable watchmaking business whose history reads like a chronicle of 20th century Europe, with its wars, dislocation, Soviet-era occupation and finally, unity and peace.
Now watchmakers in the small town of Glashuette again sit bent over work tables in whitewashed factory buildings, magnifying glasses strapped to their eyes, polishing three-quarter plates made of German silver and engraving balance cocks by hand.
"Back in the 1990s, when Lange & Soehne started making watches again, selling a German watch to a Swiss was like selling a fridge to an Eskimo," said Zurich watch retailer Rene Beyer. "But that has changed. At present, half of our Lange watches go to Swiss customers."
Collectors value the brand's characteristic old-style movements including a plate in the shape of a three-quarters full moon invented by Ferdinand Lange in 1864 to add stability, and screwed gold sockets, known as 'chatons', that today only serve decorative purposes.
The dial design - featured in the modern Lange 1 wristwatch - has become a classic.
Walter Lange tells how the factory started by his great-grandfather in Saxony's Ore Mountains was razed by bombs on the last day of World War Two.
"We had to dig the machines out of the rubble," Lange, now 88, said in a telephone interview.
Ferdinand Lange set up his watchmaking school and workshop in Glashuette in 1845 with a loan from the Saxon state to help the town's impoverished population recover from the closure of the local ore mines.
Talented watchmakers, his sons followed in their father's footsteps, gaining renown for their pocket watches and employing about 100 people during the firm's heyday around 1900.
Watchmakers trained at the Lange school opened workshops in town. Some manufactured their own watches and others supplied parts to Lange and its smaller peers.
"Most of the town's 1,000 inhabitants worked in the watch industry around the turn of the century," said Reinhard Reichel, director of the local museum.
Although World War Two all but destroyed the firm's operations, production restarted, only to suffer another blow when Soviet occupiers expropriated the firm in 1948.
"The little that was left after the war was taken away by the Soviets," said Walter Lange, who now lives in Pforzheim in southwest Germany but still travels to Glashuette often.
"I myself helped packing machines into boxes to be shipped to Russia. At Lange, we had to make sketches to teach the Russians how to make marine chronometers," he said.
The young Walter fled to West Germany to escape work in a uranium mine and tried to refound the brand there, but his attempts failed and he gave up hope of ever again seeing a Lange watch leave a factory.
On regular visits to Glashuette from the 1970s, Lange saw how the town's watch industry turned to mass production of cheap quartz watches, a trend that also plunged Swiss mechanical watches into crisis around the same time.
Only after the fall of the Berlin Wall did Lange dare to relaunch the brand and create the Lange 1 model, with the help of the late Guenter Bluemlein, then the head of Swiss watchmakers Jaeger-LeCoultre and IWC.
"Lange built a perfectly identifiable style, with its outsize date and off-centre displays: the Saxon style," said Gregory Pons, editor of watch website businessmontres.
Richemont acquired all three brands for 3.1 billion Swiss francs in 2000, leaving Walter Lange a 10 percent stake in Lange & Soehne that he sold to them in 2003.
"Together they represented a wonderful collection of watchmaking skills and assets. Lange was and is positioned at the pinnacle of the business," a spokesman for Richemont said.
The same year, rival Swatch Group took over Glashuetter Uhrenbetrieb, which succeeded the state-run enterprise that manufactured watches under the Communists, and returned its 150 staff to making high-end mechanical watches in the 90s under the brand name Glashuette Original.
A PIECE OF HISTORY
Lange & Soehne's history fascinates its customers.
"I bought a Lange in Hamburg in 1998 when the brand was only known to insiders. At the time, people thought good watches had to be Swiss," said a 53-year old Swiss private banker, who mostly keeps his Lange in the safe and wears an IWC watch.
"A friend told me about this East German brand being revived and I found that interesting," he said. The value of his watch has risen to about 22,000 euros ($28,800) from 18,000, he said.
Watch collector Hans Gut, a retired dentist, has already visited the Glashuette factory three times with retailer Beyer.
"I'm Swiss so the fact that these watches are German was not a plus to me, but I fell in love with them nevertheless, with the design and the unique history of the brand," he said. "Seeing all the work that goes into these watches really convinced me."
Lange makes only a few thousand gold and platinum watches a year that sell for 15,000-400,000 euros, placing it at the top end of the price range alongside Richemont's Vacheron Constantin, Swatch Group's Breguet and family-owned Patek Philippe.
Richemont does not break down figures to brand level, but analysts estimate annual sales at 100 to 400 million euros.
A difficult period for the brand started in 2009, when the financial crisis squeezed watchmakers' sales and earnings.
Glashuette mayor Markus Dressler confirmed local business tax revenue declined by 70-80 percent in that year, a sign the town's biggest taxpayer, Lange & Soehne, was not faring well. Tax revenue has recovered gradually, returning to pre-crisis levels only last year, he said.
Then-chief executive Fabian Krone quit in 2009 and was replaced by industry outsider Wilhelm Schmid, who had held positions in distribution and marketing at car maker BMW.
Jaeger-LeCoultre Chief Executive Jerome Lambert was appointed to oversee the brand's recovery on top of his responsibilities for Jaeger-LeCoultre.
"Lambert, who is an excellent manager, has put the company back on track," Pons said.
Management problems may have been resolved, but challenges remain. "The brand is struggling for a new identity. Its style has been imitated a lot so it has less impact now," Pons said.
One new difficulty for Lange & Soehne these days is finding qualified workers in a region experiencing rural exodus and a collapse in birth rates in the years after German reunification.
Four out of five former East German states saw a double digit decline in their populations between 1991 and 2008, against a positive trend in most western German regions.
Birth rates in the former German Democratic Republic slid to one child per woman in 1991 from 1.5 in 1990, according to official statistics, and stayed low in the early 1990s, meaning fewer young people are arriving on the job market these days.
"Germany is not a watchmaking country and it is not easy to bring Swiss watchmakers over here. So it is essential for us to train our own apprentices," CEO Schmid told Reuters.
Indeed, all the young watchmakers encountered at Lange's workshops said they got their training in town. To secure the next generation, Lange will double the number of apprentices trained at its watchmaking school to 20 this year.
"It makes me sad to see that the young people have left Glashuette," Walter Lange said. "Nobody wants to live here anymore because people have just become so demanding nowadays.
"But to craft complicated watches you need peace and quiet. To me, it is a great joy to see how the company and the town have thrived thanks to the watchmaking." (Editing by Sonya Hepinstall)
* Japanese companies are major investors in the UK (Adds quotes and detail)
LONDON, April 29 Japanese Prime Minister Shinzo Abe said that if the United Kingdom left the European Union with an abrupt change of rules for businesses then it could cause confusion for international firms.