November 13, 2012 / 1:15 PM / 5 years ago

China's 2nd tier cities seen helping Swiss watch export growth

* Most polled executives see strongest growth in Asia-survey

* Growth in Chinese second-tier cities, Korea, Japan-Deloitte

* Shortage of skilled labour, watch part supply seen as risks

* Two-thirds of respondents see M&A picking up in next 12 months

ZURICH, Nov 13 (Reuters) - Strong demand for Swiss watches in China’s second-tier cities and other Asian markets should continue to drive export growth in the next 12 months, a survey of 50 Swiss watch executives showed on Tuesday.

Fifty-eight percent of polled watch brands expect the strongest growth in watch exports to come from Asia over the next year, a survey conducted by professional services firm Deloitte found.

“Worries about a possible growth slowdown in the main export markets are persistent amongst the executives,” Jean-Francois Lagasse, partner corporate finance at Deloitte, said in a statement.

“But the growth of the Chinese and other emerging markets is still high - and there are still untapped opportunities for the Swiss watch industry in many of these markets,” he said.

The Chinese market has not yet been fully exploited given many Swiss watch brands were only just beginning to expand beyond the entry points of Hong Kong, Shanghai and Beijing, the study said.

Growth of Swiss watch exports fell for the first time in 2-1/2 years in September as high stock levels at China and Hong Kong retailers sent exports to these top markets plummeting.

Kepler Capital Market analyst Jon Cox said he expects export growth to slow to 7 percent in 2012 and 2013 from 19.2 percent in 2011.

Of the surveyed watch brands, component makers and other sub-contractors, 49 percent judge the outlook for the Swiss watch industry as positive for the next 12 months, while 18 percent see it as negative, Deloitte said.

“Executives told us that growth in China is mainly going to come from second-tier cities, which have not yet developed their full potential and where brands are investing in their distribution network,” Lagasse told Reuters by telephone.

“Japan and Korea are also going to drive growth,” he said.

The Deloitte survey, based on interviews and an online survey, cited the shortage of skilled labour and the availability of watch parts and movements as major challenges.

To alleviate sourcing problems in production and skilled labour, large groups and brands are likely to continue acquiring suppliers, with almost two-thirds of respondents expecting M&A levels to rise in the next 12 months, Deloitte said. (Reporting by Silke Koltrowitz; Editing by Jon Hemming)

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