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Hayek may overestimate his reach -- "I am the creator of products, kingdoms and empires," he says -- but he does have expertise at taking a luxury product downscale while preserving its cachet. It was he who came up with the strategy that saved the prestigious Swiss watchmaking industry from succumbing to the Japanese hegemony in the quartz-watch business. In 1983, when he was approached for advice by a group of Swiss banks, the country had seen its share of the global watch market drop from 43% in 1974 to less than 15%. More than half the Swiss manufacturers had gone under, and creditor banks had taken over the country's two largest watchmaking groups. "They were ready to close them down and sell the brand names off to the Japanese," Hayek recalls. "I proved to the banks that we could revive the industry, then I went on national television and told the Swiss people, 'We can be No. 1 again.' Nobody dared believe it."
Hayek put up $102 million -- mostly his own money -- and led a group of investors in buying the two companies from the banks. He then merged them, effectively taking control of one-third of the Swiss watch industry, including such famous brands as Omega, Longines, Blancpain, Tissot, Rado and Hamilton. But his big coup was figuring out that a product invented before his arrival could be the high-quality, low-price, plastic quartz watch that would challenge the Japanese at the lower end of the market. The $35-to-$40 Swatch, which reduced by half the usual number of parts by building them directly into the casing on automated assembly lines, was an instant success, enabling the Swiss watchmaking industry to command 53% of the world market. The company has kept demand for the watches high by staying on the cutting edge of new designs, turning out some 140 new models each year plus limited-edition designer collections.
But the neatest trick is the company's ability to keep labor costs low in one of the world's most high-priced countries -- proving that moving the factory to cheap markets abroad is not always the best cost-saving solution. Thanks to an extremely high degree of automation, SMH keeps direct labor charges under 10% of total manufacturing expenses, in contrast to about 30% for most watchmaking operations.
Hayek, 66, was born in Beirut of a Lebanese mother and an American father. The family moved to Switzerland when he was seven. With a degree in mathematics and $3,400 in borrowed money, Hayek started a one-man consulting firm in 1957 that developed a reputation for finding waste and mismanagement in everything from the Swiss army to the state radio. Today Hayek Engineering is a $1 billion business whose clients range from U.S. Steel and Dow Chemical to Krupp, Siemens and the Chinese government.