Eastern Germany's watchmaking capital is beating Switzerland

Watchmakers sit at work benches during luxury wristwatch manufacture. Photo / Bloomberg

The east German village of Glashuette doesn't look like much: just a handful of streets stretching up and down a narrow valley from a bare station platform, where trains depart once an hour for the 45-minute trip to Dresden. Scratch a bit deeper, though, and you'll find that the town of 7,000 is home to the greatest concentration of world-class watchmakers outside of Switzerland — with a business that's growing even as Swiss producers retrench.

Glashuette produced more than 32,000 watches last year, with a total value of at least 500 million euros, according to analyst estimates. These aren't Swatches: The town's 10 watchmakers tend toward the high end, and the priciest local producer, A. Lange & Soehne, has built a reputation that rivals those of giants such as Patek Philippe and Audemars Piguet. Some of its watches top 1.9 million euros ($2.1 million), and its average price is roughly 50,000 euros.

"Our customers like that not everyone knows what they have around their wrist," says Wilhelm Schmid, chief executive officer of A. Lange & Soehne. "We're a very well-kept secret, almost like stealth wealth."

The German industry, though far smaller than Switzerland's, is less dependent on sales to China, where the watch business has been hammered by an anti-corruption drive. And with most expenses in euros, producers have been able to keep costs in check, unlike Swiss rivals that have to deal with the surging franc.

Yann Gamard, president of Glashuette Original, at the luxury watchmaking factory operated by Swatch Group in Glashuette, Germany. Photo / Bloomberg

While Switzerland's Richemont in February said it may cut as many as 350 jobs in Switzerland, the two biggest watchmakers in Glashuette say they're hiring. German watch exports last year jumped 14 percent even as Switzerland's fell 3.3 percent, government data show.

Despite the differing fortunes, the market for luxury watches is global, and the Germans may soon face the problems that have hit the Swiss, cautions Rene Weber, an analyst at Bank Vontobel AG in Zurich. The slump in tourism to Europe after the November terrorist attacks in Paris and the bombings in Brussels last month will likely eat into sales, Weber says, and "the luxury watchmakers in Glashuette will also feel the downturn in Asia."

Glashuette owes much of its prosperity to the Swiss. Lange has sent employees to the Swiss town of Schaffhausen, home to sister brand IWC, for training. And some Glashuette producers import components such as watch hands and dials from Swiss suppliers. In 2000, Richemont bought Lange, and Swatch Group acquired Glashuette Original and Union Glashuette.

Glashuette's success is all the more notable given that the town's industry has almost perished more than once. Lange was the town's first watchmaker, founded in 1845 by Ferdinand Adolf Lange, a Dresden native who studied the trade in Switzerland and Paris. He trained Glashuette youths to make pocket watches, and as they gained experience some branched out on their own. By the turn of the century, Glashuette counted as many as 20 companies that manufactured watches, marine chronometers and grandfather clocks.

After World War II, the town's half-dozen remaining watch companies were expropriated by East Germany's communist government and merged into a state-owned "kombinat," which continued to manufacture mechanical watches, marine chronometers and, from the 1980s, inexpensive quartz watches.

Oil flows as indentations are bored into a luxury wristwatch toothed wheel. Photo / Bloomberg

When the Berlin Wall fell in 1989, the kombinat had some 2,500 workers. But the company struggled with the introduction of the Deutschmark after unification with West Germany, and by 1994 employment in the town's watch industry had plunged to just 72 people.

"Unlike Switzerland, which has been allowed to work in peace, we've had wars, economic crises, bankruptcies," says Yann Gamard, president of Glashuette Original. "Everything was taken away from us by the Soviets after World War II. But the people remained, and so did their know-how."

An employee handles the date wheel of a Lange 1 luxury wristwatch during assembly. Photo / Bloomberg

To avoid being sent to work in a uranium mine — a virtual death sentence at the time — Lange's great-grandson Walter in 1948 fled Glashuette for the west, where he founded a company that distributed Swiss watches. The Lange brand, though, was mothballed for four decades. In 1990, Walter Lange returned to his ancestral home with Guenter Bluemlein, chairman of Swiss watchmakers IWC and Jaeger-LeCoultre, and together they revived the Lange & Soehne name.

Just as in the mid-19th century, a host of other watchmakers have sprung up around the company. Glashuette Original and Nomos Glashuette emerged in 1994, the year the resurrected Lange released its first wristwatches. In 2000, west German watchmaker Bruno Soehnle opened a factory in Glashuette to produce mid-range timepieces. And in 2008, a veteran of Lange relaunched the 19th-century Moritz Grossmann brand, which today produces about 200 watches a year that cost as much as 168,000 euros.

A watchmaker prepares to position an escapement wheel during the assembly of a Senator Chronograph Panorama Date luxury wristwatch. Photo / Bloomberg

The sector employs almost 2,000 people, and Glashuette looks something like a high-end watch show. At one end of town the five-story building Lange completed last year spans the road. Across the train tracks, Moritz Grossman's 40 employees work in a white concrete building that resembles an ocean liner. Farther up the steep hill overlooking the valley, jeweler Wempe makes high-end timepieces in a converted 1910 observatory. Small watch retailers dot the main street, a watch museum dominates the central square, and the town's coat of arms depicts a clock dial.

A Richard Lange Tourbillion "Pour le Merite" luxury wristwatch in pink gold sits on display at the A. Lange & Soehne factory. Photo / Bloomberg

The factories themselves are as clean as hospitals and as quiet as libraries. At Lange's pristine facility, women in white lab coats hunch over desks, polishing pieces just a few millimeters long to a range of finishes. A few doors down, engravers peer into microscopes to etch floral designs on pieces of metal the size of a baby's fingernail. In rooms sealed to ward off dust, the company's dozens of watchmakers use tweezer-like tools to create timepieces out of hundreds of tiny components.

A century ago, "Glashuette was known as Germany's watch mecca," said Christine Hutter, CEO of Moritz Grossmann. "And today it has become that again."