Move over, Rolex (4)

Barriers to growth

Ge is optimistic about the potential market for luxury watches, as Chinese consumers are getting more educated about their timepieces. But currently the high-end watch market is dominated by Swiss brands.

Hong Kong and the Chinese mainland were the largest and third-largest export destinations for Swiss-made watches, respectively, in the first 11 months of 2012, with combined watch imports worth a total of $5.87 billion, according to the data from the Federation of the Swiss Watch Industry.

"Sea-Gull's advantage lies in its superior watch-making skills, but that is not enough to make it into a luxury brand," said Zhou Ting, director of the Fortune Character Institute, which specializes in luxury products.

"Most Chinese consumers hold the opinion that the world's best watches are made in Switzerland, and it will be difficult to challenge this in the short term," she said.

"To rebuild the brand, Sea-Gull needs to compete for advertising space and sales channels with its foreign counterparts, but the latter have already stepped up their expansion even in China's second- and third-tier cities," Zhou noted.

The luxury expert also expressed concerns about the potential cooperation between LVMH and Sea-Gull.

"Sea-Gull should take advantage of wealthy Chinese consumers' memories of its glorious past, but through cooperation with a foreign luxury group, it might lose its appeal to such consumers," Zhou said.

"LVMH might also see the growth potential of Sea-Gull. The luxury giant's real intention might be to acquire the Chinese brand and then shelve it, so that it will not pose a challenge to the watch brands it already owns," she warned.