Prior to World War II, during a period of rapid industrialization in the Soviet Union, the Soviet government sought international funding and expertise in the development of a domestic watchmaking industry. Eventually, the French watch manufacturer LIP was chosen. LIP was having financial problems at home in France, and in 1936, technical director Fred Lipmann signed a deal with the USSR to export technology and parts. 

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In April, 1935, the Third State Watch Factory was formed in Penza, a city 625 kilometres southeast of Moscow. This factory was reconstructed from the remnants of the Frunze Bicycle Plant using newly-acquired tooling from LIP. LIP engineers and technicians were also responsible for supervising the installation of all equipment and for training Russian engineers. 

On May 5, 1940, the People's Commissariat of General Mechanical Engineering published an order on the formation of the Penza Third State Watch Factory. The factory focused primarily on small-sized ladies movements and the production of tools and equipment for the watchmaking industry. But such endeavors were short-lived, as the escalation of World War II forced the factory to shift attention toward the production of mine fuses, mortars, anti-aircraft artillery control devices, and other military equipment. During the war, the plant was known as Factory No. 807.

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Following the war, in 1945, an order from the Minister of Mechanical Engineering and Instrumentation declared that Factory No. 807 was to be renamed Penza Watch Factory. From that day, the factory was to only produce civilian goods – specifically, timepieces. Not only was the manufacture of Zvezda watches resumed (production was temporarily halted during the war years), but production expanded to included a new wristwatch caliber for men, named Pobeda, also based on purchased designs from LIP.

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In 1949, the factory was ordered to discontinue manufacture of men's calibers and focus exclusively on ladies watches. All Pobeda production equipment was subsequently transferred to other factories (e.g. Petrodvorets, Chistopol, and Masslenikov). The same year, Penza Watch Factory designers began work on a new ladies caliber that would measure only about half the size of the Zvezda. This diminutive caliber would eventually find its way into watches branded Zaria (Заря, meaning "dawn"). In 1950, the Penza Watch Factory produced on the order of one million watch movements (just over half of these, 579,000, were put into watches).

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While the Penza Watch Factory was growing itself, it also helped contribute to the development and success of other watch factories, namely Uglich Watch Factory (1950-1951) and Minsk Watch Factory (1954-1955). Experts at Penza trained personnel at the other factories and produced the equipment and tools necessary for wristwatch manufacture. For example, the caliber 1801 movement, produced at the Minsk Watch Factory to this day, is actually a modification of the caliber 1800 movement, first developed by designers at Penza Watch Factory.

Throughout the 1950s and early 1960s, a number of different brands were produced at Penza Watch Factory, including Aurora, Junost, Kometa, Lux, Lyra, Mechta, Sura, Vesna, and Zvezda. Around 1964, the factory consolidated all these different brands under a single trademark: Zaria. All watches produced at the Penza Watch Factory after 1964 would featured the Zaria brand name and accompanying movement logo. The export market was booming at this time, and by 1968, one-third of Penza Watch Factory's production was exported to any of 52 countries worldwide.

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In mid-1968, the factory began production of a completely new product: a pedometer (step counter). These were produced in both analog and "digital" formats. By the 1980s, one hundred million watches had been produced at the Penza Watch Factory, and the export volume reached 50 million units. The Penza Watch Factory is still in operation today, serving both domestic and international markets. The average annual production is around 500,000 watches.

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