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Industrial revolution: How the Swiss MEM cluster works

The Swiss MEM (MEM is an acronym for Machine-building, Electrical Equipment and Metallurgy) cluster serves as living proof of the fact that even ‘heavy-weight’, conservative manufacturing sectors may have an infrastructure that fosters innovation and explosive business growth. The secret lies in its ‘light-weight’ organization: it is largely represented not by giants, but by mobile, small and medium-sized companies focused on global export. For innovative MEM enterprises, Switzerland is an excellent platform for rapid growth and global expansion.

woman working in industrial lab
The MEM industry in Switzerland relies on the solid groundwork of research done by world-famous Swiss technology universities and institutes.

Swiss machine-building dates back to the 19th century with its textile manufacturing. At the time, virtually all European textile manufacturers (Italy, France and Germany) used British looms and equipment. At a point when British looms became too expensive, Switzerland focused on making its own looms. Today Swiss machine- and machine-tool building enterprises are among the most competitive in the world – as are the manufacturers of electrical equipment, electronics and precision measuring tools. The MEM cluster currently employs over 300,000 people and sells 90 billion US dollars worth of products every year. In contrast with other Swiss clusters, this one is not limited to any particular geography: its manufacturing facilities are evenly spread across the country, with a higher concentration in the central cantons.

Driven by export-oriented small business

In the opinion of Hans Hess, President of Swissmem (the MEM Cluster Association), the key point is that companies in this sector are mostly export-oriented. “Small and medium-sized companies exporting 80% of their products constitute 95% of the Swiss MEM cluster”, he says. If your company depends on export, it is necessary to monitor all the latest market trends. This kind of approach helps Swiss companies to gain technological advantage and be able to compete globally. The ‘anchor’ players in the sector (such as ABB, Alstom, Siemens, Liebherr, Schmolz+Bickenbach and others) have gained international fame and can shape trends and create demand on the B2B market. They form the core of a peculiar cluster ‘ecosphere’ surrounded by hundreds of small vendors of equipment, spare-parts and services; design bureaus; experts on technology rights, intellectual property and the neighbouring sectors.

Specialized technology parks have their part to play in establishing connections within the cluster. Park Biel/Bienne only has about ten companies working alongside one another, manufacturing high precision industrial tools for the automation and medical technology sectors (Haag-Streit, Balluff HyTech, Ziemer Group, etc.). They do not directly compete, but can request services from one another or join efforts in locating raw material suppliers. MEM-oriented parks can be found in any Swiss canton.

Any business, irrespective of its size, sales or staff numbers, may enjoy the benefits of cluster affiliation, which include applying for grants or tax support to institutes of development, working with the most advanced research institutions under technology transfer programmes as well as being supported by industry associations in global expansion.

Technology transfer and education

The MEM industry in Switzerland relies on the solid groundwork of research done by world-famous Swiss technology universities and institutes. But how do you transform an idea into a competitive product in practice and how do education establishments and enterprises exchange knowledge and technical achievements?

According to  Swissmem, MEM cluster companies spend around 5% of their sales on R&D. However, it is not the custom with science-based businesses to bear R&D costs all on their own. The government is very forthcoming in supporting innovative research and development. Accordingly, universities and businesses can launch joint research projects, and MEM is the most active sector in this regard: almost half of all joint research and development projects with education establishments involves companies and experts in machine-building, machine tool building, automation, informatics, electronics and other exact sciences.

Importantly, projects of that kind may be funded by CTI (the Commission for Technology and Innovation) whose grants may cover up to 50% of R&D costs of joint projects between businesses and research institutes. Title to research products under projects with the use of lab equipment, HR and technologies is reserved by businesses.

As an example, in 2013 Streamer International AG, a manufacturer of lightning protectors (read our success story), launched- together with the University of Applied Sciences Rapperswil - a two-year joint research project, in which half of the project costs was covered by an CTI grant. In addition, as a Grisons innovative company Streamer received a municipal grant, one part of which was a free subsidy and the other an interest-free loan for five years.

Gamaya, a partner of Fly & Firm that manufactures drones for agriculture (read our success story), is using the platform and technology labs and receives advice from professors of the Swiss Federal Institute of Technology in Lausanne (EPFL). However, it is Gamaya (and not EPFL) who retains intellectual property rights to its developments. This example is not an exception but a standard procedure in Switzerland: ownership of IP rights remains in the hand of clients.

Industry associations are also involved in the transfer of knowledge and technology. Swissmem, for example, facilitates cooperation between companies who are members of the Association and the most advanced education establishments in the relevant field (such as the Zurich University of Applied Sciences, the University of Applied Sciences and Arts of Western Switzerland, the Lucerne University of Applied Sciences and Arts and others). Swissmem keeps an eye on technology projects under way at universities and on the potential services that education may offer to business – and helps to build bridges. On request, Swissmem arranges visits to university competence centers so that companies can learn more about process management, efficiency improvement, production upgrade, etc. Associations also establish contacts with external platforms, such as the Paul Scherrer Institute, the Swiss Federal Laboratories for Materials Science and Technology (EMPA), the Swiss Center for Electronics and Microtechnology (CSEM), the three major Swiss organizations working with nanomaterials, microelectronics and other breakthrough technologies. Together with business and universities, they hold joint conferences, workshops and training courses and, more importantly, are closely involved in creating and developing new businesses, such as SwiSS-9, an EMPA laboratory spin-off that designs all kinds of nano-coatings at the Biel/Bienne technology park.

And finally, universities and businesses are increasingly engaged in joint programmes to create pools of talent. For example, ABB has partnership relations with several dozens of education establishments around the world, including Switzerland. ABB contributes to the development of curricula for new subjects, makes presentations at campuses, participates in vacancy fairs, holds contests for onsite training and pays its own scholarships. This was one of the reasons why Swiss engineering students named it one of the best employers around the world in 2016. Professional education includes vast apprenticeship training. Professional associations have their own training centercenters. Swissmem trains about 10,000 employees in machine-building, design, automation, electronics and informatics.

”Made in Switzerland” as a major competitive advantage

According to the Swissness Worldwide 2016 poll conducted this year by the University of St. Gallen (over 900 consumers in 15 countries), public confidence in Swiss-made products is still a prevailing trend. The ‘Made in Switzerland’ brand is particularly valued in Russia, China, India and Brazil – home to around 40% population of the world. Consumers there are willing to pay 40% more for Swiss-made products compared to similar products from elsewhere. Respondents said they were prepared to pay twice as much more for a Swiss watch, half as much again for Swiss cheese and 7% more for a vacation in the Swiss Alps. A Swiss national is also willing to pay extra for locally produced goods.

Even a start-up that decides to expand onto the new emerging markets in Asia, Africa or the Middle East can benefit from the brand. “The growing trend to produce locally plays into the hands of Swiss companies,” says Klaus Stahlmann, CEO of engineering company Sulzer, “Swiss products will be perceived as a yardstick of quality even if a company moves production to a foreign market.” A good illustration of how Swiss engineering expertise can help to capture a foreign market is the story of Bombardier Switzerland who used their research centers in Zurich and Winterthur to design hybrid locomotive ALP 45DP specifically for export to the US. ALP 45DP is driven by a combination of diesel and electric traction and enables non-stop transportation.

Industry of the future

The course for smart production, digitalization and process automation (known as Industry 4.0) pursued by the developed economies has been likened to a new industrial revolution that may have a dramatic effect on the labour market and our everyday lives.

Broad opportunities for creating innovative products and services are emerging up and down the country. Given that new technologies are affordable to players of any size, these sectors are no longer dominated by large corporates. In this environment even a small company is able to handle average-sized custom-tailored orders, bringing its labour, energy consumption and production wastage costs down 20-30%. Oleg Sharonov, the founder of start-up Fly & Film, believes there is no better place than Switzerland for an innovative hi-tech start-up.

The government and the industry associations are doing everything they can to ensure that ‘industrial revolution’ takes the stage quickly and painlessly. Swissmem has already launched itsnew initiative Industry 2025 helping companies to navigate through the new trends and use the opportunity to work together. Its objective is to set up automated, industrial-Internet-based production in the Swiss MEM cluster by 2025. New, efficient production will help Swiss companies to grow, even with a strong Swiss franc that somewhat weakens their export potential. Among the high-potential MEM segments highlighted by experts are renewable energy sources, efficient accumulation and distribution, solutions for sewage and waste water disposal, mobility and transportation technologies, medical instrument manufacture.

For additional information about various aspects of doing business in Switzerland, please refer to our Handbook for Investors or contact representatives of our Swiss Business Hubs.

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