Increasing pressure to be innovative: Exporting SMEs are pivotal for innovation

Karin Frick, Head of Think Tank at the GDI, on the impact of digitization on the business of exporting Swiss SMEs, the pressure to innovate, and how working in networks will become increasingly important.

A man is wearing a virtual reality goggle.
Virtual Reality at the Basel Innovation park.

Ms. Frick, Swiss SMEs account for more than 99 percent of all enterprises in Switzerland. Many of them are exporters and thus instrumental in securing our prosperity. In various industries, innovative Swiss enterprises are among the world market and quality leaders. What role do you expect SMEs to play in the future?

Small teams and small exporting enterprises will continue to be of central significance. This is not going to change in the future. Innovation is driven by small entities, not large corporations. In this regard, people are already talking about the new age of micro-multinationals or born globals – small or medium-sized companies that start expanding globally and challenge established players at an early stage. But of course the situation differs from industry to industry and also depends on the specific product or service.

Where are the markets of tomorrow?

This depends a good deal on the business. Markets tend to be global, which is to say they are located around the globe. At the same time, however, local value chains are becoming increasingly important, which enables decentralized, local production close to the customer. The keyword here is Industry 4.0. For example, new software or technology-related products are not only locally relevant, but a concept for new care services in Switzerland is. If the new concept works, it can be exported. Growth markets with a rising middle class will remain important, especially for consumer goods and prestige products. All in all, the demand for quality products and solutions – better and better – is here to stay.

Will all trading in the future take place online on digital platforms?

A trend towards concentration is evident in the field of online platforms: a few platforms are dominating as "super hubs". Local business transaction can also be settled using these platforms. The world's largest enterprises, such as Amazon, Google, and Alibaba, are all online platforms for which the B2B business is becoming increasingly important. They want other providers to use their platforms to sell their products instead of developing their own online shops. They establish the prerequisites necessary for this.

An SME must ask itself for what type of business it needs a network effect. In the field of technology, for example, the network effect is critical: if a company wants to introduce a substitute for WhatsApp, this will work only if it is positioned globally and can master the global market. To create a local messaging app for a single city would make little sense. By contrast, a beverage manufacturer can be successful with a niche product, such as a local beer, even as an exporter.

Of course, several small providers can come together and form their own global platform, such as, where everybody can directly buy and sell home-made items worldwide. In the future, there might be more new, collaborative production and sales communities of people who want to combine the advantages of a small local company with the strengths of a global enterprise. The matchmaking and coordination must be highly efficient, and this can be achieved only with digital platforms. Such platforms give even niche providers a chance to be found. In her book Peer Inc, Robine Chase demonstrates very well what such a new economy of micro-multinationals and crowdsourcing could look like.

Will we soon be printing out our customized products on 3D printers at home?

In the medium run, yes. Everything that can be produced will eventually be able to be printed using a 3D printer. Once the necessary materials become available, it will even be possible to print new 3D printers. First, we will produce non-food items at home – or at a nearby 3D copy shop if we want better quality.

In the future, even highly specialized parts that are not intended for mass production will be printed on a 3D printer, such as spare parts for space travel. This development is very exciting for the suppliers of the machine industry: more textile and tool machines will be needed, for instance, during the migration from the main frame to the personal computer. These printers will no longer be set up in large factories but rather in copy shops. As we can already see with Industry 4.0, production is increasingly shifting from large, central factories to smaller, decentralized units that are capable of custom-tailored production.

While we are talking about Industry 4.0: what are the new forms of collaboration?

The "new" aspect is still not always tangible. Innovation does not happen primarily within a company but rather in the manner in which a company collaborates with partners. Even large enterprises run not only their own research and development centers but also organize competitions. If you want to set up a team in order to create a 3D printer for a new plastic part, the internal expertise will not be enough – neither in an SME nor in a large corporation. Such a task always requires a consortium, teams, or platforms.

Digitization has provided us with an enormous supply of smart technologies and opportunities. If you have an idea, you no longer need a lot of capital. What is important is that people are able to test ideas. For example: a new catering concept for exporting healthy fast food needs to be developed and tested. If it works and is capable of being expanded, it will turn into a new business model whose concept can be marketed.

On behalf of SECO, Switzerland Global Enterprise supervises Swiss SMEs in their export business and informs foreign investors about Switzerland as an industrial location. This is done through the provision of information, consultation, and the international network. Does this mean that consultants are an endangered species?

In the future, machines or technologies will provide certain consulting services, such as trend analyses or legal consulting. Such systems can organize knowledge more systematically, evaluate documents faster and more precisely, and extract certain information from them. However, this mainly applies to routine processes. A good example of this is Ross, the artificially intelligent lawyer – a computer program for artificial intelligence that IBM offers for legal counseling.

However, there are also services that users themselves can obtain from a platform, such as market information. Consultants will continue to operate in areas in which relationships are important and trust needs to be built. Of course, personal contacts do not necessarily mean added value. Sometimes I would rather do something automatically and do not always need personal contact. Therefore, all types of consulting offers need to be redefined – whether they concern exports, innovation, trends, or the law.

How will SMEs reach their customers in the future?

Social networks will play a key role. If you have a problem, you ask people whom you know and trust when you are looking for a solution. This requires a new way of non-hierarchical thinking. Today, there is a shift from hierarchies to networks. Companies already tend to work with a small core of permanent employees and more freelancers. There are fewer central authorities to whom all the information flows and who make all decisions. An aspect that differs considerably from hierarchies is that the decision-makers in networks are often not readily identifiable. After all, the number of followers or "likes" does not reveal much about the quality. In a network, good relationships are what matters; a lone position like the one at the top of a hierarchy is of little use in a network. Only someone who is able to trigger a reaction is influential because nobody can give orders in a non-hierarchical network.

Where is the greatest need for action for SMEs?

The pressure to innovate is increasing. Exporting SMEs need to realize that the time has come to act. They should ask themselves: will I be able to re-invent my business model without any assistance? How can I create a climate that is conducive to innovation? How can I muster up the courage to try out things? How can I develop from a manufacturer to a service provider? For their new orientation, SMEs need specific examples they can follow. Rather than jumping on the bandwagon when it comes to new technologies, Swiss SMEs are rather hesitant. However, it will be necessary to think in terms of new categories of networking and cooperation in the future. Exporting SMEs already have the needed innovativeness and expertise. Now they need to find the right partners for the right form of collaboration.

Swiss Forum for Foreign Trade on May 18th 2017

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About Karin Frick

Karin Frick is Head of Think Tank and a Member of the Executive Committee of the GDI Gottlieb Duttweiler Institute. Since her graduation from the University of St. Gallen (HSG), Karin Frick has held various positions in which she worked on future-related topics, social change, innovation, and changes in people and markets. She served as editor-in-chief of the well-known quarterly publication GDI IMPULS and as managing director of the Swiss Society for Futures Studies (swissfuture). Frick has analyzed trends in the consumer goods and service sectors on behalf of renowned companies.

About the GDI

The Gottlieb Duttweiler Institute (GDI) is an independent think tank for economics, society, and consumption. The trend research institute based in Rüschlikon near Zurich is the oldest think tank in Switzerland. The GDI is part of the "Im Grüene" Foundation. In keeping with the wishes of its founder, Gottlieb Duttweiler, the GDI is a "place for reflection and encounters" for the purpose of conducting "scientific research in social and economic fields."

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