Raquel Forster: Ms. Brändle, what makes Swiss SMEs so successful?
Nicole Brändle Schlegel: Our survey looked at nine influential factors for Switzerland as a location of industry and business. Examples include Switzerland's traffic infrastructure, the quality of its education system, employee work ethic, etc. The study revealed that the employees and their skills, the research environment, and the infrastructure, along with values and society, received the best ratings by the SMEs and are what make them so successful. Eight of nine of the influential factors we studied have a positive effect on their business activities. The only factor impeding their business is the regulatory environment. By this we mean additional requirements in the area of environment or safety, for instance. Regulation also requires the most action on the part of politicians, as the SMEs feel that this factor will be an even greater disadvantage to them in future.
Switzerland is very focused on exports and has a high dependency on foreign countries. Does this affect Swiss SMEs as well, and how?
This does affect Swiss SMEs. In all, nearly 70 percent of all Swiss SMEs conduct some form of international business. One-fourth exports goods or services directly to a foreign country. Thus, all told, the SMEs accounted for 20 percent of all Swiss exports, which is about 40 billion Swiss francs. However, the main industries of these SMEs that export to foreign countries are much different from the industries relating to total exports: Mechanical engineering, electrical, and metals (MEM) and the watch industry account for about 45 percent of total exports, followed by chemicals, pharmaceuticals, and plastics (42 percent). Among the SMEs, the MEM and watch industries accounted for about 70 percent of their exports. Thus, the general export industry is dominated more by pharmaceuticals, while the SMEs are dominated by exports in the MEM and watch industries.
Switzerland has free trade agreements with various countries, most recently also with China. How do Swiss SMEs also benefit from these FTAs?
Not all SMEs benefit equally from the free trade agreements. Depending on the industry and export focus, the SMEs benefit more or less from a free trade agreement. The cost of the required certificate of origin is also a major factor in determining whether Swiss SMEs will benefit from a free trade agreement. The certificate of origin is needed for a customs waiver. It confirms that a product was manufactured in Switzerland. However, it often involves a lot of work, so it is usually not worthwhile for smaller SMEs in particular. Our survey shows that mainly SMEs from the food, chemicals, and plastics industry, along with textile and clothing manufacturers, make use of free trade agreements. In these sectors, some of the markets are still greatly protected by customs and technical barriers to trade. So even though not all SMEs benefit equally from free trade agreements, we still assume that the most recent agreement with China will have a positive effect, especially on the SMEs' business activities.
Switzerland does not have a free trade agreement with all countries. What's the most serious gap at the moment for SMEs?
At the very top of the Swiss SME wish list is, of course, a free trade agreement with the US, followed by the emerging markets of Brazil, Russia, India, and China (BRIC countries). More than one-third of the SMEs surveyed wanted more free trade agreements. Swiss foreign trade policy is fulfilling some of the SMEs' wishes in this respect. The free trade agreement with China will take effect on July 1, 2014. Negotiations are pending with India and Russia, although the discussions with Russia have been suspended for now due to the crisis in Eastern Ukraine. There is an EFTA cooperation agreement with Brazil. There are no negotiations with the US at the moment, which is a serious deficit not only for the SMEs but for the Swiss economy in general.
Emerging markets have become more important sales channels in recent years for SMEs. Will this trend continue?
Yes. Our forecast shows that emerging markets such as Brazil, Russia, India, and China will double their share of total Swiss exports by the year 2035 and China could replace Germany as Switzerland's number one trade partner. The US will lose some of its footing, but not as much as western European countries such as Germany or the UK. The emerging markets will become more critical for SMEs as well, but not as much as they will for larger companies. This is because marketing and distribution to emerging markets take much more time, financial resources, and experience than it does for closer markets in Europe. We still advise SMEs to consider entering the emerging markets, because that's where the growth will be in future. To conquer these markets, companies could cooperate with other SMEs, focus on just a few emerging markets, and work with export partner organizations or companies that are already active in these regions.
The Export Destinations of Swiss SMEs
According to the SME export study, the leading five export destinations for Swiss SMEs are Germany, the EU and EFTA countries, France, the US/Canada, and China/Hong Kong. Germany is well ahead of the other destinations: 73 percent of all SMEs in the export industry consider Germany as one of their three leading sales markets. Thirty-four percent include the EU (without Germany, France, Italy, and the UK) and EFTA among their three main sales markets. Although our neighboring countries and the EU are still the most important export destinations for SMEs, they have lost a relatively large amount of ground in the last ten years. Meanwhile, the BRIC countries and Southeast Asia have become more important. About double the number of industrial SMEs are exporting to these markets compared with ten years ago.