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Swiss SMEs are involved in International Markets
Credit Suisse Study on Success Factors for Swiss SMEs, with a Focus on ExportsCredit Suisse economists today published their study on "Success Factors for Swiss SMEs – Prospects and Challenges for Exports." It is based on a survey of more than 2,000 Swiss SMEs. The survey shows that Swiss SMEs have strong international ties, with around seven out of ten SMEs involved in at least one direct or indirect cross-border business activity. SMEs account for an estimated 20% of total Swiss exports of goods. The machinery, electrical engineering and metals (MEM) industry is responsible for the majority of SME exports, while the proportion of pharmaceutical/chemical exports in total SME exports is relatively low. The survey also shows that the SMEs that took part in the survey want additional free trade agreements, and consider agreements with the US, China and Russia to be of particular importance. SMEs continue to regard Switzerland as an attractive base for their activities, but they remain very pessimistic about the regulatory framework.
Switzerland's high levels of competitiveness and innovation are driven by strong companies. 99.8% of Swiss companies are SMEs. Every year, in the context of the study series "Success Factors for Swiss SMEs," Credit Suisse economists analyze conditions in Switzerland as a business location from the point of view of SMEs. The main focus of this year's study is on SME exports. "For years now, Swiss companies have been successfully following the path of specialization and global exchange. SMEs are exceptionally well positioned internationally and make a vital contribution to the success of the Swiss economy," says Urs Gauch, Head of SME Business Switzerland at Credit Suisse.
Switzerland remains attractive for SMEs as a business location – but action is required on regulation
As in the previous year, the SMEs continue to regard Switzerland as an attractive base for their activities. In particular, the infrastructure as well as employees and their qualifications have a very positive impact on the success of SMEs. The regulatory framework is the only factor that impedes the SMEs' success. In view of the importance attached by SMEs to the issue of regulation and their assessment that the regulatory framework is likely to become even more burdensome in the future, this is the area in which there is the greatest need for action. Switzerland's politicians are urged to press ahead with reducing administrative overheads for businesses and to consider the position of companies in international competition whenever new regulations are proposed.
SMEs have strong international ties
International links are not just the preserve of the large companies. 69% of all Swiss SMEs and 87% of all industrial SMEs are involved in imports, exports or production abroad or work with internationally oriented business customers. In total, SMEs account for approximately 20% of Switzerland's total exports of goods. In terms of the sector structure of SME exports, significant differences can be identified compared with Swiss exports as a whole. The MEM and watchmaking industries are significantly more strongly represented in SME exports (approx. two-thirds) than in total exports (45%), while chemicals, pharmaceuticals and plastics account for 42% of total exports but just around 15% of SME exports. The most important export markets for SMEs are European countries, primarily Germany. The emerging economies have grown in importance. Today every second SME from the high-tech industry exports to these countries. Emerging markets are less significant for SMEs from traditional industries and the service sector with just under one-fifth of traditional industries and 5% of service providers exporting to these markets.
SMEs see themselves exposed to growing competitive pressures
Four-fifths of all SMEs state that competitive pressures have risen over the past ten years. However, it is domestic competition that worries 57% of the SMEs surveyed, rather than foreign competition at just under 50%. It is primarily the export-oriented SMEs from the high-tech industry that face competition from foreign companies, but the Swiss SMEs are well able to maintain their position versus international competitors and are more or less satisfied with their export sales. 11% of the industrial SMEs surveyed stated that they are the global market leader for at least one core product – so-called "hidden champions." 60% of SMEs involved in manufacturing precision instruments describe themselves as hidden champions. The watchmaking, electrical engineering and machinery industries come clearly behind with just 20%-30% of hidden champions.
SMEs want free trade agreements with the US, China and Russia
Free trade agreements are concluded in order to facilitate tariff- and barrier-free international trade. The Credit Suisse economists' analysis of existing free trade agreements shows that such agreements do not necessarily increase the volume of trade. Existing agreements on specific goods or non-tariff trade barriers can dilute the effect of free trade agreements on export volumes. On the other hand, free trade agreements significantly reduce customs duties. The extent to which Swiss SMEs benefit from free trade agreements depends on a range of factors. For example, companies are often obliged to go through extensive administrative processes to obtain a certificate of origin for their products before they can benefit from customs exemptions under a free trade agreement. According to the survey, the need to provide a certificate of origin represents a major obstacle to export for smaller SMEs in particular. The more export-focused SMEs, as well as firms in industries including chemicals, plastics, food, textiles and clothing, are especially reliant on free trade agreements. Although not all SMEs benefit equally from the various agreements, over a third of the SMEs surveyed want more free trade deals. In particular, they want agreements with the US, China (with which an agreement has already been signed), and Russia.
Export scenario until 2035: share of exports going to emerging markets to rise significantly
According to Credit Suisse economists' forecasts, Swiss exports to the euro zone are set to grow much more strongly in the coming years than in more recent years, when the effects of the euro crisis have been evident. They expect to see average annual growth of just under 4.5% from 2014 to 2019. In the longer term, the emerging markets will continue to grow in importance with the emergence of a burgeoning middle class. The share of Swiss exports to the BRIC countries is likely to double from 11% today to 22% in 2035. The trend analysis carried out by Credit Suisse economists also predicts that in approximately 20 years China could overtake Germany as Switzerland's number-one trading partner. However, the emerging economies are unlikely to be equally important for all SMEs. The survey shows that SMEs which already have an export presence in these markets or which are relatively large are more likely than other SMEs to see growth potential in these countries. This is probably due to the fact that breaking into the emerging economies demands a great deal of time, money, experience and personal contacts. Entry barriers can be surmounted through cooperation between SMEs, concentration on just a few emerging-market countries, and the exchange of information with export development organizations and companies which already have experience in these regions.