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Swiss SMEs: competitive but global competition is growing harsher

2018 Credit Suisse study of the SME economy

The economists of Credit Suisse have published today the study "2018 Swiss SME economy – successful amid the global competition". Fundamentally, the responses of the 1,100 SMEs surveyed give cause for optimism: A large majority of companies in Switzerland consider their current competitive position to be good or satisfactory. However, most SMEs also believe that ongoing further development of their businesses will be necessary in order to remain competitive. The majority have sufficient financial leeway to make the necessary investments for this. One challenge is the increasing globalization of competition. According to the survey, ten years ago only one in three SMEs had competitors abroad – today this has increased to one in two. Dealing with digitalization will also shape the competitiveness of SMEs in the future. The companies surveyed generally see more opportunities than risks in this. However, a strikingly high share of one third of SMEs believe that they will be only marginally affected by digitalization in the foreseeable future.



Switzerland has stood out with top placings in the customary rankings of international competitiveness for years. For the present study, the economists of Credit Suisse asked around 1,100 SMEs from all sectors and cantons whether they shared this positive view. The answer proves less clear than expected: Swiss SMEs predominantly attribute a fairly high (48%) to high (41%) international competitiveness to Switzerland as a business location. According to the authors of the study, this in itself is not a negative verdict, especially since only very few companies believe that Switzerland has a profound level of competitiveness and the vast majority of survey participants do not expect the current position to deteriorate. However, the assessment is somewhat more subdued compared with the aforementioned rankings. Meanwhile, it is interesting to note that larger and more internationally oriented companies attest slightly higher competitiveness to Switzerland than small and purely domestically oriented companies.

SMEs well positioned but cannot afford to rest on their laurels
However, the study is primarily focused on the SMEs’ competitiveness and not on the competitiveness of the Swiss business location. “The responses of the companies surveyed fundamentally give cause for optimism and reflect the daily experiences we have with our customers,” says Andreas Gerber, Head of SME Business at Credit Suisse. A vast majority of 85% of SMEs consider their current competitive situation to be good or at least satisfactory. Yet, two thirds also believe that their own company needs to develop further in order to counter a growing competitive pressure, as according to the economists of Credit Suisse, significant challenges exist despite the good underlying situation.

One in two SMEs has important competitors abroad
One of these is the increasingly global character of the competition. According to the survey, ten years ago only one in three companies had competitors abroad – today this has increased to one in two. On the one hand, a great deal of SMEs perform well on the global arena, as confirmed by the high number of “hidden champions”: One in seven industrial SMEs of the survey claimed to be a global market leader. On the other hand, the results also reveal that the competition is growing increasingly international and harsh. Particularly companies with competitors from emerging markets assess their competitive position more frequently as unsatisfactory than SMEs that only have competitors from their region of origin within Switzerland. However, it is noticeable that the globalization of competition has in recent years been disproportionately strong in traditional domestic sectors such as construction and trade. The survey illustrates vividly that as a consequence there are by now more domestically oriented than exporting companies having to share their market with providers abroad. “We see certain risks for such domestic sectors as in contrast to the SME export industry that has always faced international competition, they have until now been less used to holding their own against competitors from around the world,” says Oliver Adler, Chief Economist at Credit Suisse.

Exchange rate fluctuations only a major challenge for 19%
Owing to the strong global ties of Swiss SMEs, it comes as no surprise that one in two companies is affected by exchange rate fluctuations. However, exchange rates only pose a major challenge for one in five companies – and even these SMEs have largely survived the last few years shaped by the franc shock relatively well. Although the generally upward-trending franc is also set to pose a challenge in the future at least for export-oriented companies and those facing global competition, according to the authors of the study the recent experience has shown that all in all the SME landscape is capable of coping with this. Furthermore, according to the economists of Credit Suisse, the strong franc is forcing companies to constantly develop further and to invest, which is ultimately contributing to ensuring the sustained competitiveness of the Swiss SME economy.

One in three SMEs only consider themselves to be marginally affected by digitalization
According to the authors of the study, the globalization of competition is also attributable to digitalization. Particularly in the service sector, this is facilitating increasingly intensive cross-border exchange. Nevertheless, 45% of SMEs believe that digitalization poses more opportunities than risks for them, while a further 31% agree at least in part with this statement. Companies hope to achieve both efficiency gains and opportunities for new products, sales markets and client groups. Only a minority believe that digitalization poses a risk because it could render their own products and services superfluous or because the company may be left behind technologically. The predominantly positive expectations of SMEs coincide with various indicators attributing a good “IT readiness” to the Swiss economy. However, at 32% a surprisingly large number of SMEs believe that they will only be marginally affected by digitalization in the foreseeable future. A further 24% agree in part with this statement. The economists of Credit Suisse fear that some of these companies may be underestimating the technological change, which could pose a risk to their competitiveness in the medium to long term.

SMEs have sufficient financial leeway for investments in competitiveness
Nevertheless, according to the authors of the study, most SMEs are fundamentally capable of at least taking charge of their own destiny. A large majority claim to currently have sufficient financial leeway for investments to uphold their own competitiveness. Fifty-six percent agree entirely and a further 24% largely with this statement. The range of measures adopted in recent years for upholding competitive positions gives the economists further cause for optimism. While some companies have had to make recourse to defensive-reactive strategies such as price cuts or the discontinuation of business areas, forward-looking and offensive measures prevailed. More than half of those surveyed have invested in the launch of new or the substantial further development of existing products. Almost one in two SMEs has tapped new markets or client groups and four out of ten companies have implemented substantial digitalization of their sales channels or product ranges in recent years. The range of measures planned by SMEs for the next two to three years looks very similar, although defensive strategies such as price cuts and business area discontinuations are generally less frequently planned than in the last few years – a development that fits in well with the fundamentally positive overall picture.

About the study
There are around 600,000 SMEs operating in Switzerland that together provide employment for approximately two thirds of the country's working population. As part of their SME series of studies, the economists of Credit Suisse have for several years been taking the pulse of small and medium-sized enterprises with regard to various topics. One thousand one hundred Swiss SMEs were canvassed in the current issue on various aspects pertaining to the theme of competitiveness and competition.

The publication "2018 Swiss SME economy – successful amid the global competition" is available on the internet in German, French, Italian and English at
www.credit-suisse.com/publications (Markets & Trends – Swiss Economy)