The Hidden Swiss Champions: Small but World Class
Every tenth industrial SME and every 20th service SME in Switzerland claims to be a global market leader. The highest share is found in the precision instruments industry. Trade and IT stand out in the service sector.
Owing to the high wage and production costs in Switzerland when compared internationally, it is generally difficult for local producers and service providers to keep up with competition from abroad at the price level. The appreciation of the franc has further exacerbated this problem. One way out of the price competition is to focus on quality products. "Quality" in this sense can be taken to refer to various different things – innovation, specialization, flexibility, precision etc. The so-called "hidden champions" are successful pursuers of this quality strategy. This term refers to companies that are global market leaders for particular products and services but unlike many large companies are little known to the public at large.
Eleven Percent of Industrial SMEs Are Global Market Leaders
The results of our latest SME survey provide clues as to how many hidden champions there are in Switzerland and which sectors they operate in. Eleven percent of the industrial SMEs canvassed claimed to be global market leaders in at least one core product (see chart). By far the largest share of hidden champions is reported by the precision instruments industry in which around 60 percent of companies claim to be global market leaders in their area. They are followed by the watch, engineering and electrical industries with shares between 20 percent and 30 percent. Hidden champions are therefore most prominently represented in those industrial sectors characterized by a comparatively high level of technological and research intensity as well as a strong focus on exports. By contrast, there are hardly any global market leaders among the canvassed SMEs in traditional largely domestically oriented industrial sectors such as the printing, timber or food industry.
Larger and More Globally Oriented
The hidden champions from industry above all comprise medium-sized companies: With around 60 employees and sales of CHF 19 million, the global market leaders are on average almost twice as large as the other canvassed industrial SMEs (32 employees, sales of CHF 10 million). It comes as little surprise that they are also much more globally oriented. Three fifths of them generate more than 60 percent of their sales in exports. Only 14 percent of the other industrial SMEs are as strongly focused on exports.
Five Percent of Service SMEs Are Hidden Champions
Despite a stronger overall domestic orientation, there is also a significant number of hidden champions among service SMEs. Five percent of the service providers surveyed (including trade and sales) claim to be global market leaders in at least one core product. Of the strongly export-focused service SMEs with an export share of sales of at least 50 percent, as many as 19 percent describe themselves as global market leaders. However, the attribute "hidden champion" is not necessarily linked to export activities: Three percent of non-exporting service SMEs are also global market leaders. The hidden champions of the service sector also tend to be larger SMEs. At around CHF 13 million, the average sales of the hidden champions is somewhat higher than the average across all service SMEs canvassed (around CHF 11 million).
Hidden Champions Most Strongly Represented in Trade and IT
Similarly to the industrial SMEs, there are also sector differences among the service providers surveyed (see chart). Hidden champions are most strongly represented in trade and sales (8 percent share) as well as in information and communications technology (IT, 6 percent). It is noticeable among the globally leading traders and sellers that a disproportionately large number produce abroad. This would suggest that some of these hidden champions are not mere service providers but producers that carry out the distribution of their products themselves and therefore occupy a leading market position.
Advantages of Switzerland as an IT Location
A closer look at the IT sector shows that the comparatively high share of hidden champions comes as little surprise. The two universities ETH and EPFL as well as the IT clusters in Zurich and Berne with major companies such as IBM and Google create a favorable environment for the development of globally successful IT SMEs. Switzerland also scores well as a location for IT SMEs thanks to its comparatively high legal and political stability and strict data protection legislation. Data centers in particular are increasingly making use of these locational advantages to serve international customers from Switzerland. Good framework conditions, a good educational system and an international outlook clearly serve as an important basis for Swiss SMEs to become global market leaders in so many areas.