Trade barriers: Despite protectionism, Thermoplan is expanding

Trade barriers notwithstanding. Thermoplan is proving resilient.

The Credit Suisse SME study shows that trade barriers are on the rise. Thermoplan is also feeling the effects. The coffee machine manufacturer exports 98%of its products, the majority to the USA and China. We look at the impact of trade wars and protectionism on the SME.

International exports despite increasing protectionism

Based in Weggis on the shores of Lake Lucerne, Thermoplan has seen its business soar over the last 20 years: From the development of the first coffee machine for the restaurant industry back in 1995 to today, this family-owned business now has a presence in some 75 countries, employing around 390 staff. And this against the backdrop of rising trade barriers since the financial crisis. According to the Credit Suisse SME study, governments worldwide have been putting in place numerous protectionist measures every year since 2009.

Thermoplan, on the other hand, has been firmly focused on globalization from the outset. "We came to the coffee machine business very late. As newcomers, we don't want to compete in the Swiss market," says Thermoplan CEO Adrian Steiner, explaining the path the company has chosen to follow. He is keen to maintain the course, despite trade barriers.

Thanks to production in neutral Switzerland and our numerous trade agreements, we have a competitive advantage in lots of locations.

Adrian Steiner, Thermoplan CEO

The pros and cons of trade barriers

Today, Thermoplan exports 98% of the coffee machines that it produces in Switzerland. Most go to the USA, including to major clients such as Starbucks. After the United States, the company's next biggest market is Europe, followed by China. As such, the Swiss SME finds itself caught up in the trade war between Donald Trump and China. Because on the one hand Starbucks is being hit by the 25% hike in customs tariffs on coffee in the USA, suppliers like Thermoplan are also feeling the effects.

On the other hand, the family-owned business is benefiting from the problems of others, in China, for example. "Thanks to production in neutral Switzerland and our numerous trade agreements, we have a competitive advantage in lots of locations," says Steiner. So, business with smaller direct customers is flourishing over distributors, especially as trade barriers are affecting other companies entering the market.

Country-specific requirements are a barrier

However, increasing protectionism hasn't left Thermoplan completely unscathed. Like more than half the companies surveyed in the SME study, Thermoplan also finds that country-specific requirements and certification cost time and money, and this hinders exports. However, the CEO of Thermoplan isn't deterred by this: "As a family-owned business, we have to adapt to the environment in which we operate, because we can't do anything to change it."

The requirements are particularly onerous in China and Russia. China, for instance, demands full details of the coffee machines. The Swiss company is reluctant to provide this information, because this would leave Thermoplan at the mercy of the Chinese government. China is, after all, notorious for its poor protection of intellectual property rights and has a fondness for copying successful products from the West.

Tremendous potential in China despite protectionism

Despite the risks, however, Adrian Steiner would not want to pass up on exports to China. "There is incredible potential for us in China. The Chinese are just starting to discover the coffee culture," he points out. Cappuccinos and other varieties of coffee with milk, in particular, are in great demand. Thermoplan is strong in this segment.

"We sell more milk machines than coffee machines," the CEO explains. Milk foam technology and the associated cleaning products are the real DNA of Thermoplan. After all, the very first product back when the company was founded in 1974 was a machine for producing whipped cream at the touch of a button.

Asian markets are becoming more challenging

This core competency also helped Thermoplan, when China introduced new food safety regulations almost overnight. "It was a matter of finding a solution, and quickly," says Steiner. Our local partners on the ground were vital in this regard. "They know their stuff, what's urgent and what's not. We are successful where we have good partners," he remarks, explaining the process. And the SME survey shows that other companies agree that this is key to dealing with trade barriers.

Measures for dealing with trade barriers

Things that help when dealing with trade barriers

Percentage of SMEs surveyed, who reported that the measure in question had helped.

Source: Credit Suisse 2019 SME survey 

Digitalization, by contrast, has proved a little trickier. Here, Thermoplan has felt the effects of the trade war between the USA and China in a very direct way: Its coffee machines are connected to a cloud system, for which the Swiss company relied on a partner in the US. When China refused to accept this US partner, Thermoplan had to buy an entirely new cloud system, costing time, effort, and money.

Coffee consumption despite trade barriers

According to the SME study, exchange rates represent another significant risk for Swiss businesses. For this reason, whenever possible Thermoplan sells its products solely in Swiss francs. But with a stronger Swiss franc, this strategy is not entirely problem free: Thermoplan has had to give discounts in order to remain competitive. "For us, at the same time this means that we have to become more efficient and reduce procurement costs," remarks Steiner. As in the case of the new, fully automated warehouse currently under construction, for example, where components can be stored and supplied as required.

For Thermoplan, another antidote to the difficult operating environment is innovation. Of the company's workforce, 20% is employed in research and development. The company recently unveiled its new Black&White4 coffee machine, with its unique LatteArtist feature. This gives the CEO of the coffee machine manufacturer great confidence for the future. Not least because of the experience he’s gained from previous crises. "Coffee consumption is not typical. People will treat themselves to a daily coffee, even when times are hard."