Swiss economy: SMEs are going through rapid structural change

"SMEs are going through structural change in fast motion."

The COVID-19 crisis overran the Swiss economy at an unprecedented speed. Dr. Sara Carnazzi Weber and Pascal Zumbühl, the authors of this year's SME study produced by Credit Suisse, know how SMEs can best keep up with the accelerated structural change.

Ms. Carnazzi Weber, Mr. Zumbühl, what changes in consumer needs must Swiss SMEs expect during the coronavirus period and beyond?

Sara Carnazzi Weber:* The coronavirus pandemic and the associated restrictions have turned a lot of things on their head, both in our everyday lives and in the economy. Some changes are certainly temporary, while others may permanently shape people's needs. For example, we have overcome some inhibitions in the use of digital technologies. We work from home, we go on fewer business trips, and we do more of our shopping online.

Pascal Zumbühl:* Another interesting aspect is that, due to the limited freedom of movement, CO2 emissions have decreased worldwide. This may have led to increased awareness among consumers of their own actions with regard to climate change. Ecological sustainability could therefore also become more important for many companies.

In your opinion, what are the main trends to emerge from the coronavirus crisis?

Sara Carnazzi Weber: I think it's more appropriate to talk about acceleration. The upheavals we have experienced were not caused by the pandemic. Rather, the coronavirus crisis acted as a catalyst for existing trends. Digitalization, flexible working models, the trend towards greater sustainability, and a slowdown of globalization were already around. However, the pandemic made the next steps in development come very quickly.

That sounds like a challenging environment for SMEs. How should companies act in that situation?

Sara Carnazzi Weber: Each SME must determine what these changes mean for their own businesses, where they need to adjust their product or service offering, and, potentially, whether to develop new distribution channels. It is important to orient yourself to the current needs of consumers, but also to anticipate future needs.

The whole thing is obviously very company specific. A good piece of advice for all companies, however, is to expand their level of digitalization. Here, it's worth thinking beyond the digital processing of familiar processes and – where possible – entering new fields of application such as data analysis or artificial intelligence.

The 2020 SME study shows: Almost 50% of SMEs have adapted their business model to the changed background situation since the start of the coronavirus crisis. What do these reorientations look like?

Pascal Zumbühl: There is no global answer to that. Companies are affected by the restrictions at various levels and this has led to very different adjustments:

Restaurants and the event sector, for instance, have suffered directly from closures. In order to still generate turnover, restaurants started offering a delivery service. The organizers of the Gurtenfestival have even adapted their entire service offering and built a COVID-19 test center.

The tourism sector, which suffered from weak foreign demand, was also hit very hard. In order to position itself more broadly, Switzerland Tourism launched a campaign intended to attract mainly Swiss nationals and European tourists to Swiss mountains and cities.

The retail trade has increasingly attempted to come into contact with clients through online channels. In the import business, many industrial companies have reviewed and adjusted their value chains since the start of the crisis. This may entail diversification of preliminary service providers, the in-house execution of previously outsourced activities, or higher stockpiling.

In your opinion, which business models have significant potential to emerge positively from the crisis and be successful in the future?

Pascal Zumbühl: Companies that were already addressing the major trends of our time before the pandemic obviously still have an advantage today. One success factor is certainly investment in the field of digitalization. Futurologists expect tomorrow's labor market to be shaped by major upheavals due to disruptive technologies. Accordingly, those who adapt to a fast-paced market environment will also have a head start in the future.

Those who deal with trends at an early stage have better chances of proving themselves in the long term.

Pascal Zumbühl, co-author of the SME study.

During the lockdown in the spring, the federal government helped out companies with credit guarantees. Do you see a danger that the government could thwart economic structural change by setting up a new financial shield?

Sara Carnazzi Weber: In contrast to the first wave of infections, the second wave has made it clear that the way out of the pandemic is going to take a while. We therefore assume that the government will deploy its financial assistance in a more targeted manner in the future. SMEs that are suffering under the ordered restrictions but still have long-term survival prospects on the market will likely continue to receive help. In contrast, SMEs that have no prospects after the crisis due to structural change will tend to no longer receive help. That is because, from an overall economic point of view, it is not productive to invest financial resources in something that will ultimately go up in smoke.

What characteristics do entrepreneurs need to successfully navigate the crisis?

Sara Carnazzi Weber: In the SME study, more than half of companies named flexibility as the most important quality for surviving times of crisis. Experience was designated as the most important characteristic by almost 20% of respondents. I can imagine that both characteristics go hand in hand. Experience in its own area or from earlier crises, combined with flexibility, enables a company to respond well in crisis situations like the one we are experiencing now.

Why is it so important for entrepreneurs to be flexible?

Pascal Zumbühl: Flexibility helps companies to rapidly adapt to changed framework conditions, reinvent themselves, and lay the foundation for future growth. This can lessen the negative impact of the COVID-19 pandemic. For example, the pandemic caused many companies' turnover to plummet, but they had to continue to pay most costs such as rent. Those who were able to rapidly adjust to the new environment had to spend less of the previously saved liquidity cushion to master the crisis. Therefore, they may also have more financial means available for making future investments.

The COVID-19 crisis doesn't necessarily have to only be a source of destruction for Swiss SMEs; it can also mean creation and growth. Can you give us an inspiring example of this?

Pascal Zumbühl: As part of the SME study, we asked four CEOs how they are handling the crisis. I especially remember the interview with the company livet. The Bernese startup produces rapid tests for diagnosing respiratory diseases in horses. At the start of the pandemic in March, livet decided to adapt to the new market situation. Since then, they have used their knowledge of infectious diseases in veterinary diagnostics to produce COVID-19 rapid tests for humans. This courageous step was rewarded with significant growth.

An innovative solution for a current problem. Do Swiss SMEs distinguish themselves especially through innovative strength and forward-looking actions?

Sara Carnazzi Weber: Swiss companies have always faced a lack of raw materials and high production costs. Over time, this has repeatedly encouraged them to achieve international competitiveness through innovation and quality.

Looking back, we see for instance that Swiss SMEs often emerge stronger from phases in which the Swiss franc appreciates. That's because they must regularly deal with such situations and develop concepts to overcome them accordingly. At the same time, the Swiss government acts rather cautiously compared to other countries. Companies know that it's their responsibility.