Sector Handbook 2017: Where are the Swiss industries moving?
Credit Suisse's 2017 Sector Handbook takes a look at the 27 biggest sectors in Switzerland and offers a perspective on the most significant developments over the coming years. Where are the risks, and where are the opportunities?
You are a coauthor of the "2017 Sector Handbook" study. Who would you recommend reads it, and why?
Sascha Jucker: I would strongly recommend the 2017 Sector Handbook to any entrepreneur who wants to see an incremental gain in their knowledge, but it actually makes fascinating reading for anyone who is interested. The study analyzes the 27 most important sectors in Switzerland, dedicating one page to each. It examines their structures and discusses the developments observed over the previous and current year. In addition, the study includes a chapter that provides a medium-term sector analysis. Based on structural developments, this is where we give our forecast for the coming three to five years. We also dig deeper into the most important factors driving this analysis – such as the strength of the Swiss franc, digitalization, and demographics – because these affect virtually every company.
So the strength of the Swiss franc against the euro is something that will continue to occupy us over the coming years?
Normally, exchange rate fluctuations are classed as a short-term economic factor. The strength of the franc against the euro, however, is structural in nature. This means that the Swiss franc should remain a fundamentally strong currency in the long term as long as circumstances do not change significantly. The strength of the Swiss franc affects many sectors in Switzerland: the export-oriented industry; retailing, which is suffering as a result of shopping tourism; the hotels and catering trade, which is having to cope with the loss of a large proportion of its all-important German guests. The effects of the appreciation of the Swiss franc against the euro are less dramatic for domestically oriented sectors, such as the health care and building sectors, as well as for some export-oriented sectors such as the pharmaceutical industry. Firstly, the margins in the pharmaceutical industry are higher than in other export industries, and secondly, the sector is less dependent on the European market than the metals industry, for example.
Although the economic outlook is starting to improve, the environment remains challenging for certain companies. Can digitalization help to counter this trend somewhat?
Digitalization will continue to change the structures in many sectors. This creates great opportunities, but also presents challenges. One industry trend is self-learning systems, where errors no longer need to be rectified by humans as the systems are able to improve and learn through self-adaptation. Similarly, we are seeing huge demand for IT and advisory services that address the issue of the growing mountains of data and the increasing relevance of data security that this entails. Innovative ideas are required in retailing, which is under pressure as it is having to cope with increasing competition from e-commerce.
You cited demographic changes as a third important factor. What can we expect in this area?
The aging of our society is one of the medium-to-long-term trends that we can predict with the most reliability. We expect the proportion of people over the age of 80 in Switzerland to almost double by 2040 compared to today's figures. The sectors that will benefit the most from this development are the pharmaceutical and medical technology industries, which already play a significant role today. The entire care sector will also benefit – new concepts in elderly care are needed to cope with future growth in demand.
How do you create a study like the 2017 Sector Handbook?
We evaluate a huge amount of macroeconomic data, such as the development of employment figures in the sectors and gross value added, as well as bankruptcy rates and the number of new companies being founded. Of course, this data relates to the past, otherwise we wouldn't have any data. For the medium-term forecasts, we combine these figures with our assessments. To do this, we evaluate the opportunities and risks for each sector presented by trends such as demographic changes, as well as by very sector-specific developments. For the tourism industry, the emergence of providers like Airbnb is one such trend. In this case, I refer to external studies on the shared economy and examine the effect of Airbnb on the hotel industry in countries that are one step ahead of Switzerland in this respect. I then provide an assessment and define the probability of occurrence. Each person in the team then submits an account of their figures and sector evaluations; this is a very structured and rather lengthy process.
Do you also evaluate how right or wrong you were with your assessments after the fact?
Of course, we do that on an ongoing basis. Analyzing potentially incorrect past assessments helps us to improve future forecasts.
Credit Suisse puts a lot of time and effort into creating this study. Why does it do that?
In the first instance, because the bank wants to provide Swiss companies with access to valuable sources of information. It is worth pointing out that the Sector Handbook is available online and can be accessed by anyone who is interested, regardless of whether or not they are a Credit Suisse client. Internally, of course, our client advisors also use the Sector Handbook. With regard to credit risk management, the study provides high-quality information that enables credit specialists to form an opinion about a sector.
What advice would you give to a company that does not have a rosy future ahead, according to the study?
Firstly, there are always lots of excellent, successful companies that are managing to overcome the difficulties with good outcomes, even in challenging sectors. A negative forecast does not mean that prospects are poor for every single company in the sector. Secondly, most of those affected are hardly surprised by the result – after all, they know their environment better than anyone else. Finally, every company needs to find its own path, though there are some very general pieces of advice that I can give. I would advise companies in the tourism industry, for instance – a sector currently facing a range of challenges – to focus on a larger number of different nationalities so that currency fluctuations and political events do not cause an existential crisis. For smaller businesses, a useful piece of advice is usually to specialize, as the alternative is to engage in price competition, which is not an option for Switzerland with its high salary level. Swiss companies continue to offer excellent quality and are very innovative – this is where their potential lies.