Corporate Press Release

Press Release

Swiss SMEs: Success through Innovation

Credit Suisse surveyed SMEs about the opportunities and threats presented by megatrends

The economists at Credit Suisse have surveyed again this year nearly 1,800 small and medium-sized enterprises (SMEs) about the opportunities and threats presented by six selected megatrends. The opinions expressed by the SMEs are markedly more optimistic this year than last. The SMEs are most positive in their assessment of this year's major topic – technological progress. Although this megatrend forces them to change continuously, the surveyed businesses almost unanimously regard this as essential to their survival. The most important generators of new ideas in Swiss SMEs are management and employees. Many businesses also have cooperation arrangements, primarily with clients and suppliers. Swiss SMEs do not rely on complex innovation mechanisms. Instead they count on their flexibility and openness for continual improvement and an innovation-friendly working environment. Marketability, the availability of skilled employees, the statutory framework, and financing are the main obstacles.

Megatrends represent the most important changes in the coming years and have an impact on all facets of our lives. This is now the fifth time that Credit Suisse's economists have surveyed small and medium-sized enterprises (SMEs) about six selected megatrends: demography, globalization, changing values, the scarcity of resources, the knowledge society, and technological progress. Technological progress – or innovation in the broader sense – is the major focus of this year's survey. Today more than ever before, Swiss SMEs are forced into a process of continuous self-renewal. The international opening of markets in the wake of globalization has increased the competition for Swiss SMEs and has increasingly sharpened the focus on the specific performance characteristics of their products and services, in other words, the value that they can add for clients.

Swiss SMEs are well aware of the importance of innovation
Almost all of the surveyed SMEs (94%) see technological progress or innovation as essential to the continued existence of their business. The SMEs are aware that they can only grow in the long term if they stay one step ahead of their competitors throughout the world. Competing on price alone is difficult for most Swiss companies because of their expensive production factors. Hans Baumgartner, Head of SME Business Switzerland at Credit Suisse, confirms: "In our day-to-day communications with SMEs we see how important it is for them to identify emerging client needs at an early stage and to implement convincing solutions efficiently in terms of marketable products and services. Constantly looking for improvements is a key component of the Swiss entrepreneurial spirit and the basis for future prosperity."

Innovation pays off
Innovation and high-quality products ensure long-term commercial success. One in three of the surveyed companies generate more than a third of their revenues with new products. However, innovation is not simply a matter of new products and services. Innovation in the areas of processes, marketing and organization are also perceived as important by a quarter of the SMEs. Rapid response, deliverability, and flexibility can be crucial sales arguments.

Being innovative is not a matter of chance
Important impulses for innovation come from management, which is tasked as part of its strategic responsibilities with systematically considering the direction and internal organization of their business at regular intervals. 53% of the surveyed SMEs therefore cite management as one of the key sources of innovation. Many SMEs operate continuous improvement processes. However, complex structures make less sense for smaller businesses. Instead, Swiss SMEs frequently rely on flexible methods of promoting innovation with low maintenance costs – internal suggestions schemes, for example, or targeted encouragement of employees.

Skills are important
Employees are the most frequently cited source of innovations (56%). Three quarters of the surveyed SMEs make a targeted effort to encourage their employees to innovate. They do this most often by providing a motivating working environment – e.g. through flexible working hours or the delegation of responsibility – and professional development opportunities. Material incentives such as bonuses and gifts are identified as the third most important factor. However, they become significantly more important as the size of the company increases.

Flexibility and client focus are key to success
After management and employees, clients are the third most common – but the most important external –source of ideas. Flexibility and a listening ear for client needs and wishes are not just good sales arguments. In fact, they guarantee a product and service offering that is properly aligned with demand. Of the surveyed Swiss SMEs, 37% have cooperation arrangements with clients and 45% with suppliers, in order to develop new products and services and improve existing ones.

When competition is fierce, offense is the best form of defense
Swiss SMEs do not rest on their laurels. Many companies don't bother with registering trademark rights. Instead they rely on continuous innovation to keep them one step ahead of imitators. The reasons for adopting this approach are the high costs and complicated procedures involved, combined with the fact that patents often fail to provide adequate protection.

Innovation activities are financed internally
According to the study carried out by Credit Suisse's economists, retained profits are by a large margin the most common source of financing for innovation projects. 48% of Swiss SMEs invest between 1% and 5% of their revenues annually in innovation projects. In fact, one SME in five invests more than 10%. This means that profits are frequently retained with the express purposes of promoting innovation. However, this also means that this capital can disappear if revenues fall. Access to venture capital is more difficult in Switzerland than in many other countries.

Marketability as the most important criterion
In terms of internal factors the most common obstacle to innovation for Swiss SMEs is a poor cost/benefit ratio. Externally, companies are most severely affected by unfavorable market conditions, especially high levels of market saturation, strong competition, and hence reduced sales opportunities. The next most important limiting factors are the availability of skilled employees, the statutory framework, and problems with financing. However, technological progress and associated innovation activity are rated overall as extremely promising by Swiss SMEs. Only 4% of the surveyed SMEs felt that the threats outweighed the opportunities.

More optimistic assessment of the future than last year
Compared with the results from last year, Swiss SMEs have become more optimistic in their assessments in 2011. 51% of the surveyed companies see the overall impact of the megatrends as an opportunity (previous year: 49%). Only 26% believe that the risks outweigh the opportunities. This more optimistic view of the future applies to almost all of the megatrends. Only scarcity of resources is predominantly regarded as negative. While almost 48% of SMEs see this megatrend as a threat, only 32% regard it as an opportunity – a negative balance of -16%. The general attitude compared with last year (-4%) has become markedly more pessimistic. The reasons for this change are likely to lie in the growing concerns caused by rising commodity prices and the current political uncertainties. In addition to technological progress, the knowledge society also receives a positive balance (+58%). The SMEs are undecided in their assessment of the impacts of an aging society (-1%).