SMEs shown path to overseas success

Swiss precision work is in demand worldwide Keystone

Swiss small and medium-sized enterprises (SMEs) can be just as competitive in the international arena as larger firms, two recent studies conclude.

However, many smaller companies are put off by a misguided perception of high costs and risks that could be avoided if they shaped their strategies to take advantage of their unique strengths.

Roughly half of Swiss SMEs export abroad and only five to seven per cent have production, research or another form of direct presence in other countries, according to Marcus Matthias Keupp at St Gallen University.

The rest are missing the boat because they are using the wrong business models, a report co-authored by Kreupp says.

“The surprising thing is that many Swiss SMEs do not internationalise themselves even though they have the potential to do so,” Keupp told swissinfo. “There is a lot of potential to conquer additional market share at little additional cost.

“Most people are afraid of the huge investment that they think internationalisation stipulates. As many small firm owners are risk adverse they tend to ignore this route, but we have shown that there is no resource problem.”

Keupp puts forward three business models he is convinced would be successful for international expansion of Swiss SMEs.

Secrecy crucial

The first advocates forming alliances with larger companies with an established international presence, the second utilises specialist Swiss know-how such as tunnel building and the third focuses on niche products or services overlooked by large firms.

Protecting ideas and products is also key to survival on the international stage, according to Keupp. However, keeping complex production procedures secret is just as important as taking out patents on innovation, he added.

“Switzerland has a double pioneer role. On the one hand the country is characterised by the number of SMEs and their importance to the economy and on the other Swiss firms in general have been pioneers of innovation and research,” Keupp said

“Swiss firms have to have some international presence because the home market is too small. If you combine these effects you have ideal starting conditions for SME internationalisation.”

A Fribourg University study of SMEs in the German-speaking part of Switzerland found that just under a quarter exported internationally in 2002 – the same proportion as in 1995. However, direct investment boosted the figure of internationally active SMEs to 29.6 per cent.

Size doesn’t matter

The study also revealed that 29 per cent of internationally active SMEs were very successful, but a quarter flopped.

The failure rate can be put down in large part to a lack of management commitment to see the projects through, according to co-author Marie Brechbühler Peskova.

However, she believes that size does not matter for the success or failure of Swiss firms expanding abroad.

“There is no correlation between size, both in terms of workforce and capitalisation, and business success internationally,” Brechbühler Peskova told swissinfo.

“Our research shows that companies that are active in riskier markets are the more successful ones.”

swissinfo, Matthew Allen

Key facts

Small and medium-sized enterprises (SMEs) are companies which employ up to 250 people.
The European Union defines such firms as having between 10 and 249 employees.
They account for 99.7% of the 307,000 companies in the Swiss private sector and provide jobs for 66.8% of the workforce.
87.9% of SMEs have fewer than ten employees.

In brief

The St Gallen University study – “Born Global Innovators” – analysed 93 SMEs based in Switzerland and Germany. Of these, 24 companies with a big international presence were looked at in closer depth.

Fribourg University’s survey approached 750 SMEs in the German-speaking part of Switzerland (response rate 28.9%) to determine how internationally active they were. Further research was then conducted on firms with an international presence.

Of those companies that did business abroad 80% exported, 18% had a foreign production site while 7% were part of a joint venture with a foreign company.