Swiss Post arrives at crossroads in digital age

Swiss Post faces strong international competition in its search for foreign revenue Keystone

A series of resignations at the top of Swiss Post has revealed uncertainty at its highest levels over the future of the postal service and its plans to expand abroad.

Two board members and the CEO have all left Swiss Post in recent weeks, mainly in disagreement over the group’s business strategy.

Newly appointed chairman Claude Béglé is an advocate for change and wants the government-owned entity to diversify and seek out foreign sources of revenue. Béglé was recently quoted as saying he wanted to model Swiss Post on food giant Nestlé which does most of its business outside Switzerland.

Although Communications Minister Moritz Leuenberger has remained quiet on the issue, the ministry has said that when Swiss Post’s board of directors is renewed in May it will “reassess its make-up” and carry out an in-depth review from which the “necessary conclusions” will be drawn. A task force is being created in preparation.

Like its foreign counterparts, the organisation has been confronted with decreasing letter volumes as email continues to replace posted letters.

In one way or another, postal services worldwide are all trying to compensate for declining domestic markets by expanding their foreign operations, says Matthias Finger, who holds the Swiss Post-funded Chair of Management of Network Industries at Lausanne’s Federal Institute of Technology (EPFL).

Within the European parcel delivery market, Swiss Post is competing against giants such as Germany and Holland’s postal services – both textbook examples of success abroad.

The Dutch postal service, comparable in size to the Swiss, was the first to act and so reaped the rewards. As part of its transformation, the Dutch service was privatised and acquired a specialist Australian company. The German post office, thanks to its size and government support, went shopping abroad and bought DHL.

“Like Swissair or Swisscom, Swiss Post is too big and too powerful to be confined to Switzerland, but too small to be a major competitor in the international level,” said Finger. He adds that there is no alternative to a “measured and controlled expansion abroad”.

“Otherwise we [should] accept that the post office is shrinking, losing its market share.”

He elaborated: “We must redefine and modernise the service based on the real needs of today’s citizens, who have changed; we must then calculate the cost of this modernised service and find a funding mechanism.”

Economic driver

“Postal services have always been international,” Edouard Dayan, director general of the Universal Postal Union (UPU), told swissinfo.ch. He added, however, that under globalisation postal services increasingly faced the challenge of how to better meet the needs of their individual and business customers, “wherever they are”.

“In recent discussions at the UPU about the impact of the financial crisis on the postal sector, various postal operators such as the Brazilian, French and Italian Posts, to name just three, clearly talked about the importance of diversifying their services and being innovative in order to continue to thrive and to be drivers of national and international trade, which are important for economic growth.”

Finland is one country that is having to weigh up country size and the scope of their postal services. But while the Finnish post is expanding into the hinterland – the Baltic States and part of Scandinavia – Swiss Post is up against a strong German postal service and a closed French market, said Finger.

But Swiss Post is still a player as – like its counterparts in France, Italy and Japan – it is one of the few postal groups to have retained its financial customer services and can therefore offer a more comprehensive service to the public under falling postal volumes.

Economies of scale

Swiss Post is also managing the internal mail of certain businesses. A bank or insurance company will for example hand over a mailing list and content to Swiss Post, which then sends it out electronically or by hard copy – and cuts down on distribution costs by printing near the recipients.

“Once you’ve invested in these technologies, you can use them elsewhere, especially with Swiss multinationals, without taking a big risk,” said Finger.

This concept of risk taking abroad is a source of concern in light of the failed Swissair and Swisscom ventures outside Switzerland. Two of the main political parties have voiced opposition to foreign revenue expansion plans.

The centre-left Social Democrats say all expansion abroad should be halted. The party president Christian Levrat says Swiss Post does not have the competency, the size or financial means needed to be active abroad.

The rightwing Swiss People’s Party says Swiss Post should not follow a “risky” foreign strategy.

But Finger argues: “The situation is different for the post office, with investments in technology being made in Switzerland anyway, which allows for economies of scale abroad. It is not about going and buying a foreign postal service. In any event, political circles would never allow it.”

“It is about offering products developed in Switzerland in certain niche markets abroad,” he said.

“Swiss Post has already been doing this for a long time, as an eighth of its turnover is made abroad. We must let Swiss Post continue on this path, and moreover, in line with the government’s strategic objectives.”

Pierre-François Besson and Jessica Dacey, swissinfo.ch

Swiss Post

According to its 2008 annual report Swiss Post was active in 20 countries and 8,000 employees are involved in its international activities.

Foreign revenue from letter and package deliveries accounts for a fifth of turnover, that is SFr1.8 billion.

From January to September, Swiss Post reduced 1,200 full-time positions, affecting around 1,700 people. Béglé said further job cuts could be expected.

Employing around 33,000 people, the Post is the country’s second-largest employer. It generated a profit of SFr825 million ($790 million) on revenues of nearly SFr9 billion in 2008.

On December 15, the group announced it had fired Michel Kunz, its director-general, over differences in business strategy. He was replaced by Jürg Bucher. On December 22 board member Rudolf Hug resigned over “irreconcilable differences” with the new group leader. On January 5 Wolfgang Werlé resigned as a director of the Swiss postal authorities.

New frontiers

Claude Béglé, the chairman of Swiss Post wants the government-owned entity to diversify and seek out foreign sources of revenue. It also plans more job cuts.

“The Swiss Post must be like Nestlé,” he told the Sonntag newspaper. “It will in the future have a large headquarters in Switzerland, will develop products here, will pay taxes on its profits but to a large extent will do business outside the country.”

The company is seeking to grow Swiss Post Solutions, a division that handles mail and document outsourcing for companies. It also plans to expand the services of PostFinance, its banking arm, to take advantage of what it believes is growth potential in corporate loans and mortgages.

The company expects its core business, traditional mail, to decline by one-third by 2015.