Keeping innovation alive ‘Swiss entrepreneurs are failing to dream big’

Scott Capper

Stéphane Garelli, head of the IMD World Competitiveness Center in Lausanne, reckons that Swiss innovation is still in good health

Stéphane Garelli, head of the IMD World Competitiveness Center in Lausanne, reckons that Swiss innovation is still in good health

Switzerland does not lack talent when it comes to innovation and promoting new ideas. But the country’s young entrepreneurs have trouble leaving their comfort zone and striking out in the world, according to global competition specialist Stéphane Garelli.

A recent study carried out by Zurich’s KOF economic research institute shows Switzerland is the second most innovative nation in Europe behind Denmark in the industrial and services sectors. But the researchers say the results published in April also show that the Swiss have seen innovation stagnate while other countries have caught up.

Garelli, who heads the IMD World Competitiveness Center in Lausanne, reckons though that Swiss innovation is still in good health, even if it is unlikely that the next Swiss Apple or Google will emerge anytime soon. According to the KOF study, Switzerland is slipping in terms of innovation. Is this reflected by your own research?

Stéphane Garelli: No, not at all. First you have to differentiate between the fundamental research carried out by our universities and how this research is transformed by companies into innovation. I think one of Switzerland’s strengths is not just that we are very good in research, but that there is a nice flow between research institutes and companies. If you look at the rankings we are among the best around the world, especially when it comes to getting innovation in research to market. There is no example of a Swiss Apple or Google in recent years. Patents seem to be mostly granted to established major companies. So where is the innovation?

S.G.: I think this is one of Switzerland’s major problems. We are one of the world leaders in patents. We also have many dynamic small and medium-sized companies, and we are ranked the second most competitive country in this sector just behind Germany but ahead of Sweden. But the problem is that none of these SMEs are really expanding. So we continue to rely on the very large firms. We have a lot of good SMEs, but in between nothing is being created anymore. The issue is that we are not building the Nestlé’s and Novartis’ of tomorrow One problem that has been highlighted is that there doesn’t seem to be much of a tradition of capital-risk investment in Switzerland.

S.G.: Venture capital, capital-risk, business angels, you name it, they exist for smaller companies, but once you reach a certain size, it’s difficult to become much bigger. It might not just be a question of finance either, but also of attitude - a lot of entrepreneurs in Switzerland are happy to have a niche company which performs very well but is not a big global group. I think that size in itself is becoming less and less attractive for younger entrepreneurs in Switzerland. They prefer to have a relatively small company that they can master without having to go to the United States or China in order to develop a global group. Is this because there is a lack of an entrepreneur culture in Switzerland or because entrepreneurs don’t dream big?

S.G.: Swiss entrepreneurs, especially in industry and manufacturing, do not dream very big. I think because we are a very advanced society in many ways, people feel their work-life balance is more interesting than just working hard and creating a global group, which would imply in most cases leaving Switzerland and being very active in the United States and China. A lot of younger entrepreneurs are reluctant to do so. They like the environment you have in Switzerland and once they reach a certain size, they don’t see much sense in getting bigger.

KOF innovation study

The latest study by Zurich’s KOF economic research institute, mandated by the State Secretariat for Economic Affairs, puts Switzerland in second position in Europe in terms of innovation for industry and services behind Denmark.

The researchers say that while Switzerland continues to innovate, European Union nations are now in a position to overtake it after making significant progress over the past decade. Belgium and Finland are cited as two countries having made important strides towards catching up with the Swiss.

Switzerland has suffered according to the study because of the unfavourable development of innovation activities in the Swiss manufacturing sector in the 1990s and in the service sector around the turn of the century.

While this trend was halted prior to the global economic slowdown, it became apparent once again due to the crisis and the strength of the Swiss franc.

The researchers point out that innovative companies have kept up their spending for innovation activities, maintaining know-how and innovation-relevant expertise. This they say will put Switzerland’s economy in a good position when the global economy recovers.

However innovation is hampered by a lack of qualified research and development personnel as well as access to sufficient financial means. So these entrepreneurs have to leave their comfort zone to succeed on a bigger scale?

S.G.: Yes. If you look at the big success stories in the US, Google, Apple and such companies, they are still very local. They became big while staying in their local market, even just California for some. In Switzerland, this is impossible. To reach a certain size, you cannot remain local. You have to go abroad, travel around a lot, develop a complex management structure and I think the new generation of entrepreneurs simply doesn’t want to do it. Once they reach a certain size, they either sell their company or they decide to focus on a niche strategy focusing on a few select products and stay there. Why is that the case?

S.G.: They are entrepreneurial, but I don’t think their objective is to become a manager after being an entrepreneur. There is a point where the entrepreneur has to stop being just that and become a manager. I think it is at this stage where Switzerland is weak, because the entrepreneur says he is having fun, making money in a good environment. There is no interest in building the largest company in the world in its field. The Americans have this mindset, they want to be the biggest, to be number one.

For the Swiss, it depends very much on the targets they set themselves. We live in a wealthy society. We are also a country with limited amount of space, and if you want to build a very large company, you need very large facilities, which is not easy anymore. The model developed over the past 20 years in Switzerland is one of small sites with high-added value such as headquarters or research centres with very little manufacturing. So entrepreneurship in Switzerland responds more to a societal choice rather than a business decision. Going back to the entrepreneur culture, it’s often said the Swiss are afraid of failure too. Even closing down a business is technically difficult.

S.G.: Edison said he hadn’t failed, but that he’d found 10,000 ways that won't work. The Swiss don’t have this attitude. We are a country of insurances, banks, we are a country that traditionally has been risk adverse. So we aren’t a society that really favours risk. It is changing. Younger entrepreneurs are prepared to take risks, but only to a certain point. Going into bankruptcy, even for perfectly legitimate reasons, is still considered a major failure on your curriculum in Switzerland.