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Exporters hold the Alamo against the odds

An Oerlikon engineer works on a drive for the positioning of satellite solar panels

(Keystone)

Battered by the strong franc and encircled by key markets that are swiftly going down the pan, Swiss exporters are hanging on despite rough economic conditions.

The sector still warns of collapse in the coming months as the growth of exports slows and consumer power in many markets declines. But company results in the first half of the year have proved resilient.

Georg Fischer, a manufacturer of automotive parts and piping systems, has managed to turn its performance around in spectacular style. Sales increased ten per cent to SFr1.86 billion ($2.34 billion) in the first half of this year compared with 2010 while net profit leapt 124 per cent to SFr92 million.

The upward momentum comes against the backdrop of a particularly tough past two years. But economic conditions improved markedly for a period in the first quarter of 2011 and sales and profits revived despite the franc continuing to surge upwards since January.

Pump specialist Sulzer also saw figures improve in the first six months of this year – sales up 8.8 per cent to SFr1.6 billion and profits leaping 11.7 per cent to SFr124.8 million.

Timely watch surge

ABB, that provides technology for the energy sector, saw profits rise by 43 per cent to $893 million (SFr710 million) in the second quarter alone. Textiles machine maker Rieter witnessed an 8.8 per cent increase in profits in the first six months of 2011 even after stripping out a one-off capital gain from selling its stake in an Indian company.

The most spectacular example of Swiss manufacturing strength is the watch sector, that has provided the biggest impetus for Switzerland’s export industry this year. Watch exports grew 19.5 per cent in the first seven months of this year (against 3.6 per cent growth of total exports across all sectors) and 21 per cent between June and July.

The Swatch Group saw sales jump 11.4 per cent to SFr3.36 billion in the first six months of 2011 despite losing SFr387 million through unfavourable exchange rates. Profits climbed by a quarter on the same period last year to SFr579 million.

Watch exports are doing better than other sectors because of a focus on Asian markets and a global lead on innovation, according to the Swiss Watch Federation president, Jean-Daniel Pasche.

“We are far more focused on Asia, with 55 per cent of our products reaching this growing market,” he told swissinfo.ch.

“Our watch makers are also very innovative and stay ahead of the field. People do not buy watches just to tell the time, so we constantly have to offer new innovations in terms of technology and style.”

Cost cutting

Claudia Moerker, chief executive of the Swiss Exports Association, believes successful companies across all sectors are still benefitting from supplying Swiss quality products that cannot be easily replaced.

“Suppliers and producers of niche products, for example high tech, can cushion the negative effects of the strong franc,” she told swissinfo.ch. “This is particularly the case where there is limited competition and exporters produce anti-cyclical goods.”

Exporters still face challenges from the strong franc as it increases the price of their goods abroad, rendering companies less competitive.

One way around this is to divert exports to growing markets, such as Asia and South America, thus cutting dependence on Europe and the United States.

“It is important that the exporters adjust to the rapidly changing market conditions and remain flexible,” Moerker told swissinfo.ch. “The future lies in today’s developing countries, not in the European Union area.”

Nevertheless, firms have been forced to introduce shorter working hours and find better sources of raw materials to cope with the economic hardships. Most worryingly, exporters have been forced to cut the price of their goods – by 5.3 per cent in July alone.

Stopped in tracks

Swissmem, the umbrella body for the mechanical and electrical engineering sectors, said its members slashed the cost of their goods by 4.9 per cent in the second quarter of this year – the tenth straight quarter they have been forced to do so.

Swissmem President Hans Hess said on Thursday that margins had been squeezed so much that for many companies it was showing “five minutes before midnight” on the clock. He warned that production would locate abroad and be lost to Switzerland forever if exchange rates failed to improve.

A survey of Swissmem members found that 27.8 per cent had a pessimistic outlook for the next 12 months, compared with 13.9 per cent last quarter.

However, there does appear to be a flicker of hope for hard pressed exporters as recent Swiss National Bank (SNB) measures to flood the market with francs have halted the surge of Switzerland’s currency.

Two weeks ago the franc was approaching parity with the euro and flirting with SFr0.70 against the dollar. Since the SNB intervened it has eased to SFr1.14 against the euro and SFr0.79 against the greenback.

But exporters will not be happy until the exchange rate reaches closer to SFr1.40 against the euro.

Bankruptcies increase

The number of firms going bust in Switzerland is on the rise so far this year compared with 2010.

Marketing and research company Dunn & Bradstreet found that 3,662 firms went under in the first seven months of 2011 – a 5% rise on the same period last year.

However, taking into account natural attrition, the number of insolvencies remained the same at 2,463.

Some 556 enterprises went bust in July 2011 alone, a significant 17% increase on the same month last year.

The worst affected sectors were tourism and catering and building. The machine building, textiles and precision instruments sectors were less affected.

On the other side of the coin, the first seven months of this year have seen a record number of new enterprises starting up.

Some 23,741 new entries were entered in the commercial register – up 7% on the same period last year.

Dunn & Bradstreet expects some 40,000 new enterprises (mainly in service industries) to appear on the Swiss horizon by the end of this year.

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swissinfo.ch

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