Jobs threatened by SME succession problem

Many exiting bosses will leave a void imagepoint

Tens of thousands of jobs may be at risk as bosses of Swiss small and medium-sized enterprises (SMEs) struggle to find a successor, a report has found.

This content was published on November 21, 2007 minutes

The succession problem particularly affects family-run firms, with about 10,000 SMEs employing 55,000 staff facing closure as a result in the next five years. The report predicts many more will also face stark choices.

SMEs are the bedrock of the Swiss economy, making up 99.7 per cent of all Swiss companies and employing more than two-thirds of employees. An SME is characterised by having fewer than 250 staff but most have fewer than ten.

The survey by the Swiss branch of international credit risk assessment company Dunn & Bradstreet found that about 52,000 enterprises in Switzerland employing 270,000 staff are looking for new leadership.

The bosses at 20,000 of these firms have already reached the retirement age of 65 - leading to the stark conclusion that the coming years will witness a wave of liquidations.

"In the coming three to five years more than 10,000 firms will finally close their doors," Dunn & Bradstreet's Macario Juan said. "As a result, 55,000 jobs are threatened."

A similar survey by the Swiss SME Institute at St Gallen University last year concluded that 11,400 firms in Switzerland are handed over to new management every year. Of these, 1,800 close down with the loss of 14,000 jobs annually as they fail to find a successor.

Emotional attachment

St Gallen University's Thomas Zellweger told swissinfo that the main hindrance to succession came from exiting bosses pricing their companies out of the market.

"These companies have a huge emotional value to their owners. They would rather hand them over to the next family generation, but if they cannot do that they tend to over-value the firm they are trying to sell," he said.

"Another common problem is that they disagree with prospective successors about the way their company will be run in future. They want continuity and may not sell to people who want to reorganise the structure or divest certain parts."

But other studies have shown that the problem is not just confined to SMEs. Zurich University researchers earlier this year found that half of Switzerland's 400 biggest companies have failed to plan properly for management succession.

The most remarkable finding of that survey was that only 20 per cent of Swiss firms employing 10,000 or more staff had a structured and transparent plan of how to hand over power.

Family firms may shrink

Some 272,000 of the 307,700 Swiss firms of all sizes are family-owned and most of those are SMEs. But that number may be shrinking in future, according to a report from international consultancy firm PriceWaterhouseCoopers (PwC).

The survey found that a third of family-owned companies will need new leadership in the next five years, but only a fifth are planning to hand over to the next generation. This compares to half of all firms worldwide keeping ownership in the family and 84 per cent in the US.

Over a quarter of such Swiss companies plan to sell to private equity investors while half of all the firms surveyed had no succession contingencies in place.

swissinfo, Matthew Allen in Zurich

In brief

The Dunn & Bradstreet report found that succession problems are most prevalent in the engineering sector with 15.5% of firms affected. The real estate (15%) and print and publishing sectors (14.9%) are also high on the list, however IT firms (6.4%) have the problem more in hand.

More than 10,000 firms in Bern and the surrounding region will need new bosses in the next 10 years, affecting over 50,000 jobs. Some 9,000 firms in the Geneva region and 8,000 in Zurich will also undergo succession changes in the near future.

Smaller SMEs are more in danger of going under than larger ones that have a sounder financial footing. Those in Zurich and eastern Switzerland are generally better off than those in the southern region of Ticino.

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Key facts

Findings of the PwC family run business international comparative study (1,454 firms in 28 countries – 50 in Switzerland):
25% of companies will change hands in the next five years worldwide (30% in Switzerland).
51% globally expect to hand over to the next generation (22% in Switzerland), 20% will sell to private equity investors (28%), while 4% have no concrete plan (11%).

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