Swiss industry loses innovative strength

Switzerland regularly occupies top positions in international innovation studies and rankings and is one of the most innovative countries in the world. However, such studies assess the entire national economy, including all framework conditions, and say little about the innovative strength of individual industrial classes. The Swiss Academy of Engineering Sciences (SATW) therefore took a closer look at innovative strength and discovered something disturbing. Swiss industrial companies, especially SMEs, appear to be increasingly losing innovative strength and competitiveness. This is bad news for a country that depends on an internationally competitive export industry.

Fewer companies, less research, less domestic

The study is based on data from the innovation survey conducted by the KOF economic research institute, which is currently available up to and including 2014. It is striking that there are fewer and fewer Swiss industrial companies. This development is also shown by the Swiss Engineering Index: Switzerland has been losing around 4,000 full-time jobs in the industrial sector every year for the past six years. Worryingly, from 1997-2014, many SMEs reduced their R&D efforts at home and abroad (see chart 1). The NOGA1 classes of chemicals, machinery, metal products, textiles/clothing and watches were particularly hard hit. In some cases, a migration of R&D activities abroad is also evident, for example among SMEs in the electrical engineering and metal manufacturing classes.

Some particularly required industrial classes

The study shows how successful the R&D efforts of Swiss industrial companies are with regard to new products. The results for the observed period (2001-2014) are presented in a portfolio representation (see chart 2). The x-axis shows the change in the share of sales accounted for by R&D spending, while the y-axis shows the change in sales of new products. While R&D efforts by SMEs paid off in some classes such as pharmaceuticals, wood or metal products (yellow and green areas), things looked less good in the electronics/instruments, machinery or chemicals classes. There, SME sales of new products fell, despite higher R&D spending in percentage terms - so the efforts were all for naught, as it were. The findings for SMEs in the textile/clothing class are disturbing: they have reduced R&D spending in percentage terms and their sales of new products have fallen. Changed framework conditions, stronger competition or disappearing markets are possible causes.

Strengthening applied research and development

The public sector finances university research in Switzerland. Industrial companies bear their own research costs. This model seems to have reached its limits. The results of the study suggest that SMEs in Swiss industry in particular are finding it increasingly difficult to bear the high costs of R&D. Those that nevertheless take the risk are increasingly less successful. Those that do take the risk are less likely to be successful. Larger companies outsource research to countries that offer more government incentives to do so.

These developments must give pause for thought. In view of the state support for industry that the majority of the leading industrialized countries provide, the political debate must be conducted: Does the federal government need to provide greater support for domestic industrial companies in their innovation efforts and set appropriate incentives?

Source: www.satw.ch