Innovating The Swiss Way

A proud tradition, but much still to be done

Published: May 21, 2012

Switzerland is more innovative and business-oriented than many people think. Too many are all too quick to forget that this small country, with the population of a medium-sized city in China, has been the native land of many a ground-breaking artist or innovative business leader.

Think of Giacometti, Ramuz, Honegger, Le Corbusier, Nestlé and Rousseau (the 300th anniversary of whose birth is being celebrated this year). Nor should we forget the trailblazing concepts that have emanated from Geneva: Calvinism, the Red Cross, the Geneva Conventions and the magnificent Jet d’eau.  

Newer examples are not quite as plentiful but are noteworthy nonetheless: Dr Ernst Thomke, who championed the Swatch brand alongside its inventors Elmar Mock and Jacques Mueller; Dr Bertrand Piccard, the inventor of the Solar Impulse; and Daniel Borel with Logitech. The list goes on.

By undervaluing this innovative fiber, we also forget that the archetypal Swiss national is not a banker but that famed rebel William Tell. Though not the only prerequisite, innovation begins in an unwillingness to conform.

For the sake of our children, our world must rouse itself from its slumber to harness innovation in areas as diverse as healthcare, the low-carbon economy, food scarcity, drinking water, energy provision and basic materials. For such a transformation to take place, the public sphere must also innovate. The person in the street must improve his or her own pattern of behavior rather than relying on others to bring about change. Those to whom this seems all too impossible should note that, during the 19th century, our great-grandparents had to deal with far more drastic upheavals.  

It is the private sector that delivers the kind of innovation that creates new business activities and jobs, a case in point being Apple Inc. Three main types of economic agent operate therein: multinationals (the target of much unfair criticism at the moment), SMEs (small- and medium-sized enterprises, where most of the country’s workforce is situated), and start-ups.

Multinationals generally benefit from positive framework conditions from governments, in Switzerland, as in other OECD countries. This treatment extends across borders, in the form of legal loopholes that enable them to avoid paying a large portion of taxes owed by using internal transfer pricing and tax havens such as Jersey, the Isle of Man and the Cayman Islands. SMEs cannot afford to optimize their taxes in this way, and so are liable for the full amount.

SMEs constitute the main source of employment. In Switzerland, it is estimated that around 10,000 require modernization in areas such as R&D, managerial practices and information technology to become more competitive. Furthermore, political authorities are not very good at supporting small businesses. Additionally, in Europe, Swiss SMEs (along with their Italian counterparts) are those most reluctant to engage in collaborations with external partners, such as universities or public laboratories.

If SMEs could make better use of the opportunities extended to them by “global markets,” many new jobs would be created  in Switzerland. The task at hand is to find the means (not only the money) to spur on their development. In the future, Swiss SMEs are set to represent far more firepower in areas such as healthcare and biotechnology, information security and low-carbon/low-emission processes.  

More and more start-ups are being launched in Switzerland and the role of the entrepreneur is being better understood. The world of media is doing its bit by explaining that new companies are needed to offer positions to those losing their jobs in obsolete industries.

The northern shore of Lake Geneva, along with the Zurich and Basel regions, are spearheading progress in this field by providing a home to an increasing number of “green shoots.” These areas are still leagues behind the “Silicon Fen” (the region around Cambridge, UK), which boasts more than 650 tech start-ups employing some 25,000 people. However, Switzerland has one of the most entrepreneurial cultures in Europe according to the Global Entrepreneurship Monitor (GEM).

Once a company has started, the management team easily fall victim to what I would call the European Peter Pan syndrome: it struggles to grow up. By comparison, the huge single market in the US sharply diminishes the cost of growth for companies — not to mention the strong pull of the Chinese market. Be that as it may, Europeans would be better advised to stop whining and tailor action to actual circumstances.

As for “framework conditions,” Switzerland leads the global pack in all categories for industry uptake of ideas from the research base. These include the percentage of R&D in applied science universities that is financed by the private sector, the number of licensing contracts and number of start-ups created for each CHF million invested in R&D. Whichever indicator is chosen, Switzerland still performs better than any EU country and the US.

But Switzerland can ill afford to rest on its laurels. There is still much to be done, including remedying dwindling educational standards, carrying out constant improvements in infrastructure and improving the lot of small-business owners who go bankrupt. Reliable entrepreneurs with workable ideas need better financial backing, cantonal funds must be used more effectively, and the high standards of living have to be maintained.

Altogether, instead of hypocritically labelling Switzerland a “tax haven,” European leaders and Brussels-based bureaucrats should rather draw inspiration from the Swiss model of innovation. This small part of Europe shows what the EU could have become, in contrast to the disastrous quagmire in which it now wallows.

The 30-year post-war boom is long over. However, thanks to its values, the talent and diversity of its population, overall levels of learning, strong scientific research and sophisticated markets, Europe has all the ingredients to become the outstanding world region of the 21st century. But this implies that the Continent’s leaders must stop making a meal of things.  

Dr. Georges Haour is Professor of Technology & Innovation Management at IMD. He teaches in the Orchestrating Winning Performance and Driving Strategic Innovation programs. His latest book is From Science to Business.

[This article has been reproduced with permission from IMD, a leading business school based in Switzerland.]

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