Even though large companies are often the ones in the spotlight, it is the small and medium-sized enterprises that account for most of the Swiss economy. 99% of companies here in Switzerland are SMEs. The 600,000 SMEs stand in opposition to “just” 1,600 large companies with more than 250 employees. According to the Federal Statistical Office, two thirds of employees in Switzerland work in an SME. “SMEs are the backbone of the Swiss economy. They are the driving force behind both employment figures and the overall economy,” says ETH Zurich professor Martin Wörter. He is Head of the Innovation Economics Division at the KOF Swiss Economic Institute and responsible for the Innovation Survey, which is conducted among Swiss companies once every two years.

Surveys such as the Global Innovation Index, which for years have named Switzerland as the global leader with respect to innovation, are rather broad in their scope and based on many different indicators such as the quality of universities, the number of patents or the economic environment. In order to more accurately assess the innovation performance of Swiss companies by European standards, it is worth taking a look at the Eurostat evaluations, Martin Wörter explains. Here, too, Switzerland takes the top spot. “Eurostat statistics are mainly driven by SMEs. In principle, Switzerland’s proven innovation performance is therefore an achievement of SMEs. Swiss SMEs are very innovative. They make a significant contribution to ensuring that Switzerland is one of the most innovative countries in the world.”

It is important to make a distinction, however, since not all SMEs are interested in developing new ideas, processes or products, stresses Wörter. “There are companies that do well without being innovative. They consistently do the same thing, and consistently do it well. They do not have to take the risk of investing in the development of new products and services. A good craftsman has a good business model, so there’s no need for constant innovation.”

For other SMEs, however, innovation is a factor that led to them being founded in the first place: this was just as true a hundred years ago as it is today. Depending on the industry and the competition involved, a company may only be able to enter the market at all, gain market share and then hold on to it as a result of a new idea. “From an economic perspective, an innovation is not an innovation until it can be successfully positioned on the market,” explains Martin Wörter. This can be a new product, a new service, or even a new process.

Every two years, the KOF surveys how innovative Swiss companies are. For the latest Innovation Survey 2020, around 9,000 Swiss companies were surveyed on their innovation performance and their level of digitisation, two important pillars of Switzerland’s competitiveness.

During the last few survey periods, there had been a concentration of innovation activities among fewer companies. Now, for the first time in 20 years, the proportion of companies investing in research and development (R&D) has seen an increase. This figure rose significantly, from 12.6% to 16.3%. At the same time, the average share of sales accounted for by R&D spending remained constant compared with the survey period prior to this. R&D spending is therefore once again spread across more companies in the economy as a whole.

Whether this is a good development or a bad one is not yet entirely clear, says Martin Wörter. If individual companies stop investing in R&D, the intermediate inputs for R&D become cheaper as the demand for them decreases. This could increase the R&D productivity of the companies still actively investing in R&D. If, on the other hand, there are many companies working on innovation, the demand for these scarce resources will be high and the supply short: one example here would be with respect to skilled workers, who are already in desperate demand across all areas. “It is not entirely clear whether the prosperity of Switzerland’s society as a whole increases when the number of companies working on innovation is larger or when it is smaller,” the ETH professor says. The corresponding calculations would still have to be made in order to determine this. “Ultimately, though, it depends on what companies do as a result of their R&D activities. What matters is whether or not they boost their own competitiveness as well as that of Switzerland.”

Switzerland’s most innovative SMEs are in the high-tech industries of pharmaceuticals, chemicals, mechanical engineering, electrical engineering, electronics and automotive manufacturing. “To remain competitive in these internationally oriented industries, these companies must be able to keep innovating,” notes Martin Wörter.

Competition has intensified, particularly on international markets for the high-tech industry. Among Swiss SMEs in this sector, the share of companies actively investing in R&D recently saw a decline – contrary to the overall economic trend. At the same time, there were more measures in place to reduce production costs. In the case of export-oriented high-tech companies, the focus is increasingly no longer on prices, but on factors such as “customisation”, the frequent introduction of new products, a technical edge, and a high degree of flexibility to meet customer requirements. This requires companies to make great efforts to innovate and, as a result, to take greater technical and commercial risks. Some high-tech companies have probably exited the R&D market as a result, and are putting the focus more on process optimisation in order to maintain profit margins. Nevertheless, companies in the high-tech industries continue to be among the most innovative companies in Switzerland.

Besides the focus on the international market, there are other factors that also determine the innovative strength of an SME: the skills profile of its employees, the affinity for research and knowledge of what is going on at universities are also important. This is particularly important for companies in certain technology sectors, says Martin Wörter. The more you are exposed to the work that is being carried out at universities, the better you will understand what is being researched, and the more easily you will be able to benefit from this knowledge. Regular exchange with the university is also an important factor for the SME Eskenazi, for example, which develops milling machine accessories and other special tools.

There are several obstacles and risks in play that prevent SMEs from being innovative. “High costs and a lack of own funds are the biggest obstacles to developing new products,” says Martin Wörter. “In order to innovate, an SME is above all reliant on how successfully it performed the day before.” When the financial footing is thin, innovation becomes more difficult. And this tends to break away completely when price competition is very intense, the ETH professor emphasises.

Long development and amortisation periods are considered a further risk: the longer it takes a company to make money from an innovation, the higher the risk. But it is also important that the development is as radical as possible, as this way it will be difficult to copy. This is particularly important for Swiss companies at an international level.

Developing innovations takes time. Most SMEs have enough to be getting on with as part of their day-to-day business and do not have extra resources laying around they can simply free up. Funding innovation projects is important in order for companies to “go out on a limb” and innovate, says Martin Wörter. “SMEs produce innovations that help the general public. With their innovations, they contribute to solving societal problems.” It is therefore important for SMEs also to be able to benefit from the knowledge of universities.

This is where Innosuisse comes in with its support offering. By funding innovation projects between research and implementation partners, Innosuisse contributes a great deal to the transfer of knowledge between research and industry, and also helps traditional SMEs in particular to develop new products and services.

Both research and implementation partner benefit from the transfer of knowledge, as the example of social innovation by lifetime health GmbH shows. And Daniel Felber from Agathon also emphasises how helpful the support from Innosuisse has been. “Being involved in a project helps when it comes to staying focused on an innovation or project.”

Martin Wörter says that the challenges faced by SMEs have increased. “A lot has changed over the past 20 years in part due to trends such as digitisation or sustainability. But there has also been a greater number of crises all at once recently that require SMEs to be more flexible, not only in the area of R&D but also in areas such as procurement.”

Innovations in the field of digital transformation can lead to a reduction in production costs, but they also impact the demands placed on the company and the range of services it offers. Due to a high level of automation, information has to be processed continuously, and new skills are needed as a result. “For a smaller SME in particular, hiring new specialists is a very costly matter.”

The company Agathon has also experienced how their new services have an impact not only on the core business, but also on other areas. The SME will now also have to strengthen its marketing activities as a result of the new digital offerings.

Another increasingly important topic for SMEs is sustainability, and the question of how to close material cycles. “This is a huge innovation task. Companies are forced to rethink their product, for example in terms of what happens to it at the end of its life or how the product can be used for longer. This is not just an innovation task for a single company, but rather a systemic challenge. Companies are increasingly having to cooperate with different companies along the value chain.”