11. December 2017

Location disadvantages for SME in the Swiss machine industry?

Accounting for about one-fifth of value created, the machine industry plays a key role in the Swiss economy. SME represent the backbone of the industry. Under the title “Economic significance and problems of the SME in the Swiss machine industry under special consideration of the companies organised by Swissmechanic”, Prof. em. Dr. Franz Jaeger and Dr. Tobias Trütsch have prepared a study commissioned by Swissmechanic and the trade union Unia.

Strong franc as location disadvantage

About 200 member companies of Swissmechanic were surveyed for the study. The results were alarming.

The companies pointed to the overvalued Swiss franc as the greatest location disadvantage by far. In almost 40 percent of the companies interviewed, the strong franc had a negative impact on employment. The second location problem mentioned was that in more than 50 percent of the businesses, profit margins had deteriorated in the period from 2014 to 2016, due to the strong franc. Currently, almost half of the companies have a profit margin of less than 5 percent, which is not tolerable in the long run. Some 10 percent are recording losses.

What is more, many companies have difficulties getting loans:

In 2015, one in every five companies was refused a loan to finance its business activities. In the years before and after 2015, this figure was one in every eight. Furthermore, one in every three SME was requested to secure its loans with mortgages.

Demand for a strategic exchange rate target

Based on the analysis, the authors of the study recommend various actions: The Swiss National Bank should target a strategic exchange rate of EUR 1 = CHF 1.18 to 1.20. To solve the credit dilemma, alternative financing forms must be elaborated, apart from bank loans, and the guarantee system for SME must be improved. Moreover, the investment regulations of pension funds should be reviewed. Vocational training and additional training must be strengthened as the basis for innovation, especially in view of the challenges of digitisation.

The study can be accessed here.

 

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About the author
Dr. Tobias Trütsch Tobias Trütsch is responsible for the programme area Economics at the Executive School. His research interest lies with payment and monetary economy, focusing especially on innovative payment methods and individual payment behaviour.