Strategies for Swiss manufacturing companies
The strong increase in the value of the Swiss Franc and companies’ strategies for adapting to it are the major issues confronting Swiss manufacturing this year. The slowdown in economic growth in the major emerging economies is a further challenge for the sector.
- Driving customer involvement
- Going global
- Developing new services
- Innovating beyond product level
- Growing inorganically
The MEM industry is now facing contraction, while manufacturing as a whole is holding its ground. The outlook for medium- and longer-term growth over the next 10 years is brighter, however. Global growth prospects remain unaffected and, at +2.9% p.a., are in line with those for the last 10 years. Swiss manufacturing is benefitting from this optimism and looks set to achieve average annual growth of 1.6%. The industrialised nations, whose economies are currently growing at 2.0% p.a., are likely to return to making a major contribution to global economic growth over the next 10 years. Considerably higher growth rates are expected in the USA (+2.5% p.a.). The emerging economies also look set to achieve above-average growth over the next 10 years (+4.3% p.a.), although that rate will be lower than the 6.0% p.a. achieved over the last 10 years.
The gearing of 6 strategies lead to the growth success
Driving customer involvement:
The Swiss MEM industry’s core markets, including Germany, the USA and China, still offer potential for growth and will continue to be crucial over the next 10 years. Against this backdrop, 67% of those surveyed want to grow their existing customers and support them as they expand into new export markets, while 83% also say they plan to step up efforts to acquire new customers. 63% see customisation and cooperation on product and services development as ways of involving customers and creating new opportunities for growth. Having a close relationship with customers, identifying their needs and preferences, and collaborating closely with them in the areas of development, production and downstream processes are elements in long-term company-wide strategies for generating competitive advantage.
The growth potential of new geographical markets will become increasingly important. The euphoria about growth rates in Russia and Brazil that dominated companies’ strategies just a few years ago has now faded markedly, and current prospects are disappointing. However, Vietnam, India, Indonesia and Turkey are forecast to continue to offer substantial potential for expansion. 57% of companies surveyed believe that expanding into new geographical markets will be a major factor in their own growth, while 20% expect product localisation to become increasingly important. Successful global expansion must be based on identifying the most attractive markets, knowing local needs and adopting the right market entry strategies, including forming strategic partnerships, running their own marketing and sales companies, implementing mergers and acquisitions, and expanding manufacturing capacity.
Developing new services:
Almost half of those surveyed (47%) see the development and expansion of services business as a key growth strategy. Old service models, such as the commissioning, maintenance and repair of plant, will increasingly be replaced by new services. Meanwhile, additional services (such as consultancy and customisation), condition monitoring and predictive maintenance, a move away from sales and towards licensing (that is, a shift from CAPEX to OPEX), and new integrated service models will become increasingly important. Identifying the service needs of customers, working with customers on development, and providing the necessary finance, resources and skills for ‘industry 4.0’ services are some of the measures that will generate steady, long-term cash flow in a new services model.
Innovating beyond product level:
Switzerland is not a natural leader in the field of innovation, and other countries are increasingly gaining the edge in innovative technologies because they are able to invest in greenfield sites. Swiss MEM companies are strongly export-oriented, and because wage and general costs are high in Switzerland, these companies face a huge challenge in establishing a Swiss brand: the country cannot compete on price and cost alone, even though increasing use of robots in factories has the capacity to help bring down costs. More innovation, and different kinds of innovation, may help here: 45% of those surveyed expect development of new value propositions to be a major factor in their future growth, with a particular focus on product and process innovation. Increasing emphasis is also being placed on innovation beyond the traditional areas, for example in services, marketing and distribution. Deployment of the right finance, resources and skills, along with careful management of innovation, will determine the success of innovation and global competitiveness in future.
The strength of the Swiss Franc has to some extent put a brake on acquisition activities in the Swiss MEM industry and has reduced domestic transactions. However, the stability of the strong Franc has also boosted purchasing power abroad, making it more attractive to acquire foreign companies. 24% of those surveyed believe that growth through mergers and acquisitions will be important in future, with a further 40% placing emphasis on alliances and partnerships. The drivers for such activities include filling technology gaps, acquiring market share, and expanding into contiguous product areas and new geographical markets. The keys to inorganic growth include securing the right finance, resources and skills, identifying sector differentiation, having target-oriented acquisition strategies and objectives, and adopting clear implementation and integration processes.
Leveraging operational excellence:
The Swiss MEM industry continues to under-perform its international competitors in terms of labour productivity, leaving scope for improvement. Swiss MEM companies also have some catching up to do in terms of optimising their operational processes. 32% of those surveyed acknowledge that creating solid platforms for operational excellence will be a major factor in achieving growth. Corporate programmes continue to focus on production, procurement/purchasing, and warehousing and logistics. Lean production, automation, outsourcing and offshoring/nearshoring are also strategically important. In the past, optimisation has specifically targeted blue-collar labour areas, but the focus is now shifting to white-collar areas. Identifying further potential for optimisation, reducing complexity, avoiding unnecessary activities and waste, and tackling areas that have traditionally been taboo – a willingness to slaughter some ‘sacred cows’ – are now essential to create a solid basis for further growth.