Boosting Switzerland’s competitiveness with Innovation

Why is innovation so important to power up Switzerland?

Switzerland is a high-cost, high-productivity economy. We cannot only copy others, to maintain our position we need to drive progress ourselves as well. Which applies to technological progress, but innovation is more than that, creating new commercially viable products and services. Big companies need to innovate, and new business need to be created and grow. If there has ever been a year showcasing why we need to be innovative, then is has been this one. Companies had to adapt to the pandemic, and fast.

In your experience, what have been the innovation hot topics this year? How do those help fighting the pandemic and the corresponding economic slowdown?

We have seen accelerated digitalisation, adoption of digital channels, sometimes forced, and ways of collaborations, more data centricity, and new interactions with citizens and with users. A lot of business had to digitalise suddenly, cashless payment systems, online shopping and delivery, online banking, advising customers online, online meeting, online recruiting and so on. We made a big jump ahead here. A massive challenge for the companies involved, but in many cases a big success. Also ecosystems have become yet more prominent. Ecosystems can take the form of specialising on part of the value chain instead of trying to stay competitive across the entire chain. It could also involve offering external services in addition to the core service provided. A vital aspect of working with an ecosystem is cooperating with start-ups by using their innovation without hindering it. Working in an ecosystem can also allow companies to reach towards  transformational innovation and entirely new products or services. The crisis has seen such collaboration being established very fast, out of necessity, such as a restaurant cooperating with a delivery service, to replace on site business. This highlights how ecosystems can increase the resilience of companies operating within it and resilience is of key importance this year.

And how is Switzerland overall doing with regards to innovation compared to other countries?

When we published the Digital Innovation Capacity Ranking two years ago, Switzerland was good, but not good enough. Eight rank overall, with clear strengths, for example in the talent area, but also clear weaknesses, mostly linked to the creation of new businesses. The good news here is, we Switzerland seems to be moving in the right direction. Take venture capital, a clear weakness two years ago, especially for later stage investments and the financing of IT start-ups. Later state investments doubled from 2018 to 2019 to CHF 1.7bn, according to the Swiss Venture Capital Report 2020. Investment in Swiss information and communications technology almost quadrupled from 2017 to 2019, to CHF 1.2bn. Overall, the capital invested in Swiss start-ups reached a new record in 2019, with CHF 2.3bn, sharply up from CHF 1.2bn in 2018. This is due to several large investment rounds and growth in all sectors and phases. There is much more awareness for the importance of VC than before. Not only for VC, for creating good conditions for start-ups and innovation in general. But, even though there are initiatives to remedy this, other areas are still lacking. One example is entrepreneurial spirit and education, starting in schools. Switzerland is still not ranking well compared to other countries here, according to the Global Entrepreneurship Monitor. For example, out of 50 countries, Switzerland is ranked 39^th for people feeling they have the right skills, 41^st for perceived opportunities for founding a business and 49^th for start-ups not being founded because people are afraid to fail. Switzerland’s high-productivity economy with attractive wages might be a disincentive to take risks. In any case, improvements here need time to have an impact. And that links to another reason why innovation can be so hard to drive: culture.

Which also applies to company culture, making companies fit for innovation?

Indeed, a company culture fit for innovation is one of the most important success factors. What is needed here is senior management buy-in and sponsorship. The company needs to embrace agility and learn from failure, aligning rewards and promotions accordingly. Foster talent willing to learn and adopt constantly. Adapt to exponential growth where disruption can happen in a short amount of time. Scaling is vastly important in a global market, in which there are fewer geographical obstacles for data-driven innovation and thus competition might be everywhere, both abroad as well as in different business sectors. Again, this was highlighted in the pandemic. Many companies reacted faster to that than they might have previously thought possible. That experience, the experience of having mastered such a disruption successfully, together, can now be harnessed to drive further innovation. Further innovation to continue manage the pandemic and economic disruption, which seem far from over. And to grow beyond that.

Is the size of Switzerland domestic market another obstacle for innovation made in Switzerland?

Yes and no. A bigger domestic market offers more opportunities to grow fast without expanding internationally, that is without adapting to other regulations or customer tastes. It is another weakness we identified in our ranking, one which is obviously hard to remedy directly. But with close international cooperation and integration it can be remedied to a certain degree, which is one reason why being linked to larger markets is so important for Switzerland. In that way the limited domestic market is an incentive for Swiss companies to grow beyond Switzerland. Which is what many are doing and probably could do still more. Other smaller economies were ranked higher in the overall Digital Innovation Capacity Ranking than Switzerland, for example. While the US was number one, with Finland, Israel and South Korea three smaller economies followed in our overall ranking from 2018.

Switzerland is home to some of the biggest companies globally. Is that also true for the next generation, for new businesses?

It depends on how ambitious we want to be. Again, Switzerland is doing quite well, but maybe still not well enough. If you look at the number and sizes of unicorns globally, start-ups valued at USD 1bn and more, the US and China dominate here. One ranking from CB Insights has 479 unicorns globally as of July, out of which 228 are American and 125 are Chinese. For a small country Switzerland is not doing badly with 4 unicorns, but the crushing dominance of the US and China is hard to ignore. Not only in numbers, also in the size of the unicorns themselves. The Swiss ones tend to be valued at not much more than USD 1 bn. The biggest ones in that list though are valued at 140 times that much. The biggest nine are all from China and the US, then follows one from India. The biggest European one is listed on rank 22, at USD 11bn. All Swiss unicorns together are valued less than the next biggest European ones each, from Sweden and the UK. But the European single market is still the second biggest economic market globally, so clearly there is potential for more. One thing is to remove regulatory obstacles, increase regulatory alignment with Europe, such as in data protection and privacy. Thus, for example, Switzerland needs to secure recognition of equivalence to EU data privacy.

Overall, what can be done to make Switzerland even more attractive for innovation?

There are three very important things. First, we need to retain access to the very best talent, including graduates from our leading universities and graduates from the best universities globally. Second, getting culture right for innovation, right for scaling innovation. Dare to think big, and then dare to think bigger. Be more courageous and ambitious in planning. Some start-ups cater to Swiss specifics, such as in health care and are more difficult to scale globally. But some could easily attract customers globally, so why not plan to scale these globally. And thirdly, while the development in venture capital is very encouraging, it must continue, especially now during the pandemic. More so even, since if Swiss start-ups are to scale globally they will require investments to match global ambitions.