Swiss exporters have long recognised that ramping up innovation is the best solution to the downward pressures exerted on profit margins by the strong franc.
But dwindling profits have also negatively impacted the ability of smaller firms to maintain research and development (R&D) budgets. An industry lobby group has therefore called on the government to increase funding for innovative projects.
Last year, the government ploughed an extra SFr100 million ($110 million) into stimulating innovation, but the funds were bled dry within weeks leaving hundreds of applicants out in the cold.
Swissmem, the umbrella lobby group for the electrical, machinery and metal industries, has demanded up to SFr100 million in extra funding in 2012 to revitalise projects that were shelved last year.
On Thursday the government recommended an extra SFr60 million in funding for the Commission for Technology and Innovation (CTI) this year. The proposal must first be approved by parliament.
Franc sparks losses
Speaking at Swissmem’s annual media conference in Zurich on Thursday, president Hans Hess labeled last year’s cash injection as “laughably small”.
“Generating new innovative products is the only way for Swiss industry to remain competitive internationally,” he said, pointing out that overhead costs – such as wages – are also much higher in Switzerland than in neighbouring countries.
Hess’s comments came against the backdrop of continued exchange rate pressure on Swiss exporters, with a third of Swissmem’s members currently running on an operational loss.
The funding and structure of the CTI is also a bugbear for other lobby groups, such as the Swiss Business Federation (economiesuisse).
On Friday, Swissmem joined a chorus of calls for a longer-term strategy for the agency and for greater independence from government control. CTI received SFr100 million per year between 2008 and 2011, but its future funding is still the subject of political debate.
More British funding
Britain’s Department for Business Innovation and Skills was awarded an extra £1 billion (SFr1.4 billion) on Friday, to bring its total funding to £2.4 billion (SFr3.4 billion) for 2012.
While Britain’s economy is more than seven times bigger than Switzerland’s, the extra cash injection is 10 times more than the Swiss government stumped up last year. As things stand, British entrepreneurs could access more than 30 times greater funding this year than Swiss counterparts.
Switzerland’s CTI fund is awarded to small and medium-sized enterprises (SMEs) that submit worthy research projects in tandem with universities and technical colleges.
The SFr100 million in extra funds received 1,000 applications last year for a total of SFr530 million. More than half of the applications were not even assessed by the overwhelmed CTI.
“Because of this, an enormous potential for innovation remains untapped,” Hess complained. “At this moment, when our industry urgently needs new innovation to alleviate the strong franc, this is simply unacceptable.”
Feeling rejected
One of the rejected applicants was Wicor, a company that provides electrical insulation and plastics products for the automotive, industrial and medical sectors. Wicor claims it fell foul of an overburdened CTI administrative process and a restrictively tight deadline to submit its proposal.
“We were mystified because we heard that we had a fantastic project that would certainly get funding,” Wicor chief executive Franziska Tschudi told swissinfo.ch. “It was very unfortunate that it was rejected for administrative reasons.”
Multinational companies such as Swiss-Swedish giant ABB invest hundreds of millions of francs in their own research projects. The fruits of ABB’s investment in cracking more efficient electrical supplies were on display this week.
The technology concern showed that innovation is alive and well in Switzerland by winning the world’s first order to equip a ship with a direct current (DC) power supply.
Research seed money for smaller companies is essential to help them develop their own innovations, according to Tschudi.
“SMEs are perfectly capable of funding a project once it has got off the ground,” she said. “But the costs of collaborating in the initial research with a university are prohibitively expensive.”
The price of failure would cost Switzerland 10,000 jobs this year, Swissmem warned last October. Companies could also increasingly source out production or shift factory sites abroad, the organisation has warned.
As if to illustrate the point, the company that Hans Hess chairs – fibre optic cable specialists Reichle & De-Massari – has just built a factory in Bulgaria that will threaten 50 Swiss jobs once it is in full production.
To counter the negative effects of the strong Swiss franc on the economy, last August the government announced a plan for a SFr880 million package of measures to boost tourism, technology, innovation and insurance against the risks of exporting.
SFr100 million was set aside for innovation. It aimed to help companies quickly carry out innovation projects in collaboration with recognised research institutes.
Over two months the Commission for Technology and Innovation received 1,064 applications for funds totaling SFr530 million. The commission chose 246 projects.
To be chosen, projects had to have been deferred by a company due to smaller margins linked to the rise of the Swiss franc. They also had to get off the ground quickly. Overall, 33% projects accepted were in engineering, while 28% were in life sciences, 28% in micro and nanotechnology and 16% per in IT and services.