Innovative Switzerland

By: Georges Haour

Switzerland is more innovative and entrepreneurial than generally thought. The world holds on to the caricature of Heidi and of utterly dull bankers, evoked by Helmut Schmidt, many years ago: “Europe is not governed by the gnomes of Zurich”. We forget the implications of the fact that the Swiss national hero is the ultimate rebel: Wilhelm Tell; and rebellion is companion of innovation.The strong Swiss franc and the weak state of the economies of its trading partners will make 2012 difficult, but Switzerland scores tangible successes: prosperity, low debt, reasonable growth, public budgets in the black, low unemployement and trade surplus. This miniature model of Europe must be an inspiration for the EU to become what it should be: the world’s most successful region in the 21rst century.

Switzerland is an odd country: envied, but not well understood. This predicament is expressed by the venomous line in an old movie: “What was invented in Switzerland other than the cuckoo clock?”

The Helvetic Confederation, founded in 1291, is one of the very few countries in the world to truly have a “brand” (awful word…). A brand is rooted in values. For Switzerland, these are: down to earthness, quality, precision, punctuality – no wonder that there is a good fit between Japan and Switzerland. For France, these are: fashion and flair, gallic élan, taste for language and intellectual debate. For Italy: design and fashion, efficiency and trust of its small firms, especially in the  “districts” of northern Italy. For Germany: engineering quality, reliability and discipline. As will be seen below, one of the values of Switzerland could well be innovation…

The private actors

Switzerland is a pragmatic, business-friendly country. As everywhere, policies are essentially made for big businesses. By the way, this is also true at the international level: tax heavens (Jersey, Isle of Man,…) and transfer pricing allow corporations to legally avoid paying billions of euros of taxes. Neither SMEs (small and medium-size enterprises), nor, indeed, individuals, have access to such “tax optimization”…

Like Holland and Sweden, Switzerland counts many large multinational companies, considering its small size (7,5 million people): ABB, Roche, Novartis, Nestlé, Logitech, Tetra Pak- this family-controlled firm made news, when it left Sweden many years ago, essentially for tax reasons.

There are 300 000 SMEs in Switzerland. Roughly 10 000 of these would benefit from engaging with external sources of expertise. They benefit from the proximity of global firms: by selling to them, they sell to the world.

As in other countries, more than 75% of the Swiss labour force works in firms smaller than 50 employees; many are in retail. There are 300 000 SMEs in Switzerland. Roughly 10 000 of these would benefit from engaging with external sources of expertise. They benefit from the proximity of global firms: by selling to them, they sell to the world. They are similar to the German “Mittelstand” firms, but smaller: they sell high value offerings in narrow market segments, obsessed with the quality of their products and services, while demonstrating a strong and real customer-orientation.

Let us look at the example of SICPA, in Lausanne. This family-owned company is the world leader in the manufacturing of special security inks used to print banknotes – more Swiss, you die!

This appears to be a good business in these times of “quantitative easing” (today’s jargon…). On the website of the firm, there is no information on the business volume or, even the number of employees, of the firm. Founded in 1927, it has 300 staff in Switzerland, with an estimated turn over of CHF 1,5 billion.

Contrary to Mittelstand firms, Swiss SMEs do not engage much with universities. Thus, they may miss an opportunity to update, innovate, so as to be more competitive in the world markets.

Share of R&D done for SMEs in 2007 (OECD STI scoreboard).

In Switzerland, start ups are progressively better accepted and more numerous. The trend is slow but steady; the country offers a reasonably good environment for start ups, for its social laws, fiscal regime, availability of money (but with a weak VC – venture capital- industry), presence of strong engineering schools, particularly ETH, in Zurich and EPFL, in Lausanne. Last year, ten technology-based start ups were spun out of ETH alone. Universities are also active; the University of Geneva, for example, has spun out several promising start ups in the life-sciences sector.

Also for start ups, the proximity of very large, global corporations is a plus, often not well exploited. For a number of reasons, Swiss start ups do not represent as powerful a sector as it should in the areas of healthcare and low-carbon economy. In these sectors, they are more start ups in Israel than in Switzerland!

The public actors

The two main types of public actors are the Federal Government, in Bern, and the 26 cantonal governments, in this highly decentralised country.

Market-oriented innovation is considered to be the realm of the private sector and the government has nothing to do with it, other than by providing a supporting environment. Many years ago, it was proposed that the federal government institutes a mechanism to ensure firms against the risks of innovation. It was clearly defeated in one of these numerous Swiss referenda. Since then, the government has kept a hands off policy, except for the KTI – the federal commission for the encouragement of innovation. The latter provides grants to start ups and SMEs, as well as part-time “coaches” for start ups, in order to help them develop their business.

Switzerland is, with Japan, the country with the lowest fraction of its national investments in R&D-research & development financed by taxpayers…

Switzerland is, with Japan, the country with the lowest fraction of its national investments in R&D-research & development financed by taxpayers, roughly 20% of the total, as compared with 40 to 50 % (50% in the case of the USA) in other OECD countries.

Public research has a funding agency called the National Fund for Research. Its budget is CHF 700 mio- per annum (580 million Euros). Its grants go to the (public) higher education institutions.

Noting the low interaction between SMEs and Universities, mentioned above, a few years ago, Switzerland created seven Hautes Ecoles  Spécialisées (HES). These are located in the various regions of the country. One of their key missions is to engage with SMEs, in order to make them more competitive.

Indeed, a SME, better prepared to address global markets, will create jobs back at home. This offers a less risky path to job-creation than start ups, for which the survival rate is 25% after five years; it is also more viable than corporations, which destroys jobs in the OECD countries, while creating some in emerging economies.

The Swiss government and Parliament have consistently worked to make sure that Switzerland actively participates in the R&D “Framework Programmes” of the European Union. In this regard, Switzerland has the same access as the 27 members of the Union and many swiss researchers lead such European, complex,  multi-actor projects. For the EU, such a diligence constitutes a heart-warming testimony to the value of the “Framework Programmes”…

The country’s framework conditions

As indicated above, the Swiss federal government considers that its role is to provide an environment of framework conditions fostering wealth- and job – creation. These conditions include: education, infrastructure, social laws, general legal and tax environment. In all these areas, it is generally agreed that the Swiss common sense has provided a healthy environment, attractive to non-Swiss business.

As always, there is room for improvement. For example, the punishing Swiss bankruptcy laws constitute a poor signal sent to entrepreneurs. So does the fiscal regime of stock options, although recently improved. A mindless law was recently abolished, which prevented non-Swiss students, graduating with a PhD from a Swiss institution, from working in the country.

In order to promote interaction between SMEs and university research,  the bottom up, non bureaucratic scheme of “innovation chèques” was introduced in 2011, following the successful example of Wallonia, the French speaking province of Belgium. A small sum of CHF 7500 is provided for a specific SME-University collaboration project. Singapore, the Switzerland of Asia, has recently introduced a similar scheme.

The 26 Swiss cantons provide essentially all services to their populations, from education to tax. There are thus 26 competing tax regimes. The economically powerful cantons, Zurich, Basel and Geneva, include innovation-led growth as one of their missions; they catalyze initiatives in this area: “incubators”, such as the Zurich Technopark, or Geneva’s “e-closion” for life-sciences start ups. The muscle of each canton in this domain, like in others, is, however, limited.

A government innovation is the array of Swiss techno-business “consulates” called swissnex. These offices provide forums and points of contacts for entrepreneurs from Switzerland to interact with the local scene. The first one, in Boston, was funded in large part, by Geneva’s private banker, Thierry Lombard, who has a passion for entrepreneurship. Other existing swissnex sites are in San Francisco, Singapore, the Switzerland of Asia, and Shanghai; Bangalore may be next.

Technology transfer

In the area of technology transfer, the object of my latest book From Science to Business, with Laurent Miéville, Switzerland is the country in the world that does the best job of transferring technology to the private sector (see chapter 6 in the book). The figure shows that, in license deals and number of start ups, per unit of research money invested, Switzerland is doing well. What is the reason the this best kept secret?

The human factor is indeed particularly crucial, when it comes to innovation and the extremely complex function of bridging academic research and market success.

Fifteen years ago, the Swiss government decided to put in place  technology transfer offices in the main Universities (all are public). In a typical Swiss way, this was done by staffing these offices with suitable people. The human factor is indeed particularly crucial, when it comes to innovation and the extremely complex function of bridging academic research and market success.

This was done in a non-bureaucratic way, with a sensible time horizon. The figure below tracks the staff count in these offices in recent years. Note that the numbers are low; again, quality, not quantity, is of the essence.

Italy’s CNR and France’s CNRS constitute real gold mines in expertise and potential innovation. There are occasional “blockbusters”, such the cancer drug “Taxotère” in the case of CNRS, but public research must be much better “exploited” and  Switzerland offers an example on ways to go forward in this area.

Entrepreneurial spirit in Switzerland

According to the GEM – Global Entrepreneurship Monitor, Switzerland’s entrepreneurial orientation  is higher than the European average.  Such rankings are controversial, but the lead of the country seems consistent and is confirmed by its good performance in spinning start ups out of university research.

Switzerland is home to bold entrepreneurs/innovators; here are a few:

• Dr. Thomke immediately saw the potential of the revolutionary design of the injected-moulded “Swatch”, invented by two engineers, Mock and Mueller.
• Grandson of the scientist, who inspired the character of Professor Tournesol in the Tintin comic strip, Dr. Bertrand Piccard has launched the Solar Impulse project. His objective is to design and build this solar/battery-powered plane, in order to fly around the world in 2013, as a metaphor of the fact that we must do things radically differently.
• The intergovernmental research laboratories on particle physics, CERN, in Geneva, invented a key element of the internet.

Conclusion

Excellence in research and education, particularly at the graduate level, sound entrepreneurial orientation, effective technology transfer from public research to the private sector, constitute less well known characteristics of the Swiss scene than are its high ratio of Nobel prizes and of patents per inhabitant.

These characteristics echo a tradition of innovation in the arts and litterature: Le Corbusier, the Dada movement in Zurich, Giacometti, Paul Klee – although he did most of his career in Germany, Ramuz, Jean Piaget, Denis de Rougemont, Durrenmatt, and, in music. Ernest Ansermet, Arthur Honegger, Franck Martin, not to mention Jean-Jacques Rousseau, whose 300^th anniversary of his birth in Geneva is celebrated in 2012.

Other areas of Swiss innovations are: private banking, the Red Cross, with its Geneva Conventions, as well as the invention of political arbitrage, going back to the “Alabama” dispute between the USA and the UK, until recent examples on disarmament. In the list, one could include the innovation of Geneva’s water fountain, the “jet d’eau”.

Conceptual innovations are very much needed in a world facing many crucial crises: population and healthcare, energy and commodities, transition to a low carbon economy, mindless financial sphere, etc…

All this portrays the picture of an innovative country “punching well above its weight”, just like in the financial sphere. Where does it go from here?

Rather than relying on radical changes, Switzerland is expected to maintain its low-key momentum of putting in place, or improving, appropriate instruments and policies, in the spirit of Japan’s “continuous improvement”. A key to its success is that the country is well aware of the crucial importance of the human factor and is blessed with the availability of competent professionals having multi-cultural sophistication and open to the world.

Switzerland is excellent at technology transfer; it has to become much better at business growth.

One area of improvement is for the government to provide stronger incentives for more effective inter-institutional work. In this area, Swiss business schools, such as that of St Gallen, HEC, in Geneva and Lausanne, and IMD, must become more diligent in effectively boosting the emergence and growth of job-creating, new activities. Switzerland is excellent at technology transfer; it has to become much better at business growth.  A caricature of this situation is the fact it took Nestlé thirty five years to turn Battelle-Geneva’s invention (in the late 1960s) of Nespresso into a commercial success…

Other efforts concern improving the already good country’s infrastructure, as well as ushering more activity towards a low-carbon economy.

Drawing on its impressive, current strengths and on a strong consensus about the paramount importance of innovation for creating new activities and jobs (again, here, similarity with Japan…), Switzerland is  thus expected to continue building, step by step, its own “house for innovation”, taking the asset of its richness of cultural diversity as a given. Rather than being scornful about Switzerland, the “big” countries of Europe should be inspired by its example.

Going one step further: the success of Switzerland, this miniature model of Europe, powerfully suggests that, by its values, the talent if its people, the general quality of its education, its cosmopolitan outlook and its excellence in science & technology, Europe is the region of the world best prepared to brilliantly succeed in the 21rst century, creating new activities and jobs. Europe has all the good ingredients, but needs much better leaders than currently, to truly make the “mayonnaise take”.

By Georges Haour

References

– Reviews of Innovation Policy: Switzerland (OECD, Paris, Nov. 2006) is  the most recent national review for this country; the author of this paper was one of the experts for this exercise
www.oecd.org/document/52/0,3746,en_2649_37417_37795892_1_1_1_37417,00.html

– www.myscience.ch/en is the Swiss portal for research and innovation, including CTI – Commission for Innovation

– The World Competiveness Yearbook. Each year, IMD assesses the competiveness of countries www.worldcompetitiveness.com/online/

–  How the Web was born, by James Gillies and Robert Cailliau, (Oxford University Press, 2000).  The contribution of CERN to the development of internet.