| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy

RSS FEED


How to use our RSS feed

Follow Finfacts on Twitter

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Irish Economy

Global Income Per Capita

Global Cost of Living

Irish Tax - Income/Corporate

Global News

Bloomberg News

CNN Money

Cnet Tech News

Newspapers

Irish Independent

Irish Times

Irish Examiner

New York Times

Financial Times

Technology News

 

Feedback

 

Content Management by interactivetools.com.

News : Innovation Last Updated: Nov 11, 2014 - 8:04 AM


Innovation: When Swiss quality is a barrier to success abroad
By Anand Chandrasekhar, swissinfo.ch
Nov 10, 2014 - 5:28 AM

Email this article
 Printer friendly page

Despite a demand for innovative products, emerging markets like India are not prepared to pay a premium for Swiss quality. This presents a challenge for Swiss enterprises who want to stay competitive but without risking their hard-earned reputation for perfectionism.

A tourist coach pulls up at the pretty Swiss town of Arbon on the shores of Lake Constance and disgorges its foreign passengers, who then proceed to do touristy things like taking photos and eating ice cream. Only, they are not ordinary tourists but top executives from Indian public sector companies who are on a study tour to Switzerland to learn about technological innovation.

After the photos and ice cream, the coach drops the Indian executives at Trunz Water Systems, a typical example of an innovative Swiss small and medium enterprise (SME). Trunz specialises in manufacturing solar-powered water purification systems and has been doing business in India for many years.

After a company presentation by the CEO Lars Willi, the Indian delegation appear enthusiastic about the state-of-the-art water purification systems but put off by the hefty price tag.

Even the CEO’s arguments that the quality and durability of the machines would make it an economical investment in the long run did not convince the Indian executives. It all boiled down to the high initial investment for a “Swiss quality” product.

“This is a very high end product in its present form. If it works out to be cheaper by reducing the durability, the benefits will be much more for the developing world,” Srikanth Vaidya of the Indian Oil Corporation told swissinfo.ch.

This is not the first time Trunz’s CEO has heard this argument.

“People in emerging markets like India would rather go for something cheap and buy something new after a while instead of investing in quality upfront and benefitting from it over five to ten years, he says.

In the beginning, Trunz had hoped to sell its mobile water purification units to international aid organisations but found out that they were reluctant to invest in new technology. The company was then forced to target the government sector where cost often overrules quality.

The reluctance of emerging markets in Asia to pay a premium for Swiss quality could hurt Swiss SMEs that rely heavily on exports. According to the Swiss International Entrepreneurship Survey 2013, on average 56.2% of SME turnover in 2012 resulted from export.

Asia alone represents around 21.8% of all Swiss exports according to 2013 data from the Swiss Directorate General for Customs. This number is expected to increase.

“Many Asian markets offer Swiss SMEs an immense export potential, with their growing  middle class and rapid urbanization,” Wolfgang Schanzenbach, Regional Director Asia Pacific at Switzerland Global Enterprise (SGE) told swissinfo.ch. “We expect the easier to access Europe to keep its importance whilst Swiss exports to Asia are going to grow.”

According to the SGE’s latest SME Export Indicator, 54% percent of Swiss SMEs intend to export to the Asia-Pacific region over the next six months, more than even North America (48%).

Asia is also an important part of the internationalisation strategy of Swiss SMEs. On average, almost half of the Swiss SMEs surveyed have a presence in price conscious Asia, once again overtaking North America.

Cost of quality

Swiss SMEs are only too aware of the quality versus price dilemma. According to their responses in the 2013 Swiss International Entrepreneurship Survey, the price of their products and services was the most frequently cited (41% of the 788 Swiss SMEs surveyed) possible obstacle to  internationalisation. This is much higher than other common obstacles faced by businesses like bureaucracy (second at 34.5%) and investment costs (third at 24.6%).

“The problem with selling Swiss products is that we develop them with a Swiss perspective but then realise in India that we do not need such a high level of quality, so many features or such long-term durability,” Roger Moser, director of the University of St Gallen’s Asia Connect Center told swissinfo.ch.

This is an area that Trunz CEO admits there is room for improvement.

“As with most Swiss companies, our initial approach was to find a technical solution and only later check its market potential. Some of our equipment might be over-engineered to a certain degree for Indian requirements,” he says.

High Swiss labour costs are another issue. It is one of the highest in the world amounting to CHF61.3 ($65) per hour on average for the manufacturing and services sectors. Perhaps producing some of the components abroad could make Swiss products more accessible to emerging markets.

“A lot of engineering expertise is located in Switzerland but I agree that mid-sized companies have to be more open to doing some part of the development in India otherwise you miss the fit with the local requirements,” says Moser.

However, despite the potential cost savings, few Swiss SMEs  have the resources to invest in new production facilities abroad.

“Shifting some production to India will save some money in terms of employee salaries and import duties but this would require significant investment in setting up a local manufacturing plant,” says Willi. “To recover this investment, we need to have a proven potential first and we haven’t seen that in India yet.”

Swiss brand

Besides practical issues there is also reluctance on the part of SMEs to risk damaging the “Swiss made” brand that is known and appreciated in developed markets. Almost a quarter of the SMEs surveyed listed exploiting the benefits of “Swissness” as a reason for internationalisation.

Swiss quality is something that Trunz takes great pride in.

“We stand for long-term reliable quality and innovative products. Our business card is a unit that works well for a long time without any intervention,” says Willi.

The visiting Indian executives also appeared to be aware of the Swiss “quality versus price” dilemma.

“It's a call Swiss companies will have to make, whether they want to remain very elite with that Swiss tag or whether they can dilute it a bit by retaining Swiss know-how and technology but opting for outsourced hardware,” one of them told swissinfo.ch.

Diluting the Swiss brand is something Rico Baldegger, professor at the Fribourg School of Business Administration and author of the Swiss International Entrepreneurship Survey, strongly advises against.

“For the last 30 or 40 years we developed our brand image around quality. If we go in another direction we could have a quality problem with our products that could destroy our brand uniqueness,” he says.

Instead Baldegger recommends that Swiss SMEs should be prepared to change their market segment and even business model if necessary to find people who are willing to pay a premium for a quality product.

This is exactly what Trunz is currently doing.

“Now, we don’t just intend to sell the units but operate them and sell the water. In the end, we hope to finance ourselves not from the government but by local people, as we can produce clean water cheaply,” concludes Willi.

Finfacts 2011: Reverse innovation - - the process of moving technology from developing to developed countries


© Copyright 2011 by Finfacts.com

Top of Page

Innovation
Latest Headlines
Digital Taylorism: Amazon's chief rejects depiction of "soulless, dystopian workplace"
Most surviving startups do not grow; Tiny number powers jobs engine
Despite euro dip China & US remain most competitive manufacturing nations
Business startup rates up in most OECD countries led by Australia and UK
NASA's Kepler mission has confirmed the first near-Earth-size planet
Energy subsidies at 6.5% of global GDP; Commodity prices to remain weak
US startups rely on personal savings, debt; Venture capital funds less than 1%
Europe produces 13 $1bn+ "unicorn" startups in one year; London is Europe's digital capital
Irish-based firms raised €120m in VC funding in Q1 2015; Some top recipients Irish for tax purposes
Ireland: Fourth highest 25-34 year old ratio of third-level graduates in developed world: So what?
Business dynamism/ employer firm startups in US secular decline
Innovation Union Scoreboard 2015: Sweden, Denmark, Finland and Germany are on top
Education systems failing to provide students with skills for success in 21st century
US, Switzerland, Denmark, Sweden, Finland have best higher education systems
Handbook of Service Innovation: Ireland moving up the value chain?
Switzerland revives silk industry that thrived for two centuries
Sales of Irish tech firms create 300 millionaires in 15 years and no scaleups
Apple warns of 'material' tax payments from EU's Irish tax investigation
Apple earnings surge 33% on higher price and iPhone sales jump in China
Big Pharma's internationalisation of R&D to China
The dangers of romanticising entrepreneurs despite key role
UK and Irish business R&D heavily reliant on foreign-owned firms
Silicon Valley and the development of the silicon microchip - Part 2
Ireland: Innovation with or without R&D/ scientific breakthroughs
UK government most open/ transparent in world; Ireland & Greece lowest ranking in Europe
10 questions about Switzerland's Solar Impulse aircraft – answered
Silicon Valley loses its silicon; Typical household income stagnates - Part 1
21st century skills are 18 century skills + a computer
Growing ICT sector in Europe accounts for 5% of employment
Should Ireland copy Singapore's scientific research investment plan?
Startups vs Scaleups: 4% of UK startups have 10+ employees 10 years later
Irish patent filings at European Patent Office fell in 2014
Facebook's maze of privacy settings maybe in breach of European law
Apple to invest €1.7bn in Irish and Danish data centres
Silicon Valley insider warns of dodgy $1bn valuations of private companies
Israel's Startup Nation not a jobs engine; Nor is Irish high tech
Established industries often beat new technology investment returns
Ireland: Noonan said EU to drop Apple tax case; Now expects court case
Irish R&D Tax Credit: No evidence of rising business innovation; Facts don't matter
Apple reports biggest profit of a public company in history