One in four medium-sized companies in Switzerland is not prepared for the upswing
Ernst & Young Survey: "Medium-sized business barometer 2010" Business conditions significantly improved / Optimistic outlook / Pronounced restraint among investors / Only slight increase in employment expected / One in thirteen companies in jeopardy
ZURICH/LAUSANNE, MARCH 3, 2010 – More and more medium-sized enterprises are seeing a light at the end of the tunnel: 36 per cent of companies expect an improvement in their own business situation, while 43 per cent think that the economic environment in Switzerland is on the mend. Medium-sized companies are still erring on the side of caution when it comes to making investments, although more and more firms plan to take on additional staff during the current year. These are the results of the "Medium-sized business barometer 2010" by Ernst & Young, which is based on the responses of 700 medium-sized businesses in Switzerland to a survey conducted in February 2010.
Medium-sized companies are of the opinion that the worst is behind them. The number of respondents who expect an improvement in their business situation has increased to 36 per cent from 27 per cent in May of last year. By contrast, only 7 per cent anticipate that their own situation will worsen. Economic expectations have also continued to improve: 43 per cent of companies think that the economic environment in Switzerland will pick up, compared with 23 per cent in May 2009, while only 17 per cent of those surveyed expect a decline (in May 2009, this figure was 38 per cent).
"The mild economic recovery does not mean that the Swiss economy is back to full health quite yet, however, and it is still too early to give the all-clear," comments Viktor Bucher, managing Partner for the German-speaking Switzerland market at Ernst & Young.
The majority of companies are currently in relatively good shape in spite of the difficult economic environment: 40 per cent of companies are very stable, while a further 57 per cent describe their situation as "largely stable." By their own admission, 3 per cent are in a critical state; in 2009, this proportion was higher at 8 per cent.
Upturn comes too late for many
On average, those surveyed predict that the crisis will come to an end in June 2011. However, two out of three companies expect that the corner will be turned by as early as the end of this year.
"Nevertheless, the projected economic improvement will not be enough to prevent the number of company insolvencies among medium-sized enterprises from rising yet further," says Pierre-Alain Cardinaux, managing Partner for French-speaking Switzerland at Ernst & Young. "Even if we are now seeing a slight improvement, a slump in production like the one we saw in 2009 leaves a sizeable dent, and it will take at least another two years before production volumes are restored to the level they were at before the crisis. An underutilization of capacities like this cannot help but result in a shake-out in the market."
What is more, the rising number of insolvencies will cause problems for even previously healthy companies. "Bad debt losses can easily lead to crises threatening companies' very existence," says Pierre-Alain Cardinaux. Some companies will also be crippled by the banks' unwillingness to issue loans: "Those that had problems before the crisis can hold out little hope of getting a helping hand from the banks. Banks have become very cautious when it comes to issuing loans, while time is of the essence for some medium-sized companies, with more and more firms in Switzerland facing the prospect of their accounts running dry," says Pierre-Alain Cardinaux.
If the economic environment fails to improve to a significant degree, countless companies could be in jeopardy. One out of thirteen companies would be in serious danger should a sustainable recovery fail to materialize, and only one in two regards themselves as immune to the side effects of the crisis.
Only slight increase in employment expected
Medium-sized companies are still being very cautious in their planning. Nevertheless, 18 per cent of companies plan to take on additional staff in the coming year, and the proportion of companies who intend to reduce their headcount is significantly lower at 9 per cent. As a result, company staffing levels are expected to increase slightly; unemployment levels, by contrast, are not expected to see a sharp rise.
Medium-sized companies are also continuing to exercise restraint in terms of investments, with only 21 per cent of those surveyed planning to increase their capital expenditure in the coming year, and 9 per cent even planning to reduce it. The vast majority, some 70 per cent, intend to keep their capital expenditure at the current (low) level.
Companies are erring on the side of caution
Although confidence is slowly returning, medium-sized companies in Switzerland are still exercising extreme caution and trying to avoid risk wherever possible. Two thirds of medium-sized firms are currently not focusing on growth, but instead are concentrating on stabilizing their core business. Only one in three companies is actively working to expand their range of products, and only one in six is pursuing an internationalization strategy.
"The lion's share of companies is currently following conservative strategies: risks are being avoided, and expansion does not figure in the game plan of most medium-sized companies," reports Viktor Bucher. The reason for this is the same as before: a lack of confidence on the part of companies. "Many medium-sized firms are playing it safe because they want to avoid falling victim to a fresh economic downturn wherever possible. Developing aggressive growth strategies, entering into entrepreneurial risks, tapping new markets – only a minority of medium-sized companies in Switzerland are currently going on the offensive and seeking out new market opportunities," comments Viktor Bucher. "That is understandable, but in the long view also very dangerous."
"Medium-sized firms are playing the waiting game at the moment and risk missing the boat," warns Viktor Bucher. "The shock of the crisis is still reverberating in the minds of companies. However, those companies that are able to should place the focus back on growth as soon as possible. According to our calculations, one in four medium-sized companies in Switzerland is not prepared for the upswing. In other parts of the world – above all, in the emerging economies – companies have long been readying themselves for the impending recovery."
"Medium-sized enterprises in Switzerland have proven that they have the wherewithal to overcome the crisis. But now they must show that they are also prepared for the upswing," says Viktor Bucher.
About the study
This study is based on a survey conducted of the general managers or owners of 700 medium-sized businesses in Switzerland. The telephone interviews were conducted in February 2010 on behalf of Ernst & Young by the independent market research institute Valid Research (Bielefeld, Germany), who based their survey on the following sector breakdown at regional and national level: 47 per cent services, 10 per cent retail, 25 per cent construction and energy, 18 per cent industry and manufacturing. The number of employees in the companies surveyed ranged from 30 to 2,000.
Download Media Release (pdf, 48kb)
Download Report (pdf, 1.4mb)
Brief portrait of Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. In Switzerland, Ernst & Young is a leading auditing and advisory services firm and provider of tax and legal as well as transaction and accounting services. Our 1’900 people generated revenues of CHF 546 million in the financial year 2008/09. We make a difference by helping our people, our clients and our wider communities achieve their potential. For more information, please visit www.ey.com/ch.
Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, UK, does not provide services to clients.
