Swiss SMEs eye business opportunities with BRIC countries
Ernst & Young Summer Survey "SME business barometer 2010" One in four medium-sized enterprises already has business links with the growth markets Brazil, Russia, India and China / The lack of legal safeguards, corruption, and intellectual-property theft in the BRIC nations are perceived as risks / Companies from these growth markets are still not seen as credible competitors in the Swiss market
ZURICH, JULY 1 2010 – Swiss SMEs see the strengthening economies of Brazil, Russia, India and China (BRIC nations) as an opportunity rather than a risk. One in every four companies considers the economic crisis to be an impetus for developing business with the BRIC nations – however, 10 percent believe that the positives to be had are few and far between, identifying this development as a risk factor for their business. Swiss SMEs already operating in the BRIC nations are largely positive about their experiences to date. However, the lack of legal safeguards, corruption, and the problem of intellectual-property theft in these countries met with sharp criticism.
These are the results of Ernst & Young’s “SME business barometer 2010” which is based on the responses of 700 medium-sized businesses in Switzerland to a survey conducted in June 2010.
“Swiss SMEs have now recognized the huge potential of the growth markets – especially China and Russia,” says Viktor Bucher, managing Partner for the German-speaking Switzerland market at Ernst & Young. “Both markets are showing dynamic growth and are highly interesting propositions both as target markets and as manufacturing locations. Having said that, establishing business operations in these countries involves significant risks,” claims Pierre-Alain Cardinaux, managing Partner for the French-speaking Switzerland market at Ernst & Young. This explains why most companies are rather cautious about setting up in China and Russia.
Currently, 34 percent of the companies surveyed do business with China, 29 percent with Russia, 26 percent with India and 25 percent with companies from Brazil. Russia is the most important target market (22 percent of the companies queried) while China is the favorite as a manufacturing location (14 percent). 6 percent of Swiss SMEs said that they bought goods from Chinese manufacturers, while 5 percent counted India among their suppliers.
Problems: lack of legal safeguards and theft of intellectual property
SMEs see the lack of legal security and corruption as the key problems in the BRIC nations – one in four and one in five of the companies respectively rated these issues as serious risk factors. “Enforcing claims before a foreign court is both time-consuming and expensive – and the outcome is uncertain,” says Viktor Bucher. Very few SMEs would have the necessary financial resources. “It’s too soon to talk of a truly reliable legal and political framework in these countries,” adds Pierre-Alain Cardinaux. Patent infringements were the order of the day. For 34 percent of the companies in the survey, widespread corruption is a key issue when doing business in Russia.
It is usually the bigger SMEs already operating in international markets that are willing to take the plunge into the BRIC countries: 49 percent of the companies with revenues in excess of CHF 100 million report doing business with the BRIC nations or with companies from these countries, while of the companies with revenues under CHF 50 million, the figure is much smaller at just 26 percent. “The inherent risks and uncertainties are often too great for the smaller enterprises,” notes Viktor Bucher.
Varying experiences in the growth markets
Swiss SMEs have had varying experiences in the BRIC countries: whereas the majority of the companies with business in China speak positively of their experiences, the lion’s share of the companies operating in Brazil, Russia and India have both positive and negative tales to tell. 17 percent of the companies with business links to Russia said that their experiences in the country were largely negative.
On average, one out of every seven (15 percent) SMEs has medium- to long-term plans to set up or expand business in the BRIC countries. Companies with no experience to date of business in the BRIC countries tend to be on the cautious side, with only 7 percent planning such a venture, but 40 percent of the companies already operating in the BRIC nations said that they were looking to expand business there.
“It’s too early for any hype,” says Pierre-Alain Cardinaux. The overt enthusiasm of recent years has now given way to a rather more sober assessment of opportunities versus risks. “Entrepreneurs no longer venture into growth markets wearing rosetinted glasses.” In addition, the cost of market entry was now relatively high and the local competition stiff.
By contrast, at the moment, companies from the BRIC countries are still not really perceived as genuine competition in traditional Swiss markets, with only 3 percent of the companies in the survey citing experiences of this nature. But Viktor Bucher believes that all this is going to change in the coming years. “Depending on how the growth markets develop against the backdrop of the economic crisis, we may well see these nations starting to target the international markets. In Switzerland and its traditional export markets, Swiss SMEs will increasingly face competition from Brazil, Russia, India and China.”
“It’s important that we now engage with these countries as part of a comprehensive globalization strategy,” emphasizes Pierre-Alain Cardinaux. “While it is true that the countries of western Europe – and primarily Germany and France – remain the most important international markets for Swiss companies and, in particular, for our SMEs, the BRIC economies are rapidly gaining ground.”
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 June 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% services, 10% retail, 25% construction and energy, 18% industry and manufacturing. The number of employees in the companies surveyed ranged from 30 to 2,000.
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