Switzerland offers demanding but profitable market for UK exports says Coface
UK exporters can benefit from a low risk of late payment and healthy profit margins in Switzerland but the market requires significant research and investment and local knowledge to succeed, according to Coface, the leading experts in assessing trading risk and business climate.
Coface's latest comprehensive Panorama report, published on its website today, highlights the relative strengths of Switzerland which is currently the 11th largest export market for UK businesses in terms of value. These include the low risk of late payment and bad debt; the strong Swiss Franc; the country's political stability and its sound management of public finances; a flexible labour market; and an attractive tax system. It forecasts slight growth of 1.2% in 2013, making it a tempting prospect for UK businesses, particularly in the service sector. However Coface also stressed the need for UK companies to do their homework thoroughly before establishing a presence there.
Olivier Bel of Coface Switzerland had the following advice for companies who are considering the country as a potential export market: First of all, understand the diversity of the market, particularly linguistic and cultural differences, when prospecting, selling, signing contracts or managing risks. Secondly, take into account buyers requirements for high-quality products and services and the fact that this is often more important than price. Third, be discrete and respect the principle of confidentiality which is so important to businesses in Switzerland. And finally, as in many other countries, build trust and try to form long-term relationships once trust has been established, your customers will keep coming back.
The Coface Panorama report provides detailed analysis of the Swiss economy and business environment including:
- Household consumption is expected to remain buoyant: although the level of household debt is one of the highest in Europe, net wealth is also high and ,at 2.9%, the unemployment rate is lower than its neighbours.
- Investment by SMEs is expected to increase in 2013, in sectors such as chemicals and pharmaceuticals. However, company margins remain under pressure, particularly in the textile, wood, mechanical and plastics industries which are more vulnerable to the slowdown in the Eurozone and its downward effect on prices.
- There is some risk of a property bubble in the medium term because of the investment of foreign capital, low mortgage rates and high immigration. If this bursts, this could affect indebted households and banks operating in the domestic market which have focused on mortgage lending.
- The Swiss banking sector remains economically important but has shrunk. It now represents 5 times GDP compared to 6.6 in 2007 and banks are increasingly focused on the domestic market and mortgage lending.
- Swiss companies are highly adaptable and competitive which means they have the resilience to cope with the global economic slowdown and profit margins are high. There was a fall in bankruptcies of 2% in the first ten months of 2012, compared to the same period in 2011 and the risk of bad debt is relatively low.
Grant Williams, Risk Underwriting Director at Coface in the UK & Ireland commented: Our assessment is that Switzerland is in a better economic position than its European neighbours and is open to foreign investment, making it an attractive prospect for UK companies. Many international groups achieve their highest profit margins in Switzerland because consumers have substantial purchasing power and generally value quality over price. At the same time, the unique business climate in Switzerland for example, the four official languages, its 26 autonomous cantons and the emphasis on providing the highest quality and service makes the cost of entry quite high while the need to establish trust means it can take a while to see results.
Research is vital to your chances of success but the strong tradition of confidentiality can make it difficult to find information about companies not listed on the stock exchange and it makes sense to work with partners with a detailed understanding of the market. Coface has been established in Switzerland since 1995 and our local presence means we have been able to develop a database of company information and payment experience which we share with our customers to help them evaluate risk and make the best decisions.