Swiss SMEs are striking out for China

A publication by Switzerland Global Enterprise and Credit Suisse, Q3 2016 reveals that Swiss SMEs are striking out for China, but also the USA is an interesting market

•             According to the survey of Switzerland Global Enterprise, Swiss SMEs see major potential in the Chinese market. Exports to China are therefore set to gain importance in the next five years. Co m- panies from the MEM industry are particularly active.

•             Credit Suisse sees  good  sales prospects  for Swiss SMEs  in China.  Chinese economic growth   is expected to amount to 6.5 % in 2016 and is particularly being driven by consumer spending. Fur- thermore, the Swiss franc is set to depreciate by around 1.5% against the Chinese yuan in the next six months.

•             Export sentiment among Swiss SMEs has improved further and is more positive than at any  time since the abandonment of the minimum euro exchange rate by the SNB Swiss National Bank in January 2015.

The Asia-Pacific region has significantly gained importance among the export markets of Swiss SMEs compared with the previous quarter: According to the survey carried out by S-GE Switzerland Global Enterprise,  56 %  of  Swiss  SMEs  intend to export there in the next six months, up from 49 % in the previous quarter. The leading Asia-Pacific export destination is China. The country is cited by 37 % of SMEs as an export destination, compared with 31% in the preceding quarter. Japan and India come next and are cited by 27 % and 24 % of SMEs respectively.

Companies from MEM the engineering, electrical and metal industry are particularly active in China. It comes as little surprise that the larger SMEs with more than 50 employees are more strongly represented in the complex Chinese export market than smaller ones.

Forty-three percent of the SMEs canvassed expect the  sales share of their exports to China measured against total exports to be higher in five years’ time than it is today. These SMEs include a particularly large number of companies from  the machinery and consumer goods sectors. 56 % expect  the  Chinese  share  to  develop in  line with  their  total exports and only 1 % anticipate a decline in China’s importance.

Overcoming market obstacles with product innovation and advice

Asked which specific problems are posed by exports to China, 43 % of SMEs cite administrative and legal obstacles, 34% the lack of price competitiveness and 32 % cultural and linguistic barriers.

Forty-three percent of the SMEs canvassed adapt their products to the Chinese market in order to counter typical problems. Forty-one percent draw on advisory services  and 35 % focus on training for management and employees.

Thirty-six percent of all 200 or so SMEs canvassed reported  that they were already making use of the free trade agreement with China that has now been in force for two years or would be doing so in the near future. Of those companies already making use of the free trade agreement, over three quarters (77 %) claim not to have any problems applying this.

Chinese economy remains buoyant

Credit Suisse expects China to grow by 6.5 % year on year in 2016, although the economy is likely to slow down slightly in the second half of the year. The most important driver of eco- nomic growth at present is consumer spending. Owing to a slight deterioration of the labor market situation, consumer spending is predicted to rise somewhat less sharply in the second half of the year. However, overall economic growth in China is set to remain high again in 2016,  thereby  offering good sales prospects for Swiss SMEs.

The expected depreciation of the Swiss franc against the Chinese yuan by 1.5 % by the end of the year should exert an additional supporting effect in the next few months.

Credit Suisse Export Barometer pointing toward export growth

The Credit Suisse Export Barometer measuring foreign de- mand for Swiss products currently stands at 1.13. The long- term average lies at one and the growth threshold around zero. Compared with the previous quarter (0.92), the export pro- spects for Swiss companies have therefore improved slightly. Greater positive momentum for Swiss exports is to be ex- pected from the USA and the Eurozone in the next  few  months. The demand indicators in Asia have barely changed compared with the previous quarter.

According to Credit Suisse, the Brexit turbulence in the UK

According to Credit Suisse, the Brexit turbulence in the UK will  only  have  a  small  direct  impact  on  the  Swiss economy. However,  if  growth  in  the  Eurozone  were  to  be  significantly impaired, this would also weaken the Swiss  economy.  A total of 6 % of Swiss exports go to the UK. Half of these comprise pharmaceutical exports that according to a sensitivity   analysis of Credit Suisse are virtually insensitive to economic and ex- change rate developments. A further 14 % are attributable to MEM Engineering, Electrical and Metal’s industries exports that react more sensitively to economic fluctuations and would therefore be more strongly affected by an economic downturn in the UK.

SME export sentiment at its highest level since the start of 2015

The SME export sentiment measured by S-GE reached 61.3 points at the start of the third quarter of 2016. It is based on  the export prospects of SMEs for the third quarter of 2016 and effective exports in the preceding quarter. Export sentiment therefore lies not only well above the growth threshold of 50 points on the scale ranging from zero to 100 but also at its highest level since the abandonment of the minimum euro exchange rate by the Swiss National Bank in  mid-January  2015. Export sentiment in the preceding quarter came to 56.0 points.

Of the Swiss SMEs responding to the survey conducted by S-GE, 40.2 % expect a growth in exports for the coming quar- ter, up from 34.4 % in the preceding quarter. A stagnation of export volumes is anticipated by 49.5 % of SMEs, down from 51.3 % at the start of the second quarter of 2016. Decreasing exports are feared by 10.3 % of SMEs compared with 14.4 % in the previous quarter.

 

USA remains the growth driver

Among the other export markets for Swiss SMEs, the North America region made similarly strong quarter-on-quarter gains to the Asia-Pacific region. Fifty-two percent of SMEs reported their intention to export to North America over the next six months, up from 44 % in the previous quarter. Here the opti- mism of SMEs appears to have benefited from the economic upturn in the USA.

Ninety-five percent of SMEs canvassed intend to export to Europe in the coming six months. Germany remains the most important European export market, with 85 % of SMEs surveyed exporting goods and services there, followed by Austria at 55 % and France at 54 %. The UK comes fourth at 37 % – although the S-GE survey was carried out before the Brexit vote.

31 % of companies are set to export to the Middle East/Africa region in the next six months. Swiss SMEs consider Iran’s potential to be particularly promising. Asked in which markets they would like to launch new activities, the country comes top with 14 % of  responses.

19 % of the SMEs canvassed intend to export  to South America in the next six months.

 

All sectors displaying optimism

All eight of the sectors canvassed by S-GE for the SME Export Outlook expect exports to rise. Companies from the consumer goods sector are embarking on the new quarter extremely confidently, while companies from the paper and electrical engineering sectors are also particularly optimistic.

 

www.s-ge.com/switzerland/export/en

www.credit-suisse.com/research