Swiss-Chinese economic relations

26 July 2012. The Federal Council’s strategy to safeguard market access for internationally operating companies based in Switzerland is supported by three pillars: the WTO, bilateral agreements with the EU, and free trade agreements with partners outside the EU. By means of free trade agreements, Switzerland is able to specifically improve market access to countries which pursue similar foreign economic interests – and to avoid discrimination that arises from free trade agreements which other countries conclude with Switzerland’s most important competitors (EU, US and Japan).

Third most important export market for Switzerland
By now, China has become the third most important export market for Switzerland after the EU and the US. At the same time, China is the third most important country of origin for Swiss imports. China is also gaining significance as far as the export of services is concerned. On the basis of earlier experience it must be expected that the conclusion of a free trade agreement would at best lead to the trade volume being doubled within the first four years and to an increase in direct investments in China by 50 per cent.

If and when the conclusion of a free trade agreement between Switzerland and China really materialises remains open even after Federal Councillor Johann N. Schneider-Ammann’s visit to China – according to Schneider-Ammann, the devil is in the detail. The protection of intellectual property for Swiss firms and the opening of Swiss agriculture in Switzerland to Chinese products are still particularly hot debating points in the political arena.

Patent protection in China
In my view, genuine Swiss innovation leaders in the technical sphere only encounter minimal problems in the effective implementation of the necessary patent protection, and for two reasons: firstly, the issue is being taken more and more seriously by many Chinese companies because they want to be able to continue to export to Europe and the US in the future. Secondly, genuine technical innovations are the result of work done by engineers and production specialists who simply do not yet exist in China in this configuration.

As far as agriculture is concerned, it is ultimately consumers in Switzerland who decide what they want to buy. With increasing prices in China, too, and a foreseeable constant appreciation of the Chinese currency, the price difference between chickens from China and Poland will soon be next to nothing. What is clear, however, is that more and more small and medium-sized enterprises (SMEs) in Switzerland want to and have to make use of the opportunities of the Chinese market in order to create and preserve jobs at home. For this purpose, however, it will not be enough if SMEs rely on the advantages of a future free trade agreement.

Swiss SMEs’ necessary orientation towards China primarily requires two things: firstly, a detailed understanding of the Chinese market, and secondly, the long-term establishment of the relevant competencies within the firm. Swiss companies must be clear that there is no such thing as “a Chinese market”. Differences in consumer behaviour and purchasing power are substantially greater than in Europe. Not even Beijing and Shanghai are similar in terms of working and consumption culture – to say nothing of up-and-coming Western China. The continuing urbanisation of China as a whole provides an opportunity for upmarket goods and services from Switzerland to tap a large sales potential with relatively few financial and human resources.

Opportunities for Swiss SMEs in China

Economic progress in China is also leading to a situation whereby more and more Chinese firms are increasingly going in for the automation of production. For this purpose they require high-quality machinery such as is produced by high-quality Swiss machine builders. The establishment and extension of the management competencies and networks that Swiss SMEs require for the Chinese market in this context constitute a long-term challenge. The way in which Chinese managers negotiate, organise and communicate their business differs a great deal from the approach used by European managers. Executives in SMEs that are responsible for this area will have to deal with such challenges more robustly in future.

Whether Switzerland concludes a free trade agreement or not: Swiss SMEs should think about whether and how they want to position themselves in China – and do so today rather than tomorrow. Long-term preparations for this future market are more necessary than ever, and the universities will have to become more active in this regard, too.

Photo: Photocase / jg_79