Innovate to succeed

The failure of Novartis to buy Sanofi Synthelabo recently has revealed the tough competition that Swiss companies face from their EU neighbours. Graham Lampard reports

A limited domestic market and the lack of chemical raw materials has created in Switzerland a production and worldwide marketing ethos in specialised chemicals with high added value, figure 1.Despite many changes over the past 150 years, this basic goal has continued to bring success for the Swiss chemical and pharmaceutical industry.

However, with enormous changes in the world economy, the unexpected rise of many Eastern European and South East Asian markets and the technological revolution in biotechnology and genetic engineering, the Swiss industry faces a continuous need to adapt. It has been successful in some areas; for instance, the number of active biotechnology companies tripled from 70 to 210 between 1998 and 2003. The biotechnology industry now employs more than 11,000 people and has a turnover of CHF4.3bn (Euro 2.78bn).

The SGCI, the Swiss Society of Chemical Industries, believes that: 'new corporate objectives and restructuring are inevitable to operate successfully under intensified international competition.'

For a long time, the strength of the Swiss pharmaceutical industry has been inprovisation and the ability to respond quickly to changes in the domestic as well as foreign markets.

greater efficiency

As the SGCI points out, a merely defensive corporate strategy geared exclusively towards greater efficiency, through rationalisation and cost reduction won't go far enough. What is needed is that these greater efficiencies must be supplemented and extended by a strong element of innovation.

'The capability for innovation remains Switzerland's most important key for future economic success today,' it says. However, the Society warns that such efficiencies must not be limited to products and production methods, but should include administrative processes and organisational structures.

'The translation of ideas into fully developed products and services has to be better, faster and more cost-effective. This means that innovation no longer depends solely on the scientific skills of a few top scientists, but is increasingly determined by the professionalism of the entire workforce.'

There is a trend towards highly competitive companies focusing on their core competencies; they control their supply chain, from raw material to the final product, yet outsource most of that chain. By restricting the activities to innovation and co-ordination, the workforce can be downsized accordingly, while the peripheral businesses grow through outsourcing.

The emerging niche markets enable a considerable number of smaller and medium-sized enterprises to operate in Switzerland as specialised sub-contractors and service providers. Something like 90% of the industry's portfolio of 30,000 products are specialties, with an increasing percentage being in the pharmaceutical sector, which has increased by nearly a third in 20 years.

dynamic industry

Several clusters of hi-tech companies, all involved in leading edge research, have made the Swiss pharmaceutical industry a dynamic part of the country's ecomony, yet the limited domestic market means they remain heavily dependent on

foreign trade, with about 95% of the industry's production being exported, figure 2.

One encouraging sign is that pharmaceutical production over the eight years from 1995 grew at an average annual rate of just over 10% compared with a whole industry standard of just over 3%, figure 3.

The pharmaceutical and chemical industry ranks number two in terms of the total share of Swiss exports, worth CHF17.6bn (€11.3bn) in 2002, with the majority of exports heading for the EU, followed by the US and Asia.

One area that does concern the SGCI is that of genetic technology and public perceeption. The Society says: 'Legislation should not be delayed or used to prevent advances into new areas of knowledge and technology.

'Rather, the Swiss government has to contribute towards a climate of openness to innovation. Genetic engineering will play a vital role for the future of our industry, and it is a modern key technology that is essential in all scientific fields of the chemical industry, from research to manufacturing.

'The chemical and pharmaceutical industry is in need of reliable legal guidelines to allow the application of this technology in Switzerland. Academia and industry have to increase their efforts to convince the population of the benefits of genetic engineering in daily life.

'Distrust can be allayed only through open information; acceptance gained only through honesty.'