Switzerland’s strong currency is holding back entrepreneurs, threatening the country’s top ranking for innovation.
The number of companies going into business has declined this year, signaling that the surge in the franc since the country abandoned its currency cap is discouraging would-be startups.
The government added 20,737 new names to its registry of companies doing business in Switzerland in the first half of the year, 502 less than for the first six months of 2014, according to startups.ch, a Winterthur-based company that tracks the numbers. Barring a burst of activity in the second half, 2015 will be the first year since 2012 that the figure of startups has declined.
That could bode ill for the economy, according to Roland Klaeger, an economist at Raiffeisen Schweiz in Zurich.
“The number of startups reflect innovative power, which is the backbone of the economy,” he said. “A decline hints to a slowdown of the economy.”
Walter Regli, chief executive officer of startups.ch, blames the franc, which has strengthened against the euro since the Swiss National Bank abandoned its cap on the franc.
“Some entrepreneurs, especially with export-based ideas, have postponed the creation of their startups,” Regli said in an interview.
A stronger currency makes Swiss products more expensive to purchase outside the country. Manufacturing accounts for about 20 percent of Swiss output, more than insurance and financial services combined. Neighboring euro countries are its biggest trade partners.
Top Ranking Threatened
The decline could threaten Switzerland’s No. 1 ranking in the World Economic Forum’s index of global competitiveness, a position it has held for six consecutive years. Another measure which sees Switzerland owning the leading position is The Global Innovation Index, co-published by Cornell University, Insead, and the World Intellectual Property Organization. The Bloomberg Innovation Index ranks Switzerland 16.
One area bucking the trend is information technology, Regli said. Because these companies thrive on computers and creativity, they can do away with the trappings of a traditional business and keep their costs and risks to a minimum.
There was no shortage of entrepreneurs at the Startupfair, an annual startup competition in Zurich on July 2. Contestants presented their business ideas to a jury. The winner received a year of office space and business coaching.
This year’s 10 finalists included Shoesize.Me, a plug-in for websites that helps shoppers find the right size shoe from among the various international fittings, brands and models. Based in St. Gallen, the company that was founded in 2012 already has 20 customers including Timberland LLC, and plans to expand from Europe to North America. In Switzerland, “there is so much backing and close cooperation, especially in the early stages,” said founder Timo Steitz.
Crowd, which has developed an app that allows users to plan social activities and chat with friends also has ambitious goals. The company wants to replace WhatsApp for social time planning. Crowd is currently available free of charge in the Android Play Store and will soon appear in the Apple Store.
“Switzerland is a world leader in software engineering,” Crowd founder Simon Heinzle said in a telephone interview, adding he’s been working with the Swiss Federal Institute of Technology in Zurich. “It’s one of the best universities in this field worldwide - it’s a fantastic opportunity for us.”
Even so, the strong franc has taken its toll on exports. Gross domestic product fell 0.2 percent in the first quarter, the biggest contraction since early 2009. The Swiss economy will contract by 0.2 percent in the second quarter, according to economists’ forecasts in a Bloomberg survey published on June 15.
“The stable political and legal environment as well as the education was a big plus in the past,” Regli said. “We have to make sure that this focus doesn’t change.”