Innovation in Europe: Switzerland is Losing Its Cutting Edge

Innovations make a significant contribution to the competitiveness of companies, raise productivity and contribute to dynamic economic development. However, in the last few decades generating innovations seems to have become increasingly difficult. Companies are forced to use more and more resources to develop successful new products and services.

As a rule, Switzerland takes the leading position in international comparative analyses, such as the GII (Global Innovation Index) or the European Innovation Scoreboard. This is primarily due to infrastructure indicators, such as human capital or the attractiveness of the higher education system. In contrast to these very broad studies, KOF researchers are focussing their analysis on the innovation indicators that are directly associated with the development of new products and services.

Percentage of companies with R&D activities is on the decline

Research and development (R&D) is generally expensive and risky. Nevertheless, R&D is a key prerequisite for the development of important innovations. Hence, two R&D indicators are used to measure companies’ willingness to undertake intensive innovation efforts: the percentage of companies conducting R&D and R&D expenditure as a percentage of turnover.

The share of companies with R&D activities has converged over time in the reference countries (see Graph G 2). While percentages have declined in Switzerland and Germany, which used to be the leading countries, they have risen in Austria, France and to some extent Italy.

R&D expenditure as a percentage of turnover measures the relative efforts a company puts into the development of new products or processes, or into the improvement of its products or processes. Again, diverse trends emerge (see Graph G 3). While Sweden has maintained constant high percentages over the entire reference period, companies in Germany, Austria and especially Switzerland have managed to substantially raise their R&D expenditure in relation to turnover.

Hence, a group of countries, among them Germany and Switzerland, are recording declining percentages of companies with R&D activities, while the R&D expenditure as a percentage of turnover is rising. This means that growing R&D efforts are increasingly concentrated among a smaller number of companies.

Development of process and product innovations

The KOF researchers use two indicators to measure the success of companies’ innovation activities: the development of new production processes and the generation of new products or services for the market. In Switzerland, the percentage of process innovators declined considerably after 2002 and has risen slightly since 2012. France and the Netherlands have followed a very different trend. The share of process innovators in these countries has risen over the entire period, especially in the last few years.

As regards the percentage of companies with product innovations, a strong convergence has taken place over time (see Graph G 4). While the percentages have declined in Switzerland, Germany and Sweden, they have risen in France, the Netherlands and Finland. The drop in the percentage of companies with product innovations may be related to the decline in R&D activities in these countries. In the same way, the rise in the percentage of product innovators in Finland, the Netherlands and France may be connected to the increase in companies with R&D activities in these countries.

Switzerland’s innovation performance in the mid-range

Measured by the above indicators, Switzerland has by and large lost the top-ranking position it held in the early 2000s. When it comes to the percentage of companies with product and process innovations and the percentage of companies with R&D activities, Switzerland ranks somewhere in the middle of the European reference countries. The one exception is R&D expenditure as a percentage of turnover, which has risen substantially over time in Switzerland.