Swiss software industry: profitable but very low degree of internationalisation

28.10.2015 13:10

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Within the framework of the CNO Panel 2015 meeting, the University of Bern unveiled the new Swiss Software Industry Survey (SSIS). The study shows that Swiss software companies are small but profitable. And internationalization provides ample growth opportunities for Swiss manufactures of standard software.

Official statistics provide reliable information about the size and growth of the overall IT sector. However, they do not draw a very detailed picture about the Swiss software industry. Therefore, the SSIS positions itself as a complementary study that enriches official statistics. The SSIS 2015 covers all Swiss language regions, covers 22 cantons, attracted 843 participants and is based on 402 complete responses.

SME structure
The Swiss Software Industry is not very concentrated. The largest 20% of the companies in the sample are responsible for around 80% of the industry revenue. Compared to other industries this is a rather low degree of concentration. Accordingly, the Swiss Software Industry stretches far beyond the ubiquitous heavy-weights of the international software market and many small and medium-sized companies make considerably revenue as well and employ thousands of software workers.  

Individual and standard software companies dominate the sample—each accounting for about one third of responses. Consulting follows with roughly 12 %. Software integrators and technology and service providers follow at some distance (6 %). Data shows that the average revenue of Swiss software companies varies between the different fields of activity (see Figure 7): Individual software manufactures are on average the largest companies in terms of revenue (3.9 Mio CHF), followed by standard software manufactures (3.6 Mio CHF), consultancies (3.5 Mio. CHF) and software Integra-tors (3.5 Mio CHF). Technology and service providers are far behind with 1.9 Mio CHF.

Highly profitable
The Swiss Software Industry is highly profitable. The EBIT (Earnings before interest and taxes) margin— an established measure of profitability—averaged 8.5 % in 2014. This is a rather high margin: While Financial Services and the Chemical Industry are even more profitable, the Swiss software industry beats Automotive, Hotels and Transportation. Within the software industry consulting is the most profitable branch, closely followed by technology and service providers. Individual software manufacturers are more profitable than stand-ard software manufacturers but the latter also in-vest more in R&D.

Optimistic outlook
The Swiss Software Industry is positive about the future, expecting revenue to grow at an average rate of 11.78%. Thereby, all subindustries expect their revenue to grow more than 7 %. Consulting companies rise the pinnacle with an expected in-crease of more than 18.05 %. This optimistic outlook on the future is also reflected in the considerable expenses in R&D.

Low internationalization
Only 16 % of the revenue of the Swiss Software industry comes from countries other than Switzerland; and nearly half of that revenue comes from a single country - Germany. France follows at great distance (13 %). Switzerland has higher software exports to Germany and France than to the rest of the world.

If you split the sample between manufacturers of standard software and manufacturers of individual software the picture only changes slightly. The geographic diversion of exports remains low. Nonetheless, manufactures of standard software are more internationalized (15.27 %) than manufacturers of individual software (13.98 %).

Growth opportunities
The low degree of internationalization even for manufacturers of standard software is surprising, given that once standard software is developed, it can be sold to non-Swiss customers without extensive internationalizing efforts. Thus, internationalization provides ample growth opportunities for Swiss manufactures of standard software. In contrast, the business model of individual software manufacturers does not scale as easily and is likely to be more limited by high labor cost.

About SSIS
In 2015, the Swiss Software Industry Survey (SSIS) was initiated by Dr. Thomas Huber, Thomas Hurni, and Prof. Dr. Jens Dibbern of the Institute for Infor-mation Systems (IWI) at the University of Bern. The SSIS is the direct successor of the Swiss Software Industry Index (SSII), conducted by Dr. Pascal Sieber & Partners. The study can be downloaded from the website of ICT Switzerland.

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