Swiss ICT: trends, challenges and opportunities

Despite rapidly advancing digitalization, the ICT sector in Switzerland does not grow faster than other industries of the economy.

We have the best conditions here, says the President of the Swiss association ICTswitzerland Andreas Kaelin. «I would like the ICT industry to play a major role in Switzerland. Therefore, it is a missed opportunity that ICT no longer contributes to growth», he adds.

So what are the reasons for stagnation and where the missed opportunities lie?

Basic figures

Generally speaking the IT market in Switzerland is growing. According to the Swiss Economic Association for the Suppliers of Information (Swico), the industry reached 19 billion Swiss Francs (CHF) in 2016. Compared with 2015, the IT business increased by 0,7 billion – from 18.3 billion to 19 billion CHF. And the forecasts for the Swiss IT are also not bad: by the end of this year, the market should increase to 19.4 billion Swiss francs.

As Swiss Association for Information, Communications and Organization Technology (Swico) reported, the sales growth in the software business amounted to 4.8 percent in 2016, and the forecast for 2017 is 4.7 percent. In the IT service business, Swico reports a 2016 growth of 2.8 percent; in 2017 it can reach 3.1 percent. The last year the increase in hardware sales was surprisingly big – 2.6 percent – due to the higher average prices for the devices. There was a drop only in client business (PC/notebooks/tablets) last year. It shrunk by 5 per cent to 2.1 million units and will continue to decline in 2017, analytics predict.

According to the Maastricht School of Management (MSM) forecast, starting from 2017 Swiss companies will invest more money in ICT. This increase is directly linked to digitalization and the Internet of Things. Expenditure related to digitalization will become a major factor in growth generation, says MSM Research. From 2017 onwards this spending will, therefore, increase by 35 percent.

But what about the workforce?

There are no exact figures on how many IT specialists are currently working in the Swiss IT-industry. A global financial giant UBS reported that Switzerland had more than 16000 IT companies with a pool of 250 thousand qualified IT specialists in 2012. But one of the studies conducted by the association ICT Vocational Training Switzerland gives different numbers. According to the study, the number of professionals working in ICT (that includes IT and telecommunication industries) amounts to 210,800 people, and this number has increased by 13 thousand since 2013. The association stresses that IT workforce is growing at twice the rate of the overall Switzerland’s economy, but the country still needs more specialists in this area. By 2024 Switzerland will experience the lack of 25 thousand ICT workers, Swiss media write. Meanwhile, the unfilled IT vacancies in software development already amount 48%.

And this tendency occurs against the fact that Switzerland is the leader when it comes to paychecks for the IT specialists. According to the research on wages conducted by MyHiringClub.com, between 2014 and 2015 IT workers in Switzerland were paid 171 465 dollars a year on average compared to 132 877 in the U.S. or 116 454 dollars per year in Germany.

As Andreas Kaelin mentioned, Switzerland offers good conditions for the development. Among them – cost-effective and stable power supply and rapid internet connection. The country has one of the highest rates of Internet penetration in Europe – 87,2% with more than 7,3 million users.

Swiss Clouds

Many companies choose Switzerland as a hosting location because of the benefits that the country provides. Switzerland was voted the third world’s safest location for data centers in the 2016 Data Center Risk Index issued by Cushman & Wakefield. In addition to data privacy and security issues, Switzerland is a neutral and politically stable country with low environmental risks.

In 2015 there were over 1,400 data centers in Switzerland. The area of server farms in Switzerland is growing steadily. It increased from 123 thousand square meters at the end of 2011 to 160 thousand square meters by the end of 2013, says the study conducted by Broadgroup Consulting. Still, the country is not among the top countries for data backup in the world and even in Europe. At the end of 2013, Great Britain provided 687,000 square meters, Germany 600,000 square meters, France 380,000 square meters and the Netherlands 320,000 m² for data backup.

Besides, Swiss data centers do not provide a full spectrum of modern data services like the giants such as Amazon do. And this is certainly a gap in Swiss ICT. At the same time, Switzerland ranks fourth for the number of secure internet servers per million inhabitants, when Netherland ranks fifth, Germany – eighth, GB – tenth and France takes only the 12th place.

Notably, Swiss companies still give their preference to private cloud services despite the fact that Public and Hybrid models allow business to remain flexible and efficient. According to the latest IDC research, only 28 percent of Swiss companies use Hybrid Cloud, and more than half of them don’t have any plans to use Hybrid Clouds in the near future. Partly the explanation may lay in the security policy aspect, since health and finance companies, for example, are allowed to store data only in Switzerland.

Swiss Digital

Switzerland was ranked 7th in the Networked Readiness Index 2016 that measures the performance of 139 economies in leveraging information and communications technologies, but the country has some weaknesses in this field. There is no doubt that one of them is the digitalization of the Swiss government. The country took only 43-rd place for government usage of technologies, same rating shows.

Moreover, according to the latest study of xUpery, e-government in Switzerland is stuck in an “intermediary phase” of implementation and harmonization. Particularly, the country struggles with Internet voting and user-friendly electronic identification.

Another report, conducted by IFZ and Swisscom’s think tank e-foresight, points out that Switzerland has challenges in the field of e-banking. Only 26% of the surveyed financial institutions offer a personalized homepage, only 8% offer accounting software solutions, and none of these banks are ready to provide their customers with a digital finance assistant despite the fact that clients find the solutions mentioned above important or very important.

Surprisingly, one of the Swiss industries, that absorbs innovations quickly is the postal service. Swiss Post provides a solution for sending emails securely, and its electronic internet identity – SuisseID – gives the possibility of secure authentication in the Internet and electronic signing of legally valid contracts. Moreover, last year Swiss Post also implemented the identification of individuals by video in real time over the Internet.

Deli or Kyiv?

Outsourcing is a trend in Switzerland, which shows no signs of stopping. Swiss IT Outsourcing Study, conducted by Whitelane Research, says that 80% of all respondents confirm that they will continue to outsource with the same percentage or more, and 43% say they would outsource more in the coming years.

Most Swiss companies, as well as businesses from other DACH countries, identify resource shortage and cost reduction as their main reasons for outsourcing their IT services to professional performers abroad. According to the KPMG study, almost a third of respondents mentioned the access to highly qualified specialists as important, and 20 percent of them aim for improved quality.

IT-outsourcing is especially popular in the Swiss financial sector, three out of four banks outsource their IT, says Swiss online edition inside-it.ch. Typically Swiss businesses outsource the extensive IT projects to Asia, particularly to India. In recent years Swiss companies have increasingly opted for nearshoring, also defined as outsourcing in Eastern European countries such as Poland and Romania, and Balkan countries such as Serbia and Bulgaria.

Stefan Arn, IT Director at UBS, mentioned three years ago that there was a tendency of shifting IT-outsource towards Europe, and away from Asia. Crealogix, a company focused on software solutions for banks, has been getting services from Eastern Europe for a long time. After a commitment in the Czech Republic, the company which generated sales of almost CHF 50 million in the 2011/12 financial year, switched to Serbia for cost reasons, Swiss online edition Neue Zürcher Zeitung writes.

According to the Swiss online newspaper, a famous Swiss marketplace called Ricardo.ch has developers both in Switzerland, France, and Ukrainian capital Kyiv. Ukrainian specialists develop the homepage and new products. Employees who are responsible for interfaces can also come to Switzerland if necessary. That is one of the advantages of nearshoring.

Besides the proximity, this business model of outsourcing allows to work in similar working hours, have constant real-time communication, and more favorable application of the Agile development model. What is also important – the cultural and educational background of the remote team, as their qualification levels correspond to those of the Swiss in-house teams.