Family business

The value of excellence and heritage

In conversation with Laurent Belloni

The value of excellence and heritage

Switzerland’s many premium brands are famous for their enduring high quality which is bolstered by the long-term stability of the many family-held companies that are typical of the country’s businesses.

Swiss brands enjoy iconic status for a variety of reasons. The most important is their excellence which means that consumers trust in their high quality. The precision and craftsmanship of goods made in Switzerland gives them an exclusive image. Their innovation and sustainability are distinctive in a world of throw-away products, and are reflected in premium prices which can be 20 to 50 per cent higher than those of competitors. The heritage of many Swiss brands such as luxury hotels and chocolates adds further to their reputations.

Well-known non-listed Swiss pre-mium brands include the watches made by Audemars Piguet, fine jewellery created by Chopard, chocolates produced by Sprüngli, and premium natural beauty products made by Weleda. Rolex is among the world’s largest luxury watch companies and always represents a sense of luxury. And Jura, which started its life making a range of home appliances, is now well-known for its fully automatic espresso machines which are sold worldwide.

Many other famous Swiss premium brands are family-owned. They include Patek Phillipe, one of the oldest watch manufacturers in the world which makes some of the most complicated mechanical timepieces, Victorinox which manufactures the Swiss army knife and Caran d’Ache, Switzerland’s first pencil manufacturer which now also makes luxury writing instruments. Many of the country’s luxury hotels are also privately-held, including Zurich’s Dolder Grand, Basel’s Grand Hotel Les Trois Rois and Beau-Rivage Geneva.

The list also includes some companies with products less obviously in the premium priced category: Davidoff, which sells premium tobacco products and fragrances; Ricola whose cough drops made from Swiss herbs are exported to more than 50 countries worldwide; Rivella, a sparkling soft drink made from milk whey, which is second in popularity in Switzerland to Coca- Cola; and Gerberit, the supplier of upmarket bathroom systems including shower toilets.

“The family-owned nature of so many Swiss premium brands is often commented on, but it is typical of Switzerland’s businesses.”

Swiss premium brands are not confined just to smaller companies, however: there are many large brands which are also attractive to their clients. The large banks are renowned for their customer focus, the quality of their service, their positive attitude to work and their attention to details, which are characteristic of smaller Swiss brands.

The family-owned nature of so many Swiss premium brands is often commented on, but it is typical of Switzerland’s businesses in general: a recent study found that almost 88 per cent of Swiss companies are family-held. Most are small to mid-cap, often employing fewer than 20 people who have an emotional attachment to the business and whose owners aim to pass the companies on to the next generation of their family. These characteristics give long-term stability to the companies which are prepared to sit out downturns and hold on to staff whose skills would otherwise be lost to the business.

Family-owned businesses are also free of the short-term pressures faced by listed companies which may have to report profits and margins quarterly to shareholders. Our own bank Pictet is private and wholly owned by a handful of partners, and it manages for the next century rather than the next quarter. Short-term for most family-owned businesses often means until the next generation takes over which could be 25 to 50 years hence.

Long-established privately-held companies may still face a challenge in selecting successors where there are a large number of next generation family members.Rolex has dealt with this by pool-ing its shares in a family foundation so that decisions can be shared and weighed up with a long-term perspective.

Stable governance of family-owned companies is helped by the Swiss governmental environment, which is marked by its political and economic stability. The standard of living in a multicultural society which has four different languages is high and the country has been neutral for more than 200 years. Its productivity is also high, fostered by its admired education system with prestigious higher education institutions such as the École Polytechnique Fédérale de Lausanne (EPFL) and Lausanne’s École Hôtelière (Swiss Hospitality Management School). All of these characteristics provide a business-friendly framework which makes Switzerland an attractive place for companies – especially given its low and stable tax rates.

As with all premium brands, those from Switzerland face challenges from competitors, imitators and free riders who say their products come from Switzerland but do not always reflect traditional Swiss qualities. There are other new brands that do reflect elements of Swissness, however – for example, the innovative pharmaceutical companies which have often evolved from long-established chemical companies, balancing traditional aspects with modern features.

“Stable governance of family-owned companies is helped by the Swiss governmental environment, which is marked by its political and economic stability.”

Digitalisation can also pose a threat to consumer brands through competition on the internet, as the watch industry faces with the Apple Watch. Consumers, especially millennials, are evolving and becoming more sophisticated in what they look for. They want more than tailor-made products and customer service, which means that premium consumer brands must adapt to new demands to justify their pricing. Again, it is innovation that combines tradition and modernity which is needed.

A key risk for all family-owned businesses is their succession plans. In the early years of a family-owned business, this may be straight-forward, but when there are several potential successors, it is important to choose one who can strengthen the company. Unless sales and profits continue to rise, there may be pressure to sell it to a bigger company. And while expanding outside the domestic market may seem attractive, it can prove costly.

One final challenge for Swiss premium brands is to integrate environmental, social and governance issues (ESG) into their business plans. Solutions to ESG issues are increasingly important to consumers of all products and services: small is beautiful and local diversity of products should be the watchwords for all premium brands.

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