The Swiss economy has been under unprecedented pressure in recent years, staying competitive has become all the more difficult. National branding and Export promotion usually serve to complete each other but they also have the potential to become counterproductive for the Swiss economy.
Switzerland continues to top many international rankings for innovation and competitiveness. The perception of the Swiss national brand, according to Business Hubs of Switzerland Global Enterprise, remains strong. Investments in Research and Development (R&D) are high in Switzerland. There are few other OECD countries that can match Switzerland’s investments in the R&D sector, especially in relation to their Gross Domestic Product (GDP). Switzerland currently invests 2% of its GDP in research and development. This has paid off: 8,000 patents were registered in 2013 in Switzerland. Per capita this value is the highest in the world. The number of Nobel prize winners per capita in Switzerland is unparalleled.
The main advantages of doing business in Switzerland include its strong legal framework, stability and high standard of living. Many investors also consider Switzerland’s liberal labour laws paired with its strong social partnerships very attractive. Sensible taxation is certainly an added advantage. A federal system of governance and subsidisation guarantee that these conditions remain the same. Switzerland not only offers unparalleled standards of living and wage rates, it also offers an ideal infrastructure in the health and transport sectors.
Decline of the Swiss Appeal
Despite such good conditions, Switzerland has seen a decline in both new business establishments and foreign direct investments. The number of new businesses locating to Switzerland has declined by almost 50% since 2005. The number of jobs created by business relocations in 2014 has been reduced by 80% in comparison to 2005.
This may in part be due to the new emphasis placed on quality instead of quantity by different Swiss Promoters in recent years. It has become increasingly important to specifically attract highly value-adding companies. Tax benefits no longer serve to form the focal point of the rationale for companies to relocate to Switzerland.
These developments fail to explain one important aspect. Switzerland has lost its appeal for Investors, particularly with regards to emerging markets.
In 2013, for the first time in its history, Switzerland was not mentioned in the top 25 OECD destinations for foreign direct investment. In the same year the Swiss economy has suffered a loss of USD 5.3 Billion in negative net FDI inflows, placing the country below its main competitors.
Why Did It Develop This Far?
Even though Switzerland is widely held in high regard, the number of doubting questions raised by the business communities in many target countries, in which the S-GE is active in is steadily increasing. International attention on popular petitions in Switzerland has not helped to increase investor confidence. Public discussions about various petitions often garner more international attention than the actual outcomes of such referendums. Company directors searching for new branch locations are therefore more likely to hear about demands to punish “free riders” in Switzerland than the actual demands of residents, which for example are for the introduction of the minimum wage and restrictions to immigration. This misrepresentation of facts has created a great need for clarification and explanation of popular opinion to potential investors.
We also continue to observe a stark rise in international competition between different business locations. Many countries are able to provide their marketing organizations with far greater budgets and personnel than our cantons, areas and the S-GE put together. Currently, our main competitors are Ireland, the Netherlands, Luxembourg, the United Kingdom and particularly London and Singapore.
Business Location Marketing is No Longer Self- Perpetuating
Since January the strong Swiss Franc has made efforts to keep up with the competition significantly more difficult. The new policy regarding the Franc has obviously had the largest direct negative impact on Exporters. However, the appreciation of the Franc has also had a significant impact on the number of foreign businesses (relocating to Switzerland. This has forced Switzerland to focus its marketing efforts on strong value- adding companies. Nevertheless, at this point it can be reaffirmed that companies, which focus on innovation, talent and long-term ideal business conditions, are, despite the strong Franc, still well advised to move to Switzerland. The locational advantages of Switzerland will outweigh the disadvantages brought about by currency appreciation in the long term. This is especially true for international companies that are highly diversified and therefore far better equipped to handle risks associated with currencies. The downside to this is that the competition for these top international companies is at its most intense. These are serious challenges to consider but it is possible for Switzerland to rise to these challenges with good business location marketing abroad. In co-operation with different areas and cantons the S-GE aims to maintain Swiss competitiveness internationally with companies from highly value-adding industries, such as the Mechanical and Engineering Industry (MEM), the pharmaceutical-, chemical-, bio- and medical-technological industry as well as IT Industry.
Securing Switzerland’s Position at the Top of International Rankings
Good communication and constant exchange with educational institutions is especially important for these industries. Foreign businesses often specifically seek this exchange with top universities in Switzerland in order to increase their international reputation and to promote research and development.
Highly value-adding companies locating to Switzerland also help to improve the competitiveness of companies that are already based here, contracting them as suppliers. The existing structure of excellent suppliers is often a reason by itself for companies to move to Switzerland.
These companies are able to attract great talents, which may switch to Swiss companies in the future. The impact of immigration caused by the relocation of businesses is however inconsequential regarding the total annual immigration. According to a recent Seco study in 2013, immigration due to relocation of businesses accounts to as little as 2 to 4% of total immigration.
Based on our conjectures, a relocation due to our business location promotion can generate between CHF 250’000- 300’000 in tax revenues from both natural and legal persons accumulated on cantonal and national level. Considering the declining tax revenues from legal persons on a national level and accumulative effects due to the strong Swiss Franc, this financial aspect gains even more significance.
A good example of this is the American Biotech Company “Biogen”, which recently announced its intention to relocate to Solothurn. Biogen plans to invest 1 Billion Francs and to create 400 new jobs by 2019. Even though Biogen is an exceptional case it does highlight how influential S-GE is. The initial contact between Switzerland and Biogen was initiated by S-GE. S-GE intensively assisted Biogen for a long period of time, far longer than is usually the norm. The cooperating cantons agreed to this extensive assistance because the potential outcome of a successful relocation was highly desirable. Due to their support and our long lasting commitment, we were able to get ahead of our foreign competitors and convince Biotech to locate to Switzerland. It is the task of the S-GE in its business location promotion to persuade companies like Biotech from highly value-adding industries to locate to Switzerland in order to complement and enrich industries like, in this instance, Switzerland’s technological industry.
Location Based Marketing Helps Swiss Export Companies
Location based marketing also serves the interests of the Swiss export economy. Export oriented companies welcome this support, having suffered significantly since January, due to the decision of the SNB to discontinue the minimum exchange rate, which ultimately led to the appreciation of the Swiss Franc. For that purpose, the S-GE has consulted many export-oriented companies through various channels. The appreciation was a shock for almost everyone. Small and medium sized enterprises were however able to react quickly and flexibly in clever ways, even though many opportunities may have become limited for them. It is important to notice that the impact of the strong Swiss Franc has not fully developed in 2015.
One way to ease the plight of export-oriented companies in the mid- and long-term is to explore new markets where the currency situation is more favorable, making potential growth in those markets even more promising. These outlet markets will be further away from Europe in the long term. The growing middle class in these threshold countries bears great potential. As a result, the global middle class will double in size from 2.5 to 5 billion by 2030. Most of this growth will happen in Asia, Latin America and Africa.
This rapidly growing middle class will radically change the game plan for the Global economy. The bulk of new demand will shift to the East. This applies to both the demand for consumer goods and for industry and various technologies. A country with a growing middle class is a country with a growing demand for a functioning infrastructure or good quality health care system.
Entering these markets is highly complex and the competition for the favor of these new consumers is fierce. Swiss companies are nevertheless excellently positioned to succeed here because the standard demanded by the middle class in emerging economies grows with their income. These people will want to treat themselves and be able to show their newly acquired status.
Everything comes full circle now; the dynamic interplay between educational institutions, domestic and relocated companies in different industry clusters is made possible by the existing openness and innovativeness in Switzerland. This predisposes
Export companies located in Switzerland to produce the technologies, innovations and quality, which is desired by the new middle class. Such exports are not only desired but also needed in order to tackle the big challenges in infrastructure and conservation faced by threshold countries as a result of their growing middle class.
Export promotion and the promotion of Switzerland as an ideal business location therefore complement each other. Domestic companies are able to profit from this. Switzerland as a whole can also continue to count on the knowhow, ideas and economic power of companies, which choose to locate to Switzerland. This is the reason why Switzerland as a business location is able to keep its competitive edge globally.