How to set things right again
Switzerland is known worldwide for its melt-in-your-mouth chocolate, reliable watches and as the home of Roger Federer. But that’s far from all. Perhaps more than anything, and most importantly, Switzerland is known – and envied! – for its economic prosperity and stability, and the quality of life enjoyed by its residents.
Given the economic climate, however, and the increasing competition from other countries, particularly those in Asia, the question on everyone’s mind is: can Switzerland retain its reputation and stay on top?
According to international accounting and consulting firm, Deloitte, Switzerland runs the risk of losing its golden-child status unless it does something to increase its global competitiveness. Deloitte says that although the country didn’t suffer as much as others during the recession, and although it still has one of the highest levels of GDP per capita in the world, there were signs even before the economic crisis hit that Switzerland’s performance was weakening.
Deloitte recently released a White Paper entitled “The future for business in Switzerland?” in which experts from Deloitte, the University of St Gallen and think tank Avenir Suisse address business prospects in Switzerland. They conclude that although the economic recession may have caused the business landscape to become more complex, it also provided a number of new opportunities.
Deloitte hopes the White Paper will start a much-needed debate among executives and policymakers about what actions are required in the workplace in order to promote Swiss business and enhance its global competitiveness. The paper claims that given Switzerland’s core business strengths and the new economic order, there’s ample opportunity to grow.
For example, according to Deloitte’s, the country could generate an additional CHF 10 000 of GDP per capita growth (equivalent to CHF 80 billion) by 2015. In order to achieve this, however, Deloitte says Switzerland must do more than it is currently doing and it requires a range of actions across key parts of its economy.
To help in this regard, Deloitte has identified 18 high-level action plans – otherwise known as “growth creation initiatives” (GCIs) – which it believes will reinvigorate the economy and help Switzerland capitalize on its outstanding competitive capabilities.
Deloitte says Switzerland is a knowledge-based economy and one of the problems the country faces is that the demand for highly qualified professionals outweighs its supply. In order to meet the demand, Deloitte suggests Switzerland elevate the status of engineering, science and technology across the economy by encouraging a cultural shift in attitude toward technology professions and increasing the number of graduates in these fields.
In addition, the firm says it is important to attract and retain the best international talent by promoting Switzerland’s high quality of life and environment-friendly policies. Deloitte adds that once in Switzerland, government and businesses should assist foreign students and professionals assimilate into local communities.
Deloitte also suggests creating alternative labour models to reintegrate women into the workplace after parental leave as a way of reducing the talent gap in Switzerland. Childcare has always been the responsibility of the cantons and, as a result, working mothers have been expected to find their own solutions to filling the gap left by publicly provided childcare. Deloitte says this could be seen as an opportunity to adapt the educational system so that children are able to stay at school during working hours or, alternatively, to standardize school hours across the country.
A recent Deloitte survey showed that more than 40% of chief financial officers (CFOs) of major Swiss-based businesses consider bank borrowing and equity attractive sources of funding, while two thirds view corporate debt as attractive.
While this in itself is fine, the problem is that CFOs are reluctant to provide funding to start-ups and small, established businesses. Deloitte says it is essential to strengthen links between established capital pools and business start-ups.
According to Deloitte, more than 10% of Switzerland’s GDP comes from the 6,500 foreign companies that have chosen to set up operations in the country. In a study of 76 multinationals with European headquarters in Switzerland, Deloitte says 80% said they intend to strengthen at least one of their business functions in the country; 75% said they have no intention to downsize any of their functions.
Deloitte says it is vital that Switzerland make the most of this position and should therefore consider new ways to foster the retention and growth of international and regional headquarters in the country.
The firm adds that it is important to build on Switzerland’s already favourable tax environment so as to protect itself against increasing competition from other countries. In order to do this, Deloitte says the federal government should consider reforming the personal tax system so as to reduce complexity. As part of such a review, Deloitte says it is important to retain competition between cantons, as this is an important aspect of Switzerland’s attractive position, but that personal income tax should be reduced across a range of income levels. In addition, it is suggested the government look at enhancing tax rules for companies.
As a result of the weaknesses in Switzerland’s performance both before and during the financial recession, Deloitte believes it is important to re-establish Switzerland’s reputation as the global hub of wealth management. The firm says this is possible if government, wealth managers and trade associations play their part and continue to protect the privacy of the country’s banking clients and comply with global standards.
Furthermore, given the complexity of the international environment after the financial crisis, Deloitte says it is vital that Switzerland has a coherent strategy for the country’s financial sector. The firm says it is important to be able to anticipate developments and shifts in the global marketplace.
With this in mind, Deloitte believes Switzerland should consider forming a National Financial Advisory Board, the function of which would be to advise government and businesses on trends, opportunities and threats in the global markets and how to respond appropriately and effectively.
On an individual level, private retirement funds are becoming increasingly important and many businesses are using pension products as a performance incentive. This tendency corresponds with developments made by the EU Directive on the Activities and Supervision of Institutions for Occupational Retirement Provision in September 2005 in which steps were taken to create a single European pension fund.
Deloitte believes Switzerland could become a global centre for pension solutions given that it is the preferred location for many international companies, has a globally recognized pensions system and access to a highly educated workforce. Having said this, the country cannot currently do so due to certain regulatory obstacles. Deloitte therefore suggests that it would be worthwhile to discuss and explore amending the existing insurance treaty with the EU.
With 148 companies and 72 suppliers, Switzerland has the world’s highest per capita density in the biotech field and, according to Deloitte, ranks number one in the world for both basic research and innovation knowledge transfer between industry and academia.
The country is attractive to the pharmaceutical and biotech industries because it has a highly skilled labour force, tax benefits, specialized research capabilities and a focused investor community. However, Deloitte says the industry is changing and if Switzerland wants to retain its reputation as an important base for the pharmaceutical and biotech industries and secure its position as the leader in the development of innovative technologies, it must do more.
The drug licensing authority, Swiss-medic, for example, set up a task force last year to ensure that as of this year, drug registration would take only three months as opposed to eight. Deloitte hopes this is just the first in many steps the country will take toward streamlining regulatory procedures, as well as promoting initiatives such as its Innovation Promotion Agency, which funds research for firms which develop innovative technologies.
Given that the ageing of the world’s population is a growing concern for developed countries, Deloitte believes Switzerland should also promote the success of its health care system globally by developing new markets for both its technical and operational expertise in running a health care system.
Furthermore, with the rate at which broadband speeds are increasing, there are likely to be significant developments in the area of remote diagnostics. Deloitte believes this will present companies with considerable business opportunities and should therefore be explored further.
In today’s global economy, there is mounting competition within the manufacturing industry. Due to pricing pressure, the production of low-cost products has relocated to countries such as China and India. These countries, however, have since begun to focus their efforts on manufacturing sophisticated, high-quality goods. As a result, Swiss manufacturers have found it increasingly difficult to distinguish their products from those made elsewhere in the world. Deloitte suggests three ways in which Switzerland can set itself apart.
The country is well known for its “Made in Switzerland” brand, which is associated worldwide with high-end, quality goods. Deloitte believes Switzerland should go one step further and create a “Designed and Developed in Switzerland” brand for mid-priced goods. It believes that this will not only enable the country to compete more broadly but will also help it maintain margins while leveraging the lower labour costs brought about by globalization.
Climate change and renewable energy are hot topics (excuse the pun) in conversations and debates around the world. Given Switzerland’s knowledge of environmental protection, its research and scientific capabilities, and its well-educated workforce, Deloitte believes the country should establish itself as a world class “Clean Tech” and renewable industries hub and that, furthermore, “clean tech” and renewable energy firms should be viewed as attractive targets for venture capital investment.
Finally, Deloitte suggests companies manufacturing sophisticated goods should sell “Swiss know-how”. By offering a portfolio of services such as costbenefit analysis, consulting and product development, Deloitte believes companies will not only differentiate themselves within the high-end manufacturing sector but could potentially create an additional source of revenue in a sector where they suspect margins will decrease.
Given the ever-increasing rate of obesity throughout the world, more and more governments are calling for food manufacturers to develop ways of improving sustainability while at the same time offering consumers healthier options. Deloitte believes this is an ideal opportunity for Switzerland to develop a leading position in consumer health capabilities.
Deloitte argues that the Swiss food science industry can assist in this regard by keeping food companies up-to-date about regulations and informing them of the latest developments in health and food safety.
Further, given that Switzerland is home to many international companies’ European headquarters, and given the country’s advanced research capabilities, Deloitte thinks Switzerland is in a good position to increase research and development capabilities in food science and nutrition.
But it’s not all about what’s happening at home. Deloitte says more Swiss consumer product companies should, through mergers and acquisitions, go international. Although companies like Emmi, Hero and Barry Callebaut have all sought to do so, in 2009 international investment decreased significantly. Deloitte is of the opinion, however, that as the credit and liquidity situation improves this year, so too will foreign investment.
The world is undoubtedly a very different place since the economic recession. But while everyone else focuses on how to stimulate growth, Deloitte suggests that in order for Switzerland to retain its reputation as a global economic leader, it needs to make the most of the opportunities presented by the new economic order and look beyond the short term.
Article by Alinka Brutsch