Foreign firms look beyond low Swiss taxes

This company not surprisingly did a search and found its way to Zurich Keystone

Switzerland has been attracting its fair share of leading foreign companies in recent years and the trend looks set to continue as firms expand their businesses.

Two of the best examples are internet search company Google, which in Zurich created its largest engineering lab outside the United States, and online auction website eBay that has its international headquarters in Bern.

Low taxes are often cited as the main reason why foreign companies are attracted by Switzerland as a business location but experts say it is not as simple as that.

No one would deny they are certainly one factor in pulling in companies from the outside. Switzerland has come in for considerable criticism over tax incentives, particularly from some European Union member states.

Osec Business Network Switzerland, which acts as a kind of umbrella organisation passing on the names of interested companies to the country’s cantons, works on the image of Switzerland and establishes initial contacts with potential investors.

“In various countries where we are active our local management invites potential investors to seminars. In these we get the chance together with our sponsor partners or the cantons to convince potential investors about our location,” Hans Jegge, head of location promotion at Osec’s main office in Zurich, told swissinfo.ch.

Not in top ten

Tax is, surprisingly perhaps, not in the top ten of criteria that investors mention when asked why they set up in Switzerland.

“What we’ve learned from research about [foreign] companies that are already here in Switzerland is that taxes are number 11 in the list of the most important factors why companies have chosen Switzerland.”

Sonja Wollkopf Walt, who is chief executive of the Greater Zurich Area –  the region that can be reached roughly within a 60-minute drive from Zurich airport – admits that tax is an issue but it’s not the whole picture.

“There are other reasons like quality of life, where do the managers and their families live? Are there enough schools? Are there premises around? Can they build what they need? Are there research and development institutes? Are there other innovative firms?

“Tax is a reason but we always try to put it into perspective and so does the company itself,” she told swissinfo.ch.

Growing business

Wollkopf Walt notes that although attracting foreign companies might not appear big business on the surface – her office has an annual budget of about SFr3.5 million ($3.8 million) – it is one that has developed fast.

“When I started my job 12 years ago we were the only ones, as well as the big four (Ernst & Young, PricewaterhouseCoopers, KPMG and Deloitte)… but now there are a lot of small companies dealing with helping clients to come to Zurich, so we realised there is big business going on with these companies.”

Some regions, like the Greater Zurich Area spanning seven cantons, have pooled cooperation and coordination to attract investors. The Greater Geneva Bern area includes six cantons and does the same.

“We are a large region representing a bilingual region, with one third speaking German and two thirds French. We have eight universities, we have university hospitals and we focus our know-how in clusters,” Denis Grisel, head of canton Bern’s economic development agency, told swissinfo.ch.

“Those are biotech, medtech, ICT (information and communication technology), cleantech and  precision industry.”

Go alone

But other cantons have decided to go it alone. Canton Ticino in the southern part of Switzerland, can still pull in the foreign companies despite that.

“The canton of Ticino more or less has a monopoly for the Italian market, because of the language and the regional link to Milan… recently [computer company] Acer found its way into Ticino. It’s not disadvantaged in relation to other cantons,” explained Osec’s Jegge.

If a foreign company is interested in looking closer at Switzerland as a location the cantons normally arrange a visit but not at their own expense. The potential client foots that bill, although the Swiss promotion bodies may put together a programme and pay for a meal.

Grisel in Bern said a programme of visits depends on the needs of a company. But he was firm: “We don’t buy their visit,” he said.

“People want to visit universities and competence centres because they want to see the developments in their technology in the area. Others want to see if they can find cooperation with local companies so they can work together with them.

“There are others which say they need to see out what kind of potential there is to find qualified people, so we arrange visits to specialists in human resources.”

Big and small

Location promoters obviously would like the big foreign companies to have a close look at their region but it depends on what you consider big and what is small.

Wollkopf Walt in Zurich says her office looks for something that’s in between big and small.

“It depends on the market. You have to have a certain size to be able to expand to Europe and within Europe it’s the smaller companies. To Switzerland, a medium-sized German company is already a big company,” she said.

There is of course competition for business within Switzerland but location promoters at Osec or in the cantons are content if foreign companies choose Switzerland rather than going to other countries.

Despite the competition, Grisel is convinced that Switzerland continues to have plenty of advantages.

“Switzerland and our region are still very attractive for foreign investments, even if we have a Swiss franc which is high, so we feel and we see that stability, security, the central location and the quality of life make Switzerland still very attractive in this situation,” he said.

Grisel is also very realistic: “In the end we try to have a part of the cake but we know we can’t get all the cake.”

Why foreign companies came to Switzerland

1) political stability and legal security

2) quality of life

3) social climate

4) purchasing power

5) transport and logistics

6) R&D resources available

7) quality of education system

8) telecommunications

9) importance as a financial centre

10) entrepreneurial spirit

11) tax advantage

(source : survey commissioned by Osec, 2010)

Location promotion

Osec Business Network Switzerland is the competence centre for Swiss foreign trade promotion. As well as promoting exports, it also promotes Switzerland as a location, organising about 100 events a year.

Its information about foreign companies doing business in Switzerland is handed down to the cantons.

The Greater Zurich Area promotion agency includes cantons Glarus, Graubünden, Schaffhausen, Schwyz, Solothurn, Zug and Zurich.

The Greater Geneva Berne area includes cantons Bern, Fribourg, Geneva, Neuchâtel, Valais and Vaud.