Manufacturing ‘shifting out of Switzerland’

Will manufacturing production sites become a thing of the past in Switzerland? Keystone

Switzerland is going through a phase of deindustrialisation as manufacturers seek to escape the effects of the strong franc by moving production abroad, an academic study has concluded.

The phenomenon has been talked about in Switzerland for some years, but researchers at Lausanne’s Federal Institute of Technology (EPFL) have produced empirical evidence to back up the claims.

In January 2015, the Swiss National Bank (SNB) dropped its defence of the franc, allowing it to soar against the euro and other currencies. The EPFL study of 208 publically-listed Swiss firms found that revenues of export-oriented companies declined by 16.3% on average in the six months after the SNB decision, while profits dived 20.4%.

Exporters also scaled back investments by 30%, according to the data. However, the remaining investments were focused heavily outside of Switzerland. The proportion of infrastructure and production sites bought abroad increased from 45% to 63% of total acquisition outlay, researchers found.

The study concludes that this betrays a renewed sense of urgency among Swiss exporters to switch production to other countries. This would get over the problem of having Swiss franc costs and income in weaker currencies, such as the euro. “Rather than building a production site, you buy an existing one. It’s faster,” study co-author Rüdiger Fahlenbrach said.

“It is difficult to determine whether a given company is investing abroad in reaction to the strength of the franc or in line with a long-standing strategy,” he added. “But the rapid and widespread rise in the number of deals leaves little doubt that many of them are correlated with the removal of the exchange-rate floor.”

Unemployment fears

This in turn could have a damaging effect on unemployment in Switzerland, which in January reached 3.8% – its highest level since April 2010.

In an interview on Sunday in the NZZ am Sonntag newspaper, Swiss Economic Minister Johann Schneider-Ammann bemoaned the problems facing Swiss firms as a results of the strong franc.

“One day or another, the money to invest and innovate will run out,” he said. This will hurt the competitiveness of Swiss firms. “It’s a race against time and not all will rally to the finish,” he concluded. 

EPFL researchers agree with Schneider-Ammann. Although the study did not include unlisted small and medium-sized enterprises (SMEs) – that make up 99% of all Swiss companies and two-thirds of jobs – the report concludes that some will cease to exist if they cannot afford to relocate production abroad.

“I’m afraid that some companies will not survive without automating production and laying off employees,” said Fahlenbrach.

Some 4,388 Swiss firms dissolved last year, according to data from Swiss credit ratings firm Bisnode. That is an increase of 7% on 2014.