Switzerland: still a top destination for firms?

US pharma firm Biogen wants to build a production plant on this site of a former factory in Luterbach, canton Solothurn Keystone

Despite Switzerland still being attractive to international investors, tax reforms and immigration policies are creating uncertainty. The free movement of people in particular is key for top firms, say representatives of the country’s strongest economic regions.

The canton of Zug is undisputedly the most attractive location to set up business in Switzerland, according to annual studies conducted by Swiss banks Credit Suisse and UBS.

Its ranking is based on four main factors: financial conditions, skilled labour, transport links and stability. “These factors are also right at the top of firms’ agendas when it comes to choosing a location,” said Beat Bachmann, head of Zug’s office for business promotion.External link

Changes in Switzerland’s attractiveness are quickly visible in Zug. The number of new company relocations, for example, has declined sharply in Zug – along with the rest of Switzerland – during the past two years, according to Bachmann.

“This can be clearly linked to the fact that Switzerland has become less attractive in the eyes of foreign investors due to the outcome of certain popular votes. Currently the most significant negative factor is the availability of skilled labour,” said Bachmann, referring to the people’s initiative “against mass immigration”, which narrowly approved by a majority of Swiss voters in 2014.

The initiative seeks to slow down immigration, including from the European Union, through the use of quotas.

Quotas are still used in Switzerland for the work permits of foreigners from outside the EU/European Free Trade Area (EFTA) space, the so-called third-party countries. The cabinet’s recent decision to reduce these quotas sends a very negative signal, added Bachmann.

“Such measures raise significant concerns abroad with regards to whether the required skilled labour will be available,” he said.

“Companies try to hire workers from the region whenever possible. But they are not always available within Switzerland. Moreover, the development of a new line of business often depends on existing know-how from within the firm, i.e. the ability to tap into the knowledge of their own people.”

Tapping into domestic talent

In canton Zurich, which ranked second behind Zug, economic promotion is part of the Office for Economy and Labour,External link which is also responsible for employment services. “We not only try to take into account the needs of the economy but also the overall economic interests as well. And this includes people who are searching for work in Switzerland,” said spokeswoman Irene Tschopp.

“For example, when we receive a lot of requests for the short-term employment of third-party country IT specialists in Switzerland, we contact the companies to ensure they first consider skilled labour here in Switzerland, in other words unemployed IT specialists.”

Companies have indeed raised concerns about the availability of skilled workers, but “many firms still settle in Zurich or expand their presence here”, said Tschopp, pointing to Google or medical device company Zimmer Biomet.

In canton Basel Country, the head of economic developmentExternal link Thomas de Courten is also a parliamentarian for the conservative right Swiss People’s Party, which launched the “against mass immigration” initiative.

The canton has not suffered as a result of the initiative so far, he said. As for the role that the free movement of people plays in new firms coming to the area, he says “the quota system also works very well in our region in the international environment, including the third-party countries.”

“Deterrent effect”

“Finding great people is key to any business success.” This is the title of a video by the Greater Zurich Area AG (GZA),External link which promotes Zurich, Zug and eight other cantons, regions and cities abroad as a business location. The GZA also emphasizes the high standard of living, safety, as well as attractiveness of the location for qualified workers from across the world.

“For the companies that we proactively approach, it’s decisive whether they can recruit the specialists that they need,” explained Sonja Wollkopf Walt, managing director of the GZA.

The free movement of people is a determining factor in the marketing of the region for company relocations. She stressed that the “against mass immigration” initiative has had a deterrent effect, especially for high valued-added firms.  “We can no longer promise companies that they will receive the necessary work permits in the future,” she said.

Dependability – Switzerland’s trump card in the global competition for company relocations – is presently strained. No one knows how exactly the initiative will be implemented, according to the managing director. In addition, other general conditions such as company taxation have not yet been defined clearly enough. Companies, therefore, are taking a wait-and-see approach, said Wollkopf Walt.

This is also visible in the numbers. Between 2009 and 2013, GZA together with its cantonal, regional and city partners, helped to settle 464 companies with 4,165 positions. On an annual basis, that represents more than 80 firms with around 830 jobs on average. Last year, in contrast, there were 65 companies with 457 jobs. A similar development is expected for 2015.

“Boom years are over”

Those responsible for economic development in western Switzerland report similar experiences.

“It’s become more difficult to attract new companies,” said Thomas Bohn, executive director of the Greater Geneva Berne Area (GGBa), External linkwhich promotes six cantons as a business location.

In 2014, GGBa helped 87 companies settle with more than 1,000 jobs. “An excellent year,” said Bohn, “but the boom years during which many large firms with several hundred people settled at the same time are over. We now find ourselves in a period characterised by a degree of uncertainty.”

The “against mass immigration” initiative and company taxation reform are the greatest causes of this uncertainty. “Companies interested in Switzerland come here for the safety and stability,” said Bohn.  He added that Switzerland was still very attractive internationallyExternal link, referring to competitiveness rankings in which the country occupied a leading position. “But we are no longer the location where everyone wants to go.”

BaselAreaExternal link spokeswoman Regula Matzek also reports difficult conditions. “Companies willing to move to Switzerland are very well informed, but are also sometimes alarmed. They are asking critical questions during consultations. More work needs to be done in convincing them,” she said.

Nevertheless, there is a stable interest in the location, which highlights the fact that it has “Europe’s highest concentration of life sciences companies” as well as a talent pool made up of a “workforce from 165 nations and cross-border commuters from Germany and France”.

Regarding the possible consequences that restrictions on the free movement of people will have on the economic region, Matzek is optimistic and refers to a comment by Severin Schwan, chief executive officer of the Basel-based pharmaceutical company Roche.

Speaking in an interview with Swiss public radio, SRF, about the anti-immigration initiative, Schwan expressed confidence “that we will find a good, pragmatic solution”.

“I share this perception,” said Matzek. “It’s a downward trend, but you can’t talk about a slump.”

Relocations on the decline

In 2014, 274 foreign firms settled in Switzerland. This resulted in at least 780 jobs. In the next three years, these companies are expected to create some 3,000 new jobs. In contrast to 2013, 8% fewer companies relocated to Switzerland. There was an even greater decline in the number of jobs created through relocations, which fell 20%. This is according to a survey by the Conference of Cantonal Economic Directors, which once a year collects data on the number of foreign company relocations to Switzerland as well as newly created jobs. 

Translated from German by Catherine McLean