Investors Mull Leaving Switzerland – Ernst & Young

Michelle Remo, “Big 4″ observer
September 09, 2011 /

Investors are viewing Switzerland’s appeal as a business location to be waning “significantly” according to Ernst & Young.

A meager 10 percent of investors view Switzerland as one of the world’s top locations for business investment, twice the figure in 2009. In the ranking of the most attractive locations, Switzerland has dropped from second to fourth place – behind Germany, the US and India, stated a study by the professional services firm Ernst & Young on the attractiveness of Switzerland as a business location.

Foreign investors praise Switzerland’s economic and political climate, but an increasing number of companies are considering leaving Switzerland and relocating their operations abroad.

Two out of three foreign companies recommend that in order to further enhance Switzerland’s attractiveness as a business location, the country must join the EU and the eurozone, Ernst & Young noted.

Ernst & Young’s study involved a survey of the senior management of 700 international companies. Of these companies, 210 currently operate in Switzerland. The survey was conducted in August 2011.

‘Excellent conditions’?

Foreign investors continue to praise Switzerland for its political stability and legal certainty, personal and environmental safety, and quality of life. They identified high wage and non-wage labor costs and the relative scarcity and high cost of land as disadvantages of Switzerland. Most of those surveyed also praise Switzerland’s policies in which 77 percent of companies feel that the country currently has policies that appeal to international investors.

However, an increasing number of companies are thinking of relocating their operations abroad. Currently 38 percent of the foreign companies in Switzerland are considering leaving the country. Two years ago, the figure was 26 percent, compared to just 24 percent in 2007.

Competition from emerging markets, strong franc are ‘burdens’

“The decline in Switzerland’s attractiveness is not due to a worsening of its political, tax or infrastructure conditions but rather the growing competition from emerging markets like India, China and Russia,” said Ernst & Young’s Markus Schweizer, Managing Partner of Advisory Services in the GSA Sub-Area, comprising Germany, Switzerland, and Austria.

“These dynamic economies offer investors exactly what they are looking for: large, in part untapped markets holding the promise of high growth rates – and substantial cost advantages,” Schweizer added.

Fifty-five percent of the companies planning to leave Switzerland cited tapping new sales markets as their motivation, while 35 percent indicated lower personnel and production costs as the reason for leaving.

Ernst & Young noted that another key reason for Switzerland’s diminished attractiveness as a business location is the strong franc.

“Being export-oriented, the Swiss economy is suffering enormously under the strong Swiss franc. It is becoming increasingly difficult for Switzerland to sell its products while its European competitors are at an advantage on account of the weak euro,” said Bruno Chiomento, CEO of Ernst & Young Switzerland.

“It’s not that Switzerland has done anything wrong. On the contrary, Switzerland is being punished as it were for its sound economic management strategy and establishing an exceptionally stable, high-quality business location with optimum conditions,” he said.

‘Germany benefiting’

While Switzerland – along with most other European countries – is losing its appeal, Germany in particular is gaining favor with investors, Ernst & Young said.

Twenty-six percent of foreign investors refer to Germany as one of the top locations for business investment throughout the world, putting it in first place in the global location ranking – ahead of the US and India.

“Like Switzerland, Germany is a high-wage export economy, yet it is benefiting significantly from the weak euro,” said Schweizer.

“Germany is currently able to gain market share at the international level, whereas Swiss companies will continue to lose market share as long as the franc continues to soar,” he added.

Join the EU and the eurozone

The recommendation of foreign investors that Switzerland should give up the Swiss franc and join the eurozone is sure to meet with little popularity in Switzerland: 67% of investors rate Switzerland’s joining the EU positively with regard to its attractiveness as a business location (only 14% negatively), with 68% of the opinion that Switzerland should join the eurozone as well.

“Joining the eurozone would in fact solve the problem posed by the overvalued Swiss franc in the short term. But at the same time, Switzerland would be getting involved in enormous new problems. It is highly questionable whether it would be advisable for Switzerland to join the euro,” said Bruno Chiomento.

‘More investment projects but fewer jobs in 2010′

The number of foreign investment projects in Switzerland in 2010 grew by 30 percent to 90, substantially below the values for 2006 to 2008, when more than 120 investment projects were realized each year.

The number of jobs created by foreign direct investment continues to decline: only 673 new jobs were created in 2010, 39 percent less than 2009 and a significant fall on the previous years when as many as of 2,800 new jobs were being created every year.

 

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