Why Switzerland needs workers from abroad

Switzerland losing attractiveness for multinationals

Big names like Uber, Netflix and Uniqlo have parachuted into the Netherlands in recent years. Keystone / Cris Toala Olivares

Once the ideal destination for multinational companies to set up shop, Switzerland is being outpaced by other European hubs like the Netherlands. 

This content was published on April 28, 2019 - 14:00

New figures show the Alpine nation has dropped from first to third place in the past five years as the preferred headquarters for multinationals in Europe. Is it time for a new playbook?  

In a report launched today called “Switzerland, Wake UpExternal link”, the consulting firm McKinsey & Co as well as co-authors (including industry associations EconomieSuisse and SwissHoldings) send a cautionary message to a country that is increasingly losing out to neighbors such as Ireland, Luxembourg, the UK, and the Netherlands when it comes to playing host to big multinationals.

Political uncertainties around the relationship with the European Union and tax reform are part of the problem but the report’s critique points fingers at a more fundamental weakness: the lack of talent. In particular, it states, “while Switzerland has some of the most prestigious schools globally, it does not seem to provide sufficient talent to attract resource-intense multinational headquarters.”

Multinationals are and have been an important part of the economic and social fabric of Switzerland for years. Despite making up less than 5% of all businesses, Swiss and foreign multinationals create 26% of all jobs and contribute a third of GDP. They also provide nearly half of all federal corporate tax revenues.

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The Dutch effect

The big winner of the last five years is the Netherlands. While both Ireland and Switzerland saw a decline in their respective share of headquarter locations among multinationals relocating within or to Europe in the last five years (three and eight percentage point drop respectively), the Netherlands increased its share by seven percentage points.

This includes big names like Uber, Netflix, and Uniqlo that have all set up global or regional headquarters in the country in the last five years. The Netherlands also become the preferred location for companies who are abandoning original plans for UK headquarters in the face of Brexit such as Panasonic.

What it lacks in Alpine views, the flat neighbour to the north makes up for in its central location, strong infrastructure, and market access to the rest of Europe. According to the report, some CEOs interviewed didn’t even consider Switzerland because of a perceived lack of market access. There’s also the bonus of being able to easily bike to work in cities like Amsterdam.

Glimmers of hope

There are areas where Switzerland still shines. For example, R&D and life sciences. The country scored 26% of the share of R&D centers set up by multinationals, helping it rank second among the five locations assessed by McKinsey. Good news given R&D centers contribute more to per-capita GDP than other operations. Notable examples include the global beauty company Coty and tech giant Oracle. 

The cluster of pharmaceutical and healthcare companies, especially in Basel, remains an attractive feature of the country. The Basel region ranks first globally when it comes to R&D expenditures in terms of regional GDP and has the highest number of pharmaceutical patents per million inhabitants. 

The report highlights case studies like Google, which has called Zurich its second home for a decade and now has around 2,000 employees in Switzerland, making it the second largest Google location outside Silicon Valley. There are also cases of Alcon, the Novartis eyecare spin off, that is moving to Geneva, and Adidas that is building its operations in Lucerne. 

Too late to course correct?

Switzerland still has a strong reputation and some indisputable strengths including its ease of doing business and quality of life according to the 100 corporate executives interviewed for the report. But, scenic mountain ranges and (relatively) punctual train connections will no longer cut it. 

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The report finds that some of the factors that made Switzerland so attractive, including its regulatory reliability, are eroding. It points out a range of unanswered questions including Switzerland’s relationship with the EU, big trade agreements, an upcoming vote on tax reform, and a potential national vote on a Responsible Business Initiative

The area where the country appears to be lagging behind though is talent availability. The shortage is especially acute in technology. Only 3% of tech companies chose Switzerland in the last five years compared to 18% in the UK and 11% in the Netherlands. Switzerland also lost out in the race to attract Chinese companies such as Alibaba, attracting only 5% of Chinese companies whereas the UK captured 24% of the pie. 

Compared to other European countries, the number of graduates in science, technology, engineering and maths (STEM) programmes is low and it is difficult to compensate for the small Swiss talent supply with people from outside Europe because of restrictive immigration policies for non-EU citizens. Some executives also commented that there were difficulties for women to work in the country, shrinking the labour pool. 

The report also argues that mobility within Switzerland is also perceived to be limited. One executive commented that his firm lost one third of its employees when the headquarters relocated to another city, which was 45 minutes away from the original location. 

But setting aside any political agendas, the authors say Switzerland has all the ingredients to keep attracting companies. It just needs a new recipe for success.

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