the wealth of switzerland -- 11/15/22

Today's selection -- from The Competitive Advantage of Nations by Michael E. Porter. Over the last century, Switzerland has emerged as one of the world’s wealthiest nations due to its perennial export surplus (though rising energy prices in Europe are now impacting that surplus):
"Switzerland had been a poor nation as late as the nineteenth century. Among its major exports were mercenaries and emigrating citizens. By the early decades of the twentieth century, Switzerland had emerged as an industrial nation of importance far beyond its small size. In the postwar period, Switzerland was one of the richest of nations. By the 1960s, using some measures, Swiss per capita income was the highest in the world.

"Swiss prosperity is the result of national competitive advantage in a surpris­ingly wide range of advanced manufacturing and service industries for a small nation. Industrial success has been enough to more than employ all available Swiss citizens at high wages (total Swiss unemployment in many years has been less than 200 people) as well as many guest workers. Swiss companies, among them Nestle, Hoffmann-LaRoche, Sandoz, Ciba-Geigy, Schindler, Landis and Gyr, and Lindt and Sprungli, are among the most global of any nation. The leading Swiss multinationals employ far more people outside of the country than in Switzerland. The Swiss case vividly illustrates how a small nation, without a large home market as in Japan or America, can nevertheless be a successful global competitor in many important industries. Switzerland is also an economy that has continually upgraded itself to support a rising standard of living. …
"In Switzerland, as in virtually all the nations, industries with high export share which signals the presence of competitive advantage account for the major part of export trade. … Twenty-nine of the fifty leaders in terms of [export] value are also among the top fifty in terms of export share, and nearly all the others have world export shares several times the Swiss cutoff. Only one industry that makes the top fifty value list falls below the cutoff in terms of world export share. I will concentrate on the export share data in my discussions of each nation, because it is more representative of the industries where the nation has a competitive advantage and these industries account for a large fraction of both trade and foreign investment. …
"For a nation of only six million people, the range of industries in which Switzerland has a position is extraordinary. They fall into a series of clusters, the number and breadth of which are a good deal greater than in other small nations such as Sweden, Denmark, and Singapore. One of the most important is a cluster of health care related industries, including pharmaceuti­cals, hearing aids, orthopedic devices, medical instruments, various forms of related machinery, health care services, and health care consulting. Compe­titive Swiss industries hold a remarkable 7.2 percent of total world exports in this cluster, not to mention the fact that the large Swiss pharmaceuticals companies have extensive foreign investments. Another important cluster is a group of industries related to textiles, including textile fibers, yarns and fabrics, apparel (mostly specialty items), textile machinery, and synthetic dyes. A third important cluster is in internationally oriented general business services, including trading, banking, insurance, temporary help, logistical management, international headquarters, and human resources consulting. A fourth important cluster is highly processed metal products, tools, machine tools, and other equipment for multiple business applications. Another impor­tant cluster is in specialty chemicals. Switzerland's 0.6 percent share of world cluster exports in petroleum and chemicals is composed of a negligible share of petroleum-related industries and a 3.4 percent share of total world chemical cluster exports, fourth behind Germany, the United States, and the United Kingdom.

"Other significant clusters include processed food products (such as chocolate, cheese, and others), mechanical and optical instruments, printed paper goods and associated machinery, and heavy electrical goods. Switzerland has weak positions in forest products, semiconductors and computers, tele­communications, entertainment and leisure (except tourism), and defense (though much Swiss defense trade, as well as that of other nations, is not captured by the UN statistics). ...

A proportional representation of Switzerland exports, 2019

"Switzerland has few natural resources, with the exception of sites for the generation of hydropower and a pleasant landscape that attracts many tourists/ However, one natural factor of historical importance is location. 'Centrally located on major European trade routes, Switzerland became a trading, commercial, and financial center early on. This advantage, plus the early Swiss position in textiles (necessitating silk purchases, among other imports; from the Far East) gave Switzerland a strong position in trading that has never been lost. Banking and insurance also benefited from such a central location and from the Swiss position in trading. Switzerland's location coupled with a stance of political neutrality, also allowed its firms to maintain commercial contacts with each of the major European power centers (France; Germany, and Great Britain), resulting in numerous benefits that will become apparent.

"Switzerland has a highly educated and skilled pool of human resources who have a positive attitude toward work. Absenteeism is extremely low Swiss are unique in cultural sophistication and language skills. Because Switzerland is a country with German-, French-, and Italian-speaking areas many Swiss speak multiple languages (including English) with relative fluency. Swiss banks, for example, take pride in the ability to serve customer: in any of four languages from any bank branch. Accustomed to a society with multiple cultures and with a social philosophy of compromise and accommodation, Swiss employees and managers can work effectively inside and outside of Switzerland with people of many nationalities. In industries such as trading and those involving intricate foreign sales and service, these assets have carried considerable weight. …

"Swiss infrastructure is well developed, especially in logistics-related fields such as airport services, roads, and railroads. There are some exceptions, however, notably in telecommunications. There, the state monopoly has proven to be a disadvantage due to high costs and its tendency to grant a guaranteed market to Swiss suppliers. The contrast between Switzerland and Sweden is instructive. Ericsson, the leading Swedish telecommunications supplier, was not guaranteed the home market and was forced to aggressively seek export sales. It has emerged as one of the world's leading companies in its industry. Hasler, the comparable Swiss company, had world-class capabilities but was protected. Today Hasler has virtually no international position and the Swiss home market is too small and benign to stimulate innovation and efficiency.

"Switzerland has been able to create spe­cialized factors and upgrade them over time to support rising productivity in its industries. Prominent among the factor-creating mechanisms in Switzer­land is the educational system. Public education is universal, has high stan­dards, and is taken seriously by all segments of society. Teacher qualifications are unusually high compared to nations such as the United States and the United Kingdom. The courses offered reflect the composition of Swiss indus­try. For example, there are professors of banking at Zurich and St. Gall.

"More important, in many respects, for specialized factor creation is the existence of a well-developed apprenticeship system, similar to that in Ger­many. The apprenticeship system covers all young people who do not go on to university. It involves a combination of practical on-the-job training in a company and part-time classroom work at a local vocational school. Students are not only equipped to perform at high skill levels but to grow and develop throughout their careers. Swiss companies also devote significant resources to training. Employees in Swiss companies are thought of more as technicians than 'blue collar' workers. In my experience, Swiss companies are unusually attuned to the welfare of their employees. At the Swiss textile equipment producer Staubli, for example, it was understood that if the company were successful the employees would be well taken care of.

"Also of importance to human resource development is compulsory military service in Switzerland. Many Swiss cite this as a strength for industry. Nearly all Swiss citizens receive some training and are taught discipline; they also establish a network of relationships that stay with them all their lives.

"Switzerland has a strong tradition of university research and enjoys a world-class position in a variety of fields, among them chemistry and physics. The research links between universities and companies are well developed in many Swiss industries." 



Michael E. Porter


The Competitive Advantage of Nations


The Free Press


Copyright 1990 by Michael E. Porter


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