By Jonathan DeHart,
The Greater Zurich Area, at the heart of Europe, has positioned itself as a global leader in innovation and business. With the recent signing of a free-trade agreement, the region provides the ideal base for Chinese investors looking to enter the region.
When it comes to choosing a base of business operations in Europe, where does a Chinese company begin? Factors from ease of doing business to quality of life and access to markets must all be considered. In terms of overall satisfaction with life overseas, the recently conducted HSBC Expat Explorer survey makes this process easy. And its findings are clear: Switzerland is the highest rated country in the world to be called home for those living abroad and working overseas.
Some 9,300 survey respondents weighed in on factors from quality of life to financial well-being and prospects for raising a family in their adopted country. The alpine nation at the heart of Europe unequivocally took the top spot when the metrics were tallied. Is this really that surprising? After all, Switzerland has developed an enviable reputation for its ideal balance between excellence and comfort over the years.
Expats are not alone in this assessment. After running numbers related to 103 countries through a 48-variable system, the Global Talent Competitiveness Index 2013 concluded that Switzerland was indeed the best place to work worldwide. Significantly, Switzerland maintains this level of excellence sustainably. This year, Yale University ranked Switzerland the leader of the pack when it comes to environmental protection. The nation of 8 million well compensated citizens earned a score of 87.67 out of 100 for its environmental protection efforts.
Moreover, is it all that shocking that the country which hosts the annual Davos summit was rated the most competitive globally by the World Economic Forum in 2014, thanks to “its continuing strong performance across the board”? None of these stellar results are left to chance. The Swiss, it turns out, are blessed from birth, according to the Economist Intelligence Unit, which rated it the best place to be born in the world last year. This starts in school. Switzerland invests 15% of its gross national product in its education system. It’s no surprise to learn that the nation has produced more Nobel laureates per capita than any other country in the world.
The Greater Zurich Area (GZA) is at the heart of the Swiss success story.
“Recent economic rankings confirm, undoubtedly, that the Greater Zurich Area is one of the prime business locations in the world,” Ernst Stocker, Minister of Economy, Canton of Zurich, President, tells Invest In.
Felix Sutter, a partner with PwC Switzerland and responsible for Asian business, adds:“The GZA offers even more advantages, being not only home to numerous leading technological firms but also well connected with the key global economic centers via its airport.”
Bordered by Germany, France, Italy, Austria and Lichtenstein, Switzerland’s geographic advantages are unrivalled. This makes the landlocked nation a cultural melting pot where three cultures and four official languages flavor a society in which 23% of the population is non-Swiss.
Indeed, the word is out. Increasingly, Chinese investors and companies seeking to expand globally are flocking to Switzerland. According to Stocker, “More and more people – including a growing number of Chinese citizens – explore the charming region. Since 2010, the number of overnight stays of Chinese tourists in Zurich has almost doubled (+97%).”
This trend will likely accelerate. GZA’s appeal to Chinese investors is further strengthened by its liberal legal system, business-friendly tax laws — tax rates for HQs and trade companies (5-10%), taxes for ordinary individuals (12-24%)— and an abundance of talent in the form of qualified workers blessed with progressive labor standards (ranked fourth globally in terms of flexibility by the IMD World Competitiveness Yearbook 2013).
All of these factors have amounted to Switzerland’s brilliant recipe for success, fostering a business environment that is uniquely open to the world.
“The secret of success is simple,” Stocker says. “Marrying first class, world renowned academic institutions with strategic investors, management friendly regulatory agencies, and leading IP protection strategies results in unbeatable market advantage which allows companies to be one-step ahead of the competition.”
As if all of this is not enough to entice would-be investors from China to consider a move to Switzerland, the pot was sweetened further in July 2013 with the signing of a free trade agreement (FTA) between Switzerland and China. Significantly, the FTA was Beijing’s first such agreement inked with a nation in continental Europe. The potential benefits of this agreement are huge.
“The trade agreement with China opens up numerous opportunities for Switzerland, from which the Greater Zurich Area stands to draw substantial benefits,” Sutter says. He speaks from a wealth of experience on the ground in China, where his own network of acquaintances has unanimously praised the development.
On his frequent trips to China, he says that he mingles with local managers, entrepreneurs and “people whom I know from the time I spent living in Beijing…During recent meetings with Chinese managers, the conversation often turned to the free trade agreement between Switzerland and China, which earned much recognition. ‘Switzerland has negotiated a really good agreement’, is the general consensus.”
In a nutshell, the FTA aims to break down barriers to the smooth flow of goods and services between China and Switzerland, while bolstering legal security for intellectual property. The FTA will eliminate tariffs fully or in part for most bilateral trade either immediately or over a period of time, depending on the good or service. Deepening cooperation further, the FTA is coupled with the recently signed Agreement on Labour and Employment, which is meant to ensure that labour standards will not be compromised in a bid for profit nor disregarded for the purpose of protectionism.
These agreements amount to stronger economic ties across the board for China and Switzerland. With China now the world’s second largest economy, as well as a key trading partner for Switzerland, this is a monumental step forward. China buys more industrial products from Switzerland than any Asian country and third worldwide, following the EU and US. In 2013 alone, Switzerland sent 4.1% of all its exported goods (valued at CHF 8.7 billion) to China, and imported CHF 11.4 billion worth of goods (6.1% of all imports) from China.
Swiss goods regularly going to China include machines and instruments, watches, chemicals and pharmaceuticals; while goods such as machinery, textiles and clothing, watch making and chemical products flow heavily from China to Switzerland. A large number of Swiss service providers operate in China and vice versa.
“Today, China is by far the most important trading partner for Switzerland in Asia while Switzerland is China’s seventh largest trade partner and the sixth largest source of foreign investment in Europe,” Stocker says.
Aside from the obvious benefits of granting two-way access to the Chinese and Swiss markets, Sutters notes that “China's eyes are not so much set on Switzerland as a sales region, but on the European market with a GDP in excess of USD 17 trillion. Thanks to the bilateral agreement, Switzerland's firm base within Europe provides China with the ideal bridgehead to more than 30 countries.”
While recent attention to the FTA creates the impression that business collaboration between China and Switzerland is a recent development, the two nations in fact have been engaged in commerce for centuries.
“The excellent business relationship between China and Switzerland goes back to the mid-17th century and recently developed at a rapid pace,” Stocker says. “Switzerland was one of the first countries to enter into commercial agreements with the People’s Republic of China.”
A good deal of relationship building in the past laid the foundation for the buzz being felt today. “The Canton of Zurich, the center of the Greater Zurich Area, has maintained for years a close friendship with China,” Stocker continues.“In recent years, Zurich established partnerships and engaged cooperation in numerous aspects with the provinces of Chongqing and Guangdong. The cooperation agreements include the strengthening of economic and scientific relations.”
Ren Bangying, Managing Partner, FinkRen GmBh, Switzerland, says: “More than 20 years ago, Swiss companies started to invest in China...Most of these endeavors have proven to be successful, for both the Swiss companies and their Chinese business partners.”
Specifically, the GZA is home to a number of industry clusters, from clean and sustainable technologies to high-tech, IT, life sciences and the mechanical, electrical and metalworking industry (MEM). It is, of course, also a hub for industries classically associated with Switzerland such as pharmaceuticals, luxury goods, banking and finance. And yes, chocolate and watches.
There is one important matter to note about industry in the nation. The Swiss are humble, according to R. James Breiding who was speaking in an interview with KPMG for its publication Clarity on Investment in Switzerland. This accounts for why much of the country’s strength is hidden from plain sight. Less advertised than its signature items like chocolates and watches are a large number of successful B2B companies (ABB, Holcim, Schindler) and companies selling goods and services attached to other bigger brand names, such as fragrances or flavors, Breiding explains.
All told, whether B2B or in the spotlight, some 1,000 multinationals are operating in Switzerland today and account for 10% of the nation’s GDP. Some of the heavy hitters with HQs in the alpine state include Tetra Pak, Philip Morris, Dow Chemical and Google (whose staffs are called “Zooglers” in GZA, which they rate as the most desirable place to work among the company’s many global hubs). Swiss multinationals make up for another 25% of national GDP and include giants such as Nestle and Novartis.
With such a broad scope, it is no surprise that a number of Chinese firms have eagerly set up shop in the region. Stocker lists Trina Solar, Jinko Solar, Yingli, Fosun and Huawei among the Chinese firms that have chosen the GZA for their European base. From setting up HQs to seeking out local partners and pursuing growth through mergers and acquisitions, the paths to Europe via Switzerland are many.
“Initially, we considered Luxembourg, the Netherlands and Ireland,” Xu says. “But finally we decided to choose Switzerland, due to its high level of human safety, the efficiency of its government and its worldwide reputation. So far I am quite happy with our stay in Switzerland, and the company has even had a big breakthrough with Volkswagen in Germany.”
For Chinese companies that have not yet made the leap to GZA but would like to, the main question is: Where do we begin? Swiss legal experts agree on one thing: Chinese investors or firms interested in establishing a base in the region must do their homework and be prepared. Chinese companies face a unique set of challenges when setting up business in Europe due to their relative lack of experience.
From understanding taxes to deciding what legal form to register a company under, a healthy dose of preparation is the most important factor for determining whether an investment in Europe succeeds, according to Ren. “A clear strategy is needed before making any investment in Europe.”The details of running a European company – a very different matter from running one in China – is another obstacle that must be faced, Ren adds.
While such logistical concerns can be addressed with the help of on-the-ground experts and a bit of classroom time, there is deeper layer of preparation that is equally important, yet more subtle. Ren explains that the difference between Chinese companies that take off versus those that crash and burn in Europe often comes down to one thing: soft skills.
Xu of Crown Metals echoes this sentiment. “Working in the GZA is so smooth, and does not pose anything big enough to call it a challenge,” Xu says. “The people in Switzerland are warm and friendly. My family and I are really enjoying life here. Especially in Zurich and the Zug area, where there is a huge community of expats… But language is always a barrier for me. I would suggest for investors interested in moving to Switzerland to study up on European cultures before they decide to move.”
While a cultural gap undeniably exists, China and Switzerland share more in common than one may suspect, at least in one key area, itself a core soft skill that makes life and business tick in both cultures: the power of social networks.
“Compared with competitors like Ireland, the UK and the US, Switzerland has one additional advantage,” Sutter says. “When trading with China, a lot of importance is attributed to guānxì, the network of personal connections. During the time I spent in China, I discovered that in this respect we Swiss are not too different from the Chinese. We too foster personal relationships and seek to engage in dealings with one another that are based on respect.”