The free trade agreement (FTA) set in motion on 1 July 2014 between China and Switzerland has been unequivocally recognized as confirmation of China’s importance on the global economic stage. There are several aspects of the bilateral agreement that mark it as momentous, not least of which is the fact that Switzerland is the very first country within continental Europe to enter into such an arrangement with the People’s Republic. Switzerland is the second European state to sign an FTA with China, after Iceland in 2013, and the third member of the Organization of Economic Cooperation and Development, after New Zealand’s 2007 commitment.
A closer look at the Chinese industry players that have already begun to benefit from the relationship – and Switzerland’s progressive attitude to business – highlights the fact that companies within certain sectors are consistently drawn to the European hub. Among those sectors that stand out are the life sciences industry, the medical technology industry, the high end manufacturing and machinery industry, and the clean tech industry. Switzerland has clearly been proactive in attracting Chinese investment and bricks and mortar businesses within these particular sectors to the country. But the factors that succeed in favorably influencing foreign companies’ decisions about where to set up their European headquarters reveal plenty about the nation’s appeal – not just in economic terms, but also where aspects like quality of life, location and education are concerned.
The FTA was signed on 6 July 2013 by the Chinese Minister of Commerce, Gao Hucheng, and the Swiss Federal Councilor, Johann Schneider-Ammann. China's ambassador to the World Trade Organization Yu Jianhua pointed out that the agreement has great significance because it shows commitment and confidence from both governments in deepening the level of cooperation between the two countries. But, even before the official formalities had been completed, plenty of signs of deepened cooperation could already be seen on the ground in both Switzerland and China. According to China's ambassador to Switzerland, Xu Jinghu, the FTA’s impact on bilateral trade was evident relatively early on, in the form of a stream of businesses that started reworking their strategies ahead of time, in order to comply with some of the future regulations. Between 2012 and 2013, a hefty increase in bilateral trade of more than 100 percent – from $26.3 billion to $59.5 billion – is partly illustrative of this.
The FTA, however, is not limited to bilateral trade. It includes agreements in such areas as labor and employment, cooperation in tackling environmental issues, and intellectual property protection. The latter has been – and will continue to be – key in the allocation of Chinese investment to Switzerland’s Information and Communications Technology (ICT) sector, which is particularly concentrated in the area surrounding Zurich.
Switzerland’s ICT sector is attractive to foreign investors because of the vast pool of international talent that is housed within it, explains technology pioneer, Marc P. Bernegger, who – among other endeavors – is co-founder of the Internet company Amiando, which was awarded the title of “Global Technology Pioneer” by the World Economic Forum. “The biggest Google development office worldwide outside the US is in Zurich,” Bernegger points out.
Innovation, research, and higher education are fields in which China and Switzerland’s bilateral cooperation is continuously being strengthened. Efforts in this regard were officially cemented as early as August 2008, when Swissnex opened an office in Shanghai. Swissnex is managed by the Swiss State Secretariat for Education, Research and Innovation, in conjunction with the Federal Department of Foreign Affairs, and aims to connect Switzerland with the world's innovation hubs via a network of science and technology outposts. So far, Shanghai is one of six select Swissnex locations, along with Boston, San Francisco, Singapore, Bangalore and Rio de Janeiro. According to a June 2014 report produced by the Swiss Embassy in Beijing, “Swissnex China’s mission is to create and promote awareness of Swiss excellence in science, technology, innovation and culture, to connect academia and business and to facilitate cooperation between the two countries.”
Acquiring technology is one of the top goals of savvy Chinese who are investing in Switzerland, which goes a long way to explain why companies from the People’s Republic within industries such as ICT are increasingly voting with their feet. The ICT sector, by its nature, depends on cutting edge technology and innovation and, according to a Swiss Embassy report from Beijing, “the high education level and the central location seems to be of striking importance when choosing to set up a R&D center or a European HQ in Switzerland.” Most often, these are based within the country’s larger economic centers, such as the Greater Zurich Area.
According to R. James Breiding, the author of Swiss Made – The Untold Story behind Switzerland’s Success, “Innovation is a common theme underpinning Swiss corporate successes.” Statistics from the IMD World Competitiveness Report show that Switzerland has the highest number of patents per capita, and has won more Nobel Prizes per capita than any other country. The percentage of corporate revenues spent on research and development is higher than in most competitor economies, and Switzerland is the sixth-biggest spender on R&D as a percentage of GDP. “This pro-innovation bias helps in the face of low-cost rivals,” says Breiding, “driving concentration on high value added products where labor costs are less key.”
The technology pioneer Bernegger, who is based within the Greater Zurich Area himself, also attributes the region’s advantageous business environment to its “highly qualified workforce, liberal laws, and reliable infrastructure.” Naturally, Switzerland’s highly qualified workforce is a major asset for Chinese companies – especially those in ever-advancing sectors such as ICT – and, in turn, investment from China is a welcome contribution to the economy. As Beijing’s Swiss Embassy points out, “These investments generate employment, as around 90 percent of the staff is locally hired. Investments in the ICT and solar industries are to be mentioned in particular.”
Switzerland’s clean tech industrycertainly stands out for its success in attracting Chinese companies to Swiss soil. Some of the very first Chinese companies to set up branches and European headquarters in Switzerland were, in fact, solar companies. JinkoSolar was among the pioneers.
JinkoSolar is a global leader in the solar photovoltaic (PV) industry. It started out as a supplier of silicon wafers in June 2006, and today has production operations in both Jiangxi and Zhejiang Provinces in China, and sales and marketing offices around the world. JinkoSolar’s move into Switzerland was announced in August 2011, when it set up a new branch in Zug. The establishment of JinkoSolar (Switzerland) AG signified the company’s desire to reinforce its global presence, while increasing operational capabilities within Europe as a whole, in order to providea better level of service to its growing clientele. Shortly after the company’s establishment of a Swiss base, Chairman of JinkoSolar Mr. Xiande Li said that the company’s success could be attributed to its commitment to ensuring that customers were provided with a reliable, local support team. “To this end, we are pleased to announce the opening of our new branch in Switzerland. The Zug region has a stellar reputation due to its favorable business climate, and we are looking forward to establishing operations in this region to enhance our customers’ experiences in the European market,” said Mr. Li.
Today, Jinko Solar (Switzerland) AG is an international company which mainly sells solar products out of the Greater Zurich Area to customers based in EU countries. It considers Switzerland’s economic center to be an excellent location for doing business in Europe. It also counts “excellent infrastructure and worldwide accessibility” and “generous tax benefits for global companies” among the benefits of operating from this Swiss business hub.
Only slightly later to the party was Yingli Green Energy International AG, whose European headquarters have been located in Zurich since the end of 2012. Yingli Green Energy International AG – which markets its products under the name “Yingli Solar” – is the largest manufacturer of photovoltaic modules in the world. With over 18,000 employees, it is also the largest Chinese manufacturer of solar modules globally. The company has first-hand experience of doing business from branches in over 20 countries on five continents, and is considered the market leader in the renewable energy sector. According to Bert van Kampen, financial director of Yingli Green Energy International AG, “Zurich is a business and financial hub located at the heart of Europe and thus presented itself as an ideal location for the company.”
Yingli first began to consider Switzerland as a strategic base from which to manage its operations and financial transactions in Europe when a group of representatives from the Greater Zurich Area approached the company’s decision makers in its northern China-based head office in Baoding. In many ways, the Greater Zurich Area was a natural choice for Yingli who had, at that point, already been the official main sponsor for the FIFA World Cup 2010, which has its headquarters in Zurich. The fact that Yingli was also set to be the official main sponsor for the FIFA World Cup 2014 only reaffirmed the company’s sense that the Swiss metropolis was the ideal spot for its hub within Europe. Before committing to anything, the clean tech company thoroughly analyzed Zurich as a business location, and consequently opened its European headquarters in September 2012.
Yingli Finance Director Bert van Kampen told a Greater Zurich Area AG press conference in mid-April 2014 that one of the decisive factors in choosing Zurich as a location is how easy it is to attract global talent. The appeal of relocating to Zurich – with its excellent quality of life, world class infrastructure and central European location –is obvious to highly educated professionals and specialists. The quality and diversity that this lends to the workforce within the Greater Zurich Area is one of the secrets of successful international companies the world over.
Apart from managing operations and financial transactions in Europe, the function of Yingli’s Swiss base also includes dealing with public and legal matters, and carrying out international business development. There are tentative plans to gradually expand the Swiss site in the future, "but this is dependent on political and economic developments”, says van Kampen.
As a matter of fact, stable political conditions are one of the region’s major draw cards for Chinese firms. According to a study published in the Central European Business Review Research Papers in September 2014, 35 percent of the Chinese companies surveyed said political stability was an important factor in deciding to locate their businesses in Switzerland.
Another predominant factor – reported by 40 percent of companies – was the “Switzerland brand factor”. Qin Lan, delegate for China affairs in the promotional agency for the Greater Zurich Area, said that – because of the customs benefits of China and Switzerland’s FTA – many of the Chinese companies that have set up operations in Switzerland are planning to make their products in the country, before selling them back to China. Not only will these exports benefit from the FTA, but they will also have the prestige of being a Swiss-made product.
According to a 2013 study conducted by the National Brands Index, the Chinese rank Switzerland as fifth in the world in terms of national image, behind Germany, the US, France and the UK. Some of Switzerland’s features are, in fact, perceived more favorably by the Chinese than many other groups, such as the alpine country’s appeal as a tourist destination. When it comes to the “Made in Switzerland” label, however, its value is recognized and highly regarded on a global scale.
In fact, the “Made in Switzerland” label –which can also be thought of as the country’s “brand” –is invaluable,regardless of the type of product being exported. But, without doubt, certain product manufacturing industries have attracted more Chinese foreign direct investment than others.The Swiss stamp of excellence has proved priceless for products where special emphasis is placed on quality and trust, which goes some way to explaining why Switzerland’s life sciences – and, in particular, medical technology and medical devices industry –is attracting its fair share of Chinese investment. Setting up offices in Switzerland – or investing in the industry in other ways – not only allows Chinese companies to affirm their products’ quality, it also gives them access to one of the largest medical device markets in the world.
Switzerland has one of the highest healthcare expenditures per capita worldwide, making it an extremely attractive market for medical devices, currently valued at US$3.2 billion, making it the sixth-largest market in Western Europe. The wealthy region is receptive to new technology and, along with government-backed technology development programs, favorable tax rates, high quality staff and innovative research, the Swiss medical technology sector has grown faster than almost any other sector in the country over the last 15 years. It is little wonder that global firms within this sector are looking to Switzerland.A recently published report by KPMG’s Global Location & Expansion Services Practice laid out some of the key considerations for life sciences firms –biotechnology companies, pharmaceutical companies and medical devices companies – looking for a European location for their operations.
Among its other findings, the report highlighted the fact that Europe is especially interesting for life sciences companies from emerging economies – as well as from the US –which are seeking to leverage advantages such as access to new technologies, products, talent and markets.“With its technological leadership and manufacturing know-how, Europe offers interesting opportunities for the acquisition or development of intellectual property (IP) as well as the production of sophisticated products,” KPMG confirmed.
The fact that most European countries have mandatory health insurance systems – along with ageing populations – ensures a steady demand. “Furthermore, products accepted by European consumers, or even those manufactured in Europe, can benefit from a ‘Europe bonus’ in emerging markets in terms of credibility and desirability,” the report continues.
And Switzerland is not just any European country. In comparing the six leading nations where companies in the life sciences industry are clustered – France, Germany, Ireland, the Netherlands, Switzerland and the UK – KPMG reported that Switzerland had “strong life science company clusters with large number of global headquarters of domestic companies”, and the “largest number of regional headquarters of non-domestic life science companies within the six countries covered.” The majority of these companies are based in the Greater Zurich Area.
Once again, the draw of Switzerland as an innovation hub is clear: “Approximately 40 percent of life science companies based in Switzerland perform research and development in the country,” according to the report, and almost half have their manufacturing based in Switzerland. Perhaps it should be seen as a happy coincidence that between 2008 and 2012, the Compound Annual Growth Rate (CAGR) of China’s healthcare market was the highest among emerging economies, with an increase of a little over 14 percent.
A culture of innovation and technological advancement, stable political and economic conditions, the availability of specialist labor, andfirst-rate infrastructure: international investors from all over the world seem to be able to agree on the factors that make Switzerland – and particularly alluring European business hubs such as the Greater Zurich Area – an obvious choice for their investments. With Chinese foreign direct investment growing at leaps and bounds, these factors – together with the proverbial green light given by the new FTA – ensure the beginning of a prosperous chapter of cooperation and growth between Switzerland and the world’s largest economy of the future.
Break-out boxes & data
If I had to choose one word that summed up the nature of free market capitalism, its DNA, it would be‘innovation’.
- James Breiding, author of Swiss Made– The Untold Story behind Switzerland’s
Switzerland: Quick Facts
Facts and Figures
Source: KPMG’s European Life Sciences Cluster 2013 Report
From an extraordinary innovative capacity,a modern infrastructure anda high quality of livingto an excellent education system,a liberal labor market and diverse culture, Switzerland is an extremely attractive place to be – not only to do business,but also to live with a family. ---Daniel Küng, CEO Switzerland Global Enterprise
By Claire van den Heever