Switzerland has historically been a very attractive location for multinational companies—Swiss multinationals as well as multinationals from abroad. Twenty years ago, Switzerland was the top choice for half of multinational companies that chose Europe for their headquarters location; since then, however, the country has lost—and continues to lose—ground to other locations in Europe and abroad. At the same time, Swiss multinationals have carved out selected activities and relocated them outside Switzerland. Now, Switzerland is facing major decisions such as its bilateral agreements with the European Union, proposed Swiss tax reform, transatlantic free-trade agreements (US–EU and US–CH), the reform of the Swiss Code of Obligations, and the Corporate Responsibility Initiative. These decisions will shape the country’s attractiveness for multinationals.
To build a stronger fact base on Switzerland’s attractiveness for multinationals, McKinsey and the Swiss-American Chamber of Commerce conducted extensive research, mapped actual movements of multinationals’ headquarters over time, and quantified the economic impact of multinationals. A new report, Switzerland, wake up: Defending attractiveness to multinational companies, summarizes the perspective of more than 100 CEOs and executives from multinationals, including the majority of Swiss Market Index companies.
This study includes global headquarters, regional headquarters (for Europe, the Middle East, and Africa), R&D centers, operational centers (manufacturing/supply-chain operations), and financial holdings. Under consideration are companies with more than CHF 1 billion in total revenues. In addition, we focus on the most prominent headquarters hubs in Europe, namely Ireland, Luxembourg, the Netherlands, Switzerland, and the United Kingdom (Exhibit 1).
Multinationals vital for Switzerland
Swiss and foreign multinationals contributed 36 percent of the Swiss GDP of CHF 669 billion in 2017 (22 percent Swiss, 14 percent foreign), created more than 1.3 million jobs (26 percent of all jobs in Switzerland), and generated nearly 50 percent of Switzerland’s federal corporate tax revenues, while making up just 4 percent of all companies in Switzerland. Furthermore, multinationals tend to create high-productivity jobs, especially in the pharma/healthcare sector, thus making an essential contribution to Switzerland’s productivity.
In the past ten years, at their time of relocation, multinationals moving to Switzerland created over 17,000 jobs (affecting the economy both directly and indirectly), grew the Swiss GDP by CHF 3.5 billion per year, and provided CHF 500 million in annual tax revenue, despite accounting for less than 2 percent of annual immigration to Switzerland.
Switzerland lost attractiveness
While relocation activity into or within Europe has increased by 68 percent, from 81 (2009 to 2013) to 136 (2014 to 2018), Switzerland has lost share. Its rank in headquarters relocations dropped from one to three, while the Netherlands stepped up and Ireland maintained its high share (both rank number one with an equal number of relocations). Luxembourg also increased its share while the United Kingdom’s share soared until the Brexit decision (25 percent) and then almost halved. Of multinationals relocating from the United Kingdom post-Brexit to another European headquarters hub, none has chosen Switzerland as a new home. Moreover, on a global scale, Switzerland faces competition from other strong headquarters hubs, namely Dubai and Singapore.
Switzerland lost share in global headquarters, regional headquarters, and financial-holding companies, while gaining in R&D and operational centers. Switzerland’s share of the consumer, industrial, and financial sectors has declined, while its share of the pharmaceutical/healthcare and IT sectors increased. It has also missed opportunities arising from relocations of major multinationals in high-growth sectors.
Switzerland has been lagging behind in winning globalizing tech leaders over the past ten years, with very few exceptions. Only 5 percent of the top 250 Chinese companies chose Switzerland over other European locations for their headquarters.
In the past, multinationals in Switzerland—like multinationals in many other high-cost locations—largely relocated transactional activities in shared-services centers. However, more recently, they have been increasingly building or moving high value-adding competence centers—for digital and advanced analytics, for example—outside Switzerland.
Gaps and challenges
Executives from multiple sectors comment that Switzerland has a gap in available talent, particularly technology talent (Exhibit 2). This finding is supported by research from Eurostat showing that, compared to other European markets, the absolute number of STEM graduates (science, technology, engineering, and math) in Switzerland is comparatively low (21,400 graduates per annum). Additional shortcomings are talent mobility—specifically the relative difficulty of bringing highly qualified talent to Switzerland from outside Europe—and a perception that Switzerland has limited access to the European market in some areas.
Regulatory insecurity arising from a range of unanswered questions—such as the proposed tax reform and Switzerland’s relationship with major jurisdictions—is negatively affecting the investment environment and undermining a core strength: regulatory reliability. Furthermore, specific elements, for example, the withholding tax for US companies, are less attractive than in other locations, such as Ireland.
Other countries’ location strategies are better-resourced. Switzerland has around 50 people in charge of relocations (on a national, regional, and cantonal level), while the Netherlands has about 100 dedicated specialists, Ireland more than 300, and Singapore more than 600. These headquarters hubs promote their home countries as attractive locations and proactively approach substantially more multinationals than Switzerland does.
Switzerland could reestablish itself as the leading location for multinationals by reviving its business-friendly and pragmatic mind-set. Change starts with mind-set. Switzerland could engage in an open debate on the value of multinationals to the Swiss economy and society to create a level playing field. This would include three recommended actions.
- Reviewing the immigration regime for highly qualified, in-demand talent and expanding capacity at Swiss universities for sought-after subject matters. To ensure sufficiently available, highly skilled talent for activities that create high value (for example, for R&D centers), Switzerland could grant “automatic,” temporary work permits for non-Swiss graduates and raise capacity at its universities for top Swiss and international students in sought-after subject matters, specifically STEM. In addition, there may be opportunities to simplify work-permit procedures. For instance, the United States has streamlined processes for certain international employees and skills.
- Clarifying Switzerland’s position in the international regulatory, economic, and tax context. Switzerland’s prosperity is based on open markets and a favorable, reliable regulatory environment. To secure relationships with major jurisdictions and thus attract multinational companies, Switzerland could aim at comprehensive free-trade arrangements with major economic blocs; a competitive, internationally recognized tax regime; and long-term regulatory reliability and predictability.
- Stepping up “location marketing” to win future relocations. To compete with better-resourced agencies from Ireland, the Netherlands, or Singapore—which have several hundred resources in investment-promotion functions—Switzerland could expand its number of promotion resources; coordinate and promote “Switzerland, Inc.,” specifically targeting high-potential, value-creating sectors, such as biotech, artificial intelligence, or robotics.
By pursuing the three priorities outlined, Switzerland could become the number one location of choice for the second wave of globalizing technology and Chinese companies, retain the presence of global businesses and their activities, and expand its share of innovative, high-value sectors and companies.
Download the full report, Switzerland, wake up: Reinforcing Switzerland’s attractiveness to multinationals, on which this article is based (PDF–3.9MB).
The report summary is also available in French, German, and Italian (PDF–3.8MB).