The Switzerland Puzzle

In late March I spent several days over in Zurich leading a program for a global pharmaceutical company. I found Switzerland to be a surprising place.

The first surprise was that the prices are remarkably high in Switzerland. I had perhaps the most expensive cup of coffee of my life at Starbucks across from the central train station in Zurich; my small regular coffee was over $6. My hotel room was about $300 per night. I spent over $40 on a simple dinner with no salad or dessert. Real estate is expensive, too.

To compensate, salaries are high; according to the executives I met with people get paid much more in Switzerland than in Germany or the UK. Apparently the best approach is to work in Switzerland, live in France and shop in Germany.

The prices are not high simply due to exchange rates; the Swiss National Bank is working very hard to prevent the Swiss franc from soaring in value versus the Euro and other currencies.

The second surprise was that the economy seems to be booming. Restaurants and shops are full and there are construction cranes everywhere you look. Building projects are in full gear.

This is a bit of a puzzle. High prices usually lead to lower demand. But companies are investing heavily in Switzerland despite the cost. With Germany, France, Italy and other countries so close, why is pricey Switzerland booming?

The answer seems to be simple. People are nervous and Switzerland is safe.

I had an interesting conversation in London with a former Goldman Sachs banker. He is deeply concerned about what is happening in Europe; the economy is lurching from one crisis to the next but the core issues remain and just grow bigger and become more complicated. It is a bit like a pressure cooker with no release valve. The recent Cyprus deal is a new and unfortunate milestone. He doesn’t know when things will fall apart but he is quite convinced they will. I heard the same view from several other executives; people are generally concerned.

If you are nervous about the global economic situation there aren’t many great investment options. Where do you put your money?

One answer is pretty easy: Switzerland. The country is safe, orderly and secure. Assets in Switzerland are solid. Whatever happens in the Europe, Switzerland should be ok.

So investors and companies move funds to Zurich and Geneva and the result is that these cities boom even as prices soar. It is all impressive to watch. It is also a bit concerning.

*  *  *

Last week Expert Marketer Magazine named my book Defending Your Brand: How Smart Companies Use Defensive Strategy to Deal with Competitive Attacks the 2013 Marketing Book of the Year.

There is still time to sign up for the next session of the Kellogg on Branding executive education program. It runs April 28 to May 3. I’m teaching in the program along with Greg Carpenter, Alice Tybout, Julie Hennessy and many other Kellogg professors. It is a terrific opportunity to learn about building and managing strong brands. You can learn more about the program here:

http://www.kellogg.northwestern.edu/execed/Programs/BRAND.aspx

4 Responses to “The Switzerland Puzzle”

  1. Jim Kindel Says:

    The other answer is the very low corporate tax rate. Jim K.

  2. Peter K Says:

    Yes, I agree with Jim that the corporate tax rate is a big incentive – in addition to very low income tax rates, which seem to be hard to find these days in Europe (i.e. several French Execs have taken up residency there since President Hollande decided to apply a ‘super tax’ on the rich). Having lived there for more than 3 years – I also enjoyed a very high quality of life, exemplary functioning public transport, and efficient government services a huge benefit. Overall, the Swiss are masters at providing a business friendly climate with the added bonus of the best chocolates in the world…

  3. Yan Liu Says:

    I couldnt agree with you more about the points of switzerland, especially grande starbucks coffee which costs you 6 but 2.45 bucks only anywhere in US.

  4. Adrian K Says:

    2 other countries having similar approach are Ireland & Singapore. Both having varied degree of result. Further to that, Switzerland has one of the lowest income tax compared to other European nations. This means higher disposal income for that expensive cuppa grande!

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