The secrets behind Switzerland's competitiveness

Alexandre Edelmann can't help smiling when the clichés about his country are listed out. "In truth, I love them: They tell our story," said the young man. "And they're a good basis for explaining what Switzerland is really like today." The agency Edelmann heads, Presence Switzerland, is responsible for promoting the country abroad. To dispel its image as a quiet, lakeside Alpine nation, he likes to point out that, some 15 years ago, Google chose to set up its largest research and development (R&D) center outside the United States in Zurich, where the group employs almost 5,000 people.

He could also cite a series of figures illustrating Switzerland's competitiveness, far from limited to its abnormally large banking sector (which accounts for 10% of gross domestic product, GDP) or its reputation as a tax haven (the nation devotes 3.2% of its GDP to R&D every year, according to the World Bank). That is more than the European average (2.15%) and that of France (2.35%). Industry accounts for 25% of GDP, twice that of France. It is the country that files the most patents per million inhabitants, 1,031 in 2022, compared with 482 in Sweden, 161 in France and 142 in the US, according to the European Patent Office.

Finally, it has topped the World Intellectual Property Organization's Global Innovation Index for the past 12 years, and 14 of its companies – including Roche, Novartis, STMicroelectronics and Givaudan – are among the top 500 groups investing the most in research, according to the consulting firm EY. To this picture, one could add an unemployment rate of just 3.7% and a high trade surplus of 5% of GDP. "Our strong export performance is due as much to our major groups as to our web of SMEs [small and medium-sized enterprises], which are very strong in cutting-edge fields," boasted Jerry Krattiger, director of the Fribourg Development Agency. Medical technologies and the precision industry are especially notable in this regard.

How does this confederation of 8.7 million inhabitants, divided into 26 cantons, with four languages and occupied 70% by mountains, manage to achieve such success? "It's precisely because we're a small territory without raw materials that we've had to bet everything on brains," explained Sophie Cerny of Switzerland Innovation, the foundation that coordinates the country's six major innovation parks. "The entrepreneurial and pragmatic spirit is rooted in the mentality," confirmed Gilles Andrier, CEO of Givaudan, the world leader in the manufacture of flavors and fragrances. "In a country with such a narrow domestic market and high costs, the only way for companies to survive is to sell abroad and focus on quality," said Nicola Thibaudeau, head of MPS, a company specializing in high-precision ball bearings.

To achieve this, the Swiss rely heavily on education. It starts with apprenticeships, which are much more widespread and valued than in France: 70% of schoolchildren enter an apprenticeship at the age of 15, training in over 200 trades. High-level technicians emerge. "This is the case for a good proportion of my 115 employees, and it creates a very strong capacity for absorbing new technologies," said Jean-Marc Jaccottet, head of Mecaplast, a small business specializing in plastic injection, nestled near the verdant Gruyère Pays-d'Enhaut Regional Nature Park.

Numerous gateways allow young people to return to general education if they so wish, notably through the universities of applied arts and sciences. Or they can return through the Swiss Federal Institute of Technology in Zurich (EPFZ) or in Lausanne (EPFL), both of which are high in the Shanghai ranking of top universities. EPFL strives to attract the best foreign professors, offering each one a substantial research budget and salaries three times higher than at French universities. "We're the only country that pays its teachers better than its football players, with tuition costs remaining low for students," asserted Dominique Foray, an economist at EPFL.

Above all, everything is done to get innovation out of the labs. Specialized campuses and parks bring together students, researchers, start-ups and multinational companies. One example is VDL ETG, a 15,000-employee Dutch group specializing in on-demand industrial components, particularly for semiconductors. In early 2023, it set up a subsidiary in Innovaare, one of Switzerland's six innovation parks, where it is developing projects with the Paul Scherrer Institut, the leading local engineering research center. "To know which innovations will dominate the market in five to 10 years, we need to keep a foothold in the key places in the world where they are emerging, such as the American MIT, Singapore and Switzerland," explained Hans Priem, one of VDL ETG's international managers.

Start-ups also have access to these research centers, thanks to a special funding model. When a start-up identifies a laboratory that can help with a project, the Innosuisse agency, with an annual budget of 300 million Swiss francs (€310 million), provides funding for the partnership between the two. "This has given us access to expensive equipment that we would never have been able to use otherwise," said Christoph Jenny, co-founder of Planted, a start-up marketing meat made from plant proteins, which is linked to EPFZ.

Many start-ups are also born in these labs, such as Hydromea, created at EPFL, which develops underwater drones. Two of its three co-founders are German, and one went to MIT in the US. "But we chose Switzerland, even though it doesn't have an ocean, because Lausanne's robotics infrastructure is among the best in the world," explained Igor Martin, one of the founders. Carrol Plummer (from Canada) and Nigel Wallbridge (from the United Kingdom), both engineers, likewise left their countries for Switzerland to create Vivent, a start-up that figures out the electrical activity of plants. "The flexibility of regulations here appealed to us: Everything is geared toward efficiency for companies, without excessive red tape," said Plummer.

This is the other advantage that Switzerland boasts. "Here, there's no bureaucracy, no top-down industrial policy: Everything comes from the ground up – the cantons, SMEs – and everything moves very fast," said Thomas Bohn, managing director of Greater Geneva Bern Area, the development agency for western Switzerland. "Regarded with suspicion, the federal level intervenes very little, and many issues are settled by local referendums: The state is us, the Swiss, not the politicians," said Tilman Slembeck, an economist at the Zurich University of Applied Sciences. In his view, this particularity facilitates his country's culture of consensus and stability.

Added to this is a relatively low tax burden for companies, with corporate income tax ranging from 12% to 20% depending on the canton, and a rather long working week (42 hours). "These factors compensate for the relatively high value of the Swiss franc and salaries," said Nadia Gharbi, an economist at the bank Pictet in Geneva. These are on average 2.5 times higher than in the eurozone – but employers' contributions, at around 15% for a gross salary, are lower than in France (around 40%).

"Despite these strengths, Switzerland is not without its weaknesses," Thibaudeau pointed out, citing in particular continuing education, which is not as effective as the apprenticeship system. "As in many European countries, it's easy to raise money here when you create a start-up, but much less so to finance the next stages of development, unlike what we see in the US," added Abhishek Kumar. Five years ago, he founded Nanogence, a start-up developing a catalyst that reduces the carbon footprint of concrete, at EPFL. Rather than leave Europe, like a number of start-ups on the Old Continent, he has opened a subsidiary on the other side of the Atlantic, where he hopes to benefit from a subsidy from the Inflation Reduction Act, Joe Biden's plan for green industry.

But the country's greatest Achilles heel is undoubtedly its relations with the European Union (EU), of which it is not a member. When the Swiss refused to join the European Economic Area in 1992, they signed a series of sectoral agreements with Brussels – on the free movement of people, goods, recognition of standards, etc. But some of these treaties are now obsolete. The EU has therefore proposed to overhaul them all with a major framework agreement. But negotiations on this subject have been stalling for two years, not least because some Swiss politicians fear that the free movement of European workers will drive down wages.

A failure of the negotiations, although unlikely, would mean the return of customs barriers and less access to the European market. That makes Swiss companies rather nervous. "For us, the stabilization of relations with the EU is an absolute priority," stated Novartis, which employs almost 10,000 people in the country, where half of its R&D spending takes place. "Today, this is a major concern for our economic and academic attractiveness," Krattiger concluded.