I. COMMERCIAL OVERVIEW (Executive Summary) - Overview of Import Market Switzerland is a small, highly developed, multilingual market situated at the crossroads of Europe. Its population of approximately 7 million people is diversified, well-educated and affluent. Located in the heart of Europe, Switzerland serves as an excellent test market for businesses hoping to introduce new products into the dynamic European marketplace. Experiences gathered in Switzerland can be translated into successes in Germany, France, Italy, Austria and elsewhere in Europe. Economy: Switzerland has a strong and stable economy, a relatively low inflation rate (3.3%), a relatively low unemployment rate (4.5%), and a highly qualified workforce -- factors which contribute to making the Swiss Confederation a desirable market environment. Per capita income is the highest in Europe. Spending power for foreign goods and services is thus extremely high. Trade: Trade is an essential feature of the Swiss economy, and exports have been the strength that has kept the economy buoyant even in times of recession. Imports have declined in the 90's, reflecting the recent recession, but are expected to recover in 1994. Finance: Switzerland is well know for its liberal trade and investment policies. Fiscal policy is moderate and cautious. The Swiss franc is a stable currency. The country is famous for its high standard of banking which ensures rapid and reliable processing of all business transactions. Credit is available at low interest rates. Politics: Switzerland is neutral and maintains relations with almost every nation of the world. Its political structure, headed by a seven-person Federal Council with rotating presidency, is stable. Labor: A motivated workforce and agreements between trade unions and employers' associations combine to practically rule out general strikes or labor unrest. Infrastructure: The country offers first-rate telecommunications and transportation networks. Connections between any points in the country are generally rapid and convenient. Traders are well served by customs bonded warehouses in and around all major cities. Legal: Switzerland's legal system is highly developed, and commercial law is well defined. Investments are protected by sound policies. Resources: With limited natural resources, Switzerland is known for its engineering skills and business expertise. Switzerland's industries are famous for their quality and precision, and consumers demand the same. The Swiss are export-oriented and their engineering and marketing skills can benefit U.S. exporters who want to use their services to explore third-country markets. Services: The service sector is extremely well developed. Tourism, banking, engineering and insurance are significant sectors of Switzerland's economy and play a major role in its international relations. Swiss trading companies have unique marketing expertise in many parts of the world, including Eastern Europe, the Far East, Africa and the Middle East. International: Switzerland is the seat of several international, inter- governmental or private organizations ranging from the United Nations and associated organizations to CERN, the European Laboratory for Particle Physics, to the International Red Cross. Switzerland is also a base for many multinational corporations, from which they manage their operations in Europe, Africa and the Near East. Education: Switzerland offers a wide range of educational possibilities. It maintains eight universities, as well as a number of other institutions of higher learning and technical schools. Many organizations engage in research and development. The Swiss Federal Institutes of Technology in Lausanne and Zurich are world renowned. Language: Switzerland is one of the most multilingual countries in Europe. Many Swiss, particularly those in the service sectors, speak several languages. The four nationally-recognized languages are German (used by 65% of the population; concentrated in central and eastern Switzerland), French (18%; western Switzerland), Italian (12%; southern Switzerland), and Rhaeto-Romanic (1%; south-eastern Switzerland). English is commonly understood in the business environment. Tourism: Not only does Switzerland have its own highly-developed tourism infrastructure (making it a good market for tourism-related equipment and services), but the Swiss are also intrepid travelers. Per capita, more Swiss visit the United States than any other nationality, providing a significant source of revenue for the U.S. tourism sector. - Brief Synopsis of Commercial Environment Switzerland's economic stability, open trading environment, strong currency and affluent population make it an attractive market for U.S. business. The country has not remained insulated from the effects of the global recession of the nineties, but there are indications that the recession in Switzerland has bottomed out, and the economy should begin to expand over the next year. Already consumer confidence is on the upswing, and export orders are increasing. Only the federal budget deficit (at a post-war high) and unemployment rates (low by world standards, but high for Switzerland) continue to be cause for economic concern. Trade and prosperity are synonymous in Switzerland. The country is dependent upon export markets to absorb its production and sustain its wealth, but is equally dependent upon imports, both as a source for raw materials and to expand the range of goods and services available in- country. Switzerland is an important destination for U.S. exports. In 1993, the United States continued to occupy fourth place among foreign suppliers to Switzerland (following Germany, France and Italy), but accounted for 6.2 percent of Swiss imports as opposed to 6.4 percent in 1992. Conversely, Switzerland ranks as the fifteenth largest importing country for the United States. The Swiss franc is one of the world's soundest and most stable currencies. The average rate for 1992 was SF 1.40 to the dollar, falling to an average of SF 1.48 for 1993. While the dollar-franc exchange rate has been running at an average of 1.43 for the first six months of 1994, many financial experts believe the dollar is undervalued vis-a-vis the franc, so that the 1994 average rate is projected to return to 1.48, and is expected to drop to 1.55 for 1995. While U.S. exporters may regret the development, the marketing appeal of U.S. goods should not be greatly disadvantaged. (Moreover, the Swiss generally focus more on quality than price in making their purchasing decisions, so the right product offerings can compensate for exchange rate shifts.) Switzerland voted in December 1992 against membership in the European Economic Area (EEA). The full impact of this decision is still not clear. On the one hand, U.S. companies and multinationals already based in Switzerland believe there will be little or no impact on their business. On the other, Swiss trading relations with its European Union neighbors have come under scrutiny, and investors may shy away from Switzerland as long as it is outside the large EEA market. The Swiss government has expressed its intention to try to bring Swiss laws and regulations into line with those of the EU, so as not to impact adversely on the country's business; but the "outsider" image could still have long-run disadvantages in the competition for new investments. On the positive side, U.S./Swiss trade relations are largely free of the conflicts that often characterize U.S./EU trade relations, making Switzerland a potentially more receptive trading and investment partner than member countries of the EU. In November 1993, the Swiss electorate voted for a change in the tax system. Starting January 1, 1995, a value-added tax (VAT) of 6.5 percent is scheduled to replace the existing turnover tax of 6.2 percent. Through the taxation of services, which were not covered by the old turnover tax, and through the higher tax rate, government revenues are expected to increase by approximately SF 1 billion a year--contributing partially to a reduction in the budget gap. In addition, the new system improves the competitiveness of the Swiss economy by eliminating the so-called "hidden tax" on investment which has penalized Swiss exports. The new tax will also gradually bring the Swiss system into line with the EU. U.S. firms that have positioned themselves to compete in the EU should find themselves competitive in Switzerland. In fact, many U.S. companies could use Switzerland as a European "test market," due to its central location, excellent transportation and communication infrastructure, multilingual diversity, and wealthy population. - Host Country Business Attitude Toward the U.S. The Swiss feel comfortable doing business with Americans, and there is an affinity for all things American. American promotional themes are popular at stores, shopping centers and restaurants, and there are many social groups that feature American activities. Many Swiss have either studied in the United States or have spent extensive time travelling there. English language usage in business discussions is common. American products are in general viewed favorably, particularly high technology and labor-saving capital goods and consumer products. The most essential ingredients for any U.S. firm seeking a successful entry into the Swiss market are twofold: a demonstrated commitment to the market, and a proven reputation for reliability and high quality products and services. - Major Business Opportunities - Sectors A raw value ranking of leading U.S. exports to Switzerland in 1993 would show gold, works of art, computers, pearls and stones, nonelectric engines and motors, and measuring and testing equipment as the top items. This, however, does not indicate the potential of the Swiss market, which is attracted to a broad range of U.S. products. Switzerland offers a receptive market for products that apply state-of- the-art technology, especially where it provides labor-saving solutions. This is a high-cost country where, despite an unemployment problem, the skilled labor supply remains fairly tight. Manufacturers and managers are constantly seeking alternatives to scarce and expensive highly-skilled labor. Thus, technologies involving computers, computer software, robotics, CAD/CAM/CIM, telecommunications and other labor- saving industry sectors find important marketing opportunities. Additionally, Switzerland has one of the world's highest levels of R&D in proportion to its GDP. It is very industry oriented, and aims at improving the competitiveness and efficiency of its export-oriented manufacturers. The market for scientific and laboratory instruments, for example, is most attractive for this reason. Other areas of promise include environmentally-related products applied to sectors which must comply with ever-growing and ever-stricter, not to mention expensive, pollution standards. Packaging equipment, as well as measuring and testing equipment, are included in this category. Moreover, as the Swiss consumer is among the wealthiest in the world, U.S. consumer goods are popular. Swiss retailers are constantly seeking new "niche" products to spur consumer interest, ranging from health and beauty aids to sporting and leisure time equipment. Switzerland's highly developed tourism infrastructure and the Swiss interest in a variety of sports also create a strong market for related equipment. In the services sector, Swiss tourism makes a major contribution to U.S. earnings. A record 344,000 Swiss visited the United States in 1993 -- the highest number of foreign visitors in relation to the size of the country worldwide. Still more Swiss are expected to visit the U.S. in 1994, spurred by the World Cup soccer games, in which Switzerland is participating. American vacations are perceived as a "good value" and "trendy" in the local market, meaning that the U.S. as a travel destination has not been as affected by the recession as other countries. Several U.S. carriers opened new direct flights between Switzerland and U.S. gateway destinations in 1993. As many Swiss are now "repeaters" in their travel to the United States, they are on the look-out for new and different locations and activities, making them a promising market for smaller, exclusive and less-traveled sites and opportunities. In agriculture, Switzerland is only 65 percent self-sufficient, and imports over $6 billion of agricultural products annually, of which almost 80 percent are high value products. Swiss farmers are one of the most highly protected and subsidized groups of producers in the world. Agricultural producer prices are fixed by the government for most domestically produced goods, particularly dairy and grain. Imports are blocked by a variety of complex import prohibitions. The U.S. share of the Swiss agricultural import market is currently quite small. However, pressure from consumers and trading partners in the General Agreement on Tariffs and Trade (GATT) Uruguay Round negotiations will result in new market access opportunities for exporters beginning in 1995, when the Uruguay Round reforms will begin to be implemented. - Major Projects As Switzerland is already a highly developed country, its attention is focused more on improvements to its existing infrastructure rather than on new infrastructure development. Upgrades in the transportation sector, i.e. rail and air traffic control, have the most attention at present. Four major projects (NEAT, Swissmetro, Rail 2000, FLORAKO) are described in section III below. - Market Openings The Swiss market is in general very open to trade, and there are no specific market openings, or lack thereof, that bear special mention. Swiss acceptance of the GATT Uruguay Round will open the market for more trade in agricultural products, while Swiss efforts to make their business-related laws and regulations more compatible with those of the EU may facilitate cross-border trade, particularly for those U.S. companies already established in Switzerland or in other EU countries. - Major Roadblocks to Doing Business There are, with the exception of the agricultural sector, no major roadblocks facing U.S. companies contemplating exporting to, or investing in, Switzerland. Agricultural concerns, as well as a handful of other issues that may prove problematic or annoying for foreign exporters and investors are detailed in Section III below. - Nature of Local and Third Country Competition Local Competition: The Swiss are highly competent manufacturers and producers in their own right of a wide variety of goods, ranging from chemicals and pharmaceuticals to high-tech precision instruments and large machinery. An equally wide variety of services -- banking, insurance, advertising, consulting, tourism -- are also offered by local sources. Thus, competition from local companies can be fierce in some sectors. On the other hand, Swiss-made goods tend to be priced at the high end of the scale, not only to compensate for the high cost of living, but also because quality standards are so emphasized (some contend the emphasis is exaggerated to the extreme). U.S. products are particularly competitive when they can be offered at lower prices than the Swiss- made equivalent, so long as quality standards meet acceptable levels. In many cases, however, and particularly with high-tech products, price is not as important as quality for a Swiss buyer. Third Country Competition: Switzerland's proximity to the European Union countries make them a strong competitor for many goods and services. Besides the obvious transportation cost advantages enjoyed by European countries, there are also numerous preference agreements in force between Switzerland and EU and EFTA countries, which allow manufactured products to enter Switzerland duty-free or with relatively lower tariffs. Generally, the duties paid by the U.S. and other countries without preference agreements are 0.1 to 0.6 Swiss francs per kilogram higher. The Swiss also have long-standing ties to many European companies that are difficult for newer and more geographically distant U.S. companies to overcome. Competition from Eastern European and Asian markets, particularly for lower technology items, is also growing. Just as lower-priced U.S. goods can compete favorably on the Swiss market, so can those from these third country markets. Once again, however, quality is often a more important determining factor than price.