II. LEADING TRADE PROSPECTS FOR U.S. BUSINESS - Best Prospect Products and Services for U.S. Exporters The following goods, services and agricultural commodities offer the best opportunities for U.S. exporters to Switzerland. Statistical and tabular information supporting the narrative on these best prospects may be found in Appendix B. Industry Computer Software: U.S. software enjoys the highest reputation and is very popular in Switzerland, especially in desktop, personal computer, portable computer, and data communication applications. Software solutions which aim at increasing productivity, automating transaction processing, and labor-saving operations are in great demand. Switzerland's mechanical engineering, chemical and instrument industries, as well as its service sectors need software solutions which will keep them productive and competitive in the international marketplace. Multitasking, groupware, multimedia, electronic mail, graphic user interface (Windows), CAD/CAM/CAL and related engineering software applications are among those packages or custom solutions which are in great demand. In mobile computing and laptop computers, PCMCIA standard software applications are preferred. Computers and Peripherals: Switzerland is one of the world's most computerized countries. Its sophisticated industries and active business and service sectors need computers to compete effectively in the international marketplace. In addition, Switzerland is host to many international organizations and regional/world headquarters of multinational corporations which need the latest computer and communications technology. Demand is strong in desktop equipment. In the last five years, the consumer and home market for personal computers has exploded. Good opportunities also exist in laptop and notebook computers. The total computer population reached the 2 million unit level in 1994, of which 1.6 million are PC's; 456,500 units were purchased last year, either as new installations or replacements (79,000 were mobile or laptop/notebook computers). Demand is strong for network systems and data communications in organizations which operate integrated information systems. Likewise, Swiss industry, engineers and architects are keen users of CAD/CAM/CIM and similar computers and workstations. The business, financial and insurance sectors also use the latest, more powerful desktop computers and workstations. Market observers believe that even though prices are likely to decrease, market size and imports from the U.S. will increase on an average of 3 to 4 percent in the next two years. Telecommunication Services: Switzerland's internationally-oriented industry, service and business sectors rely on fast, effective telecommunication services with the United States. Switzerland is host to more than 600 U.S. companies, and Swiss companies have sizeable direct investments in U.S. operations. In addition to voice, electronic mail, teleconferencing, the leased line business, data transmission, voice and image compression, frame relay, virtual private networks are targets of opportunity for U.S. operators and suppliers. A new dimension has been added by the establishment of Unisource, a Swiss PTT Telecom venture with the Swedish and Dutch telecommunication organizations. Unisource provides international business network and V-Sat services. Whereas basic (voice) services will not be deregulated before 1998, a sustained, growing demand for value added services which are subject to a competitive environment, is expected both on the part of the business sector larger accounts, and smaller users, including the mass consumer segment. Many foreign carriers and providers maintain an office in Switzerland. So does the International Telecommunication Union, which has its headquarters in Geneva. ITU is an important facilitator in world telecommunications. It organizes important conferences and the quadrennial Telecom exhibitions. This next world summit in telecommunications will take place, October 3-11, 1995 at the Palexpo Exhibition Center, Geneva. Telecommunications Equipment: Switzerland ranks high among European countries with the most per capita investment in telecommunications. In order for its sophisticated industry, business, and service sectors to operate competitively, it will continue to modernize its public networks in ISDN (integrated services, digital networks), broad band communications, and mobile systems. Voice transmission and networks are still the monopoly of the Swiss PTT Telecom. The value-added service sector (in data communications and transmission) and the interconnect and customer premise equipment market are deregulated. European moves to deregulate and privatize, and the directives of the European Union calling for opening the market for basic (voice) services and networks by 1998, are affecting Swiss policies as well, even though Switzerland is not in the EU. New legislation is being drafted to privatize the Swiss PTT Telecom sector in the years to come. At the same time, Swiss PTT Telecom has become active in the revenue-generating value-added sector, through its participation in Unisource, side by side with foreign (and U.S.) carriers and operators. The cellular telephone market has become very popular. The PTT Telecom has introduced the digital GSM system, in addition to the Nordic analog Natel C system. New paging and cordless systems are also being introduced. In 1993, overall liberalization developments have resulted in a loss of 1,500 jobs in the Swiss-based telecommunications industry. This will create new opportunities for American companies, in particular those selling equipment and services meeting European (ETSI) specifications. Opportunities are especially good for U.S. mobile communication systems, network equipment, multiplexers, codecs, modems, interfaces, fiber optic systems, teleconferencing equipment, microwave equipment and supplies. Travel and Tourism Services: The U.S. is expected to remain among the top- ranking long haul vacation destinations of Swiss travellers for the next few years. Although small in size, the Swiss market has kept growing as a result of a high percentage of repeat visitors (approximately two- thirds). 1994 is expected to be another record year, due to the World Cup soccer championships, in which Switzerland is a finalist. A certain saturation of new and repeat Swiss visitors may begin to be felt in the latter part of the decade. The promotional focus for U.S. tourism sector companies hoping to attract Swiss visitors should be on new destinations within the U.S. and new activities (outdoors, cultural events, shopping, etc.). Swiss tourists are more inclined to travel individually, as opposed to tour groups. They enjoy a high purchasing power and tend to spend more time per visit in the U.S. than many other foreign visitors. Aircraft and Parts: Statistical figures in this sector vary significantly depending upon the delivery of commercial airliners. No U.S.-made aircraft were delivered to Switzerland in 1993, whereas one or two MD- 11's will be delivered to national airline Swissair in 1994. Swiss local production is expected to drop as the manufacture of military trainers (Pilatus PC-7 and PC-9 models) will be moved to the United Kingdom for political reasons. Pilatus Aircraft will soon start production of the first series of 30 PC-XII commuter aircraft, which contain a substantial amount of U.S.-made avionics and engines. Switzerland is home to a number of major aircraft trading companies. They import and resell worldwide, and provide maintenance, pilot training and financing, particularly in the field of general and business aviation as well as helicopters. Growth areas in this sector are expected to be aircraft refitting (new engines, new avionics, noise abatement) as well as GPS (global positioning systems) and other advanced avionics equipment. Another trend that may influence sales in this sector is Swissair's attempt to rationalize its services and solvency through merger with other national carriers. A proposed merger with SAS, AUA and KLM failed to materialize in 1993, but Swissair is still seeking options. On the military side, Switzerland signed a contract in 1993 to procure 34 F/A-18 fighter aircraft, which has a large offset component. Electronic Components: Switzerland's machinery, telecommunications, precision control and instrument industries are the primary users and integrators of advanced integrated circuitry and electronic components. Switzerland lacks significant domestic consumer electronics, computer and automotive industries, but Swiss distributors and vendors of microprocessors and memories have noted burgeoning demand for U.S.- made components assembled by Swiss makers of PC clones. U.S. electronic components find good acceptance in the Swiss signal processing, precision instrument, sensor, process control, robotics, and mechanical engineering industries. The watch industry produces domestically most of the components integrated in electronic timepieces. It nevertheless constitutes an attractive target group, partly because of its diversification in communication and paging devices, some of which are incorporated in wristwatches. The Swiss market represents less than one percent of worldwide consumption of electronic components. However, the market is highly specialized and per capita consumption is one of the highest in the world. U.S. suppliers enjoy a good technical reputation, and are well represented by their own subsidiaries or local distributors (Motorola maintains a European marketing and design center in Geneva). Because of the international orientation of Swiss industry and its investments in foreign OEM production facilities, engineering specifications bearing an influence on the procurement of components are often drafted at Swiss company headquarters. Medical Equipment: Switzerland maintains one of the world's best health care systems. The dispersed nature of its health care system, primarily carried out at the cantonal (state) level, contributes to the buoyancy and diversity of the market, also favoring a great variety of equipment and devices. U.S. equipment and supplies enjoy a good reputation. Many Swiss doctors and medical professors have been trained or have practiced in the U.S., and interchange in procedures and techniques has created a strong demand for U.S. equipment and devices. Soaring Swiss health care costs have also created strong demand for home health care and outpatient devices and services - a field in which U.S. suppliers operating in a domestic mass market with volume production have a marked lead and sometime price advantage over European competitors. In addition, Switzerland often serves as a test market for selling advanced medical equipment to other European countries. Many U.S. new-to-market exhibitors have fared very well at the major trade show, IFAS, held every other year in Zurich, not only with leads to the Swiss market, but also to other European agents/distributors of medical equipment visiting IFAS. A USA Exhibit at the next IFAS, November 1-4, 1994, will promote entry of new U.S. products into this promising market. Pollution Control Equipment: The focus on environmental issues is leading to the creation of an increasingly significant Swiss industry sector, exporting its product and technology worldwide. OEM's are a growth market as opposed to end-users. A growing percentage of imported, mostly process control related items, is being integrated in locally- designed and -assembled equipment, and then reexported. The emphasis of end-users is in solid waste recycling, advanced analytical control and monitoring instruments, and low pollution/ renewable energies, as well as services (know-how, engineering). Swiss investments in pollution control were cut due to recession-related financial bottlenecks. Budgets are expected to increase again as of 1996 as a direct result of the economic recovery. Laboratory Scientific Instruments: R&D will remain a top priority for the Swiss private sector as well as the Federal and cantonal (state) governments. Per capita investments in research rank among the world's highest. The reputation of Swiss products is based upon quality and advanced technology. The significance of R&D is not in question and funding is readily available. Instruments must be state-of-the-art, and PC- compatible for automatic data acquisition and processing. American scientific and laboratory instruments enjoy an excellent reputation in Switzerland, and the U.S. is looked upon as a main source of supply, inspite of rising competition by Japanese and European manufacturers. Instrumentation allowing savings in energy and reagents are most attractive. Analytical Process Control Instruments: Switzerland's significant pharmaceutical, chemical and food industries provide a healthy basis for an attractive market for analytical process control instruments. The country also has one of the most dense networks of sewage treatment plants, mostly equipped with advanced control instrumentation. Process automation is a high priority as a result of Switzerland's high labor costs. Investments in new plants were cut considerably in the past two years, mostly as a result of the economic slump. Experts believe that a backlog of some $1 billion in due investments has built up. The U.S. traditionally is a major supplier of advanced PCI's. American manufacturers should be able to profit from this situation, as soon as investments pick up again. Quality Control Instrumentation (non-chemical): Technical progress in electro- optical and vision systems has resulted in a new generation of precise, non-contact, measuring and quality control systems, opening a new market segment in Switzerland, particularly in three dimensional precision measurement. Other systems of great interest for the Swiss market are laser-based, allowing application to control the precision/quality of assembled products as complex as automobiles, bikes, appliances, and the like. American manufacturers should be able to carve out a significant share of this market. The pressure on Swiss industry to automate remains acute and should provide for a ready market. Renewable Energy Equipment: Much of Switzerland's environmental focus in the years to come will be in the field of low or non-polluting energies. Two nuclear power plants are approaching the end of their life cycles and will not be replaced by other nuclear facilities. Hydroelectric power will be increased, but the remaining free capacities are limited. The emphasis is on solar energy, including small consumer/private home type systems, as well as wind turbines. Manufacturers of energy efficient photovoltaic panels, wind turbines (for winds of less than 6m/sec) and other similar equipment will find an attractive market. Management systems, pertinent software and consulting services are also of interest. Security and Safety Equipment: Swiss investments in security equipment have kept growing through the nineties. Security has become an issue even at political levels in the Swiss parliament, where major political parties, reacting to the drug-related crime problem, as well as the unrest in former Eastern Europe, have made security one of the pillars of their future programs. Budgets have also been approved to enhance prison security. The police are in the process of procuring new law enforcement equipment, including a considerable number of safety jackets (knife/bullet resistant). The commercial and home owner security markets are also growing. Migros, the largest Swiss retail chain, will open five new departments specializing in home, do-it- yourself, security systems for easy installation. Switzerland is also an attractive OEM market. It is home to major local producers such as Cerberus and Securiton, both users of US made components (sensors/detectors). Sporting Goods and Recreational Equipment: The Swiss have a high interest in sports of all kinds. Given the country's mountainous terrain, relatively high precipitation levels, and excellent resort facilities, winter sports are particularly favored. U.S. sporting goods equipment is generally well received in Switzerland, although there is strong third-country and domestic competition. The perception is that most trends and fads of this trade originate in the United States. Some of the most promising subsectors for U.S. exporters are snow skis and snowboards; skateboards; streetball outfits, balls and equipment; athletic shoes; mountain and all-terrain bikes; trekking/survival gear and equipment; and hiking/ mountaineering equipment. Apparel: Despite a more than one percent drop in total Swiss apparel imports in both 1992 and 1993, Swiss imports of U.S. apparel, although low in volume, grew by a healthy 29 percent in 1993. U.S. apparel imports may actually be performing even better than these statistics indicate, since increasing quantities of U.S.-labelled leisure and sportswear are shipped directly from low-wage countries, and thus do not count directly as imports from the U.S. under Swiss trade calculations. The impressive performance of U.S. apparel imports is mainly due to the Swiss consumer's interest in licensed team sportswear and headgear, and quality bodywear like T-shirts and sweatshirts. Also doing well are aerobic, skateboard, streetball, ski and snowboard, golf and dance apparel. Industrial Chemicals: Growth in output of the Swiss chemical industry in 1993 has exceeded the Western European average, due to the fact that a major portion of this industry's output is absorbed by the pharmaceutical industry, which is more immune to cyclic trends. A further asset is the industry's policy of concentrating on market niches. Whereas Switzerland is not a major producer of basic chemicals, it has an astounding share of around 90 percent of total output in specialized products. As of 1993, the downturn experience by the chemical industry in earlier years has bottomed out. Capacity utilization is at 80 percent. A very extensive intra-company exchange of intermediate chemical products accounts for a large part of imports from the United States. American companies and subsidiaries of the large Swiss multinational chemical firms in the U.S. are especially strong in supplying organic chemicals such as saturated acids, phenolic materials, esters and many other organic/inorganic compounds in particular heterocyclic compounds, vitamins and hormones. Dental Equipment and Supplies: Boasting one of the highest per capita income in the world, Switzerland constitutes an attractive and rich market for advanced U.S. dental products. The country's 4,700 dentists are well- trained and pro-American. The country's four university dental schools enjoy the finest reputation. Over the last generation, hygienic and preventive measures supported by Swiss health authorities have almost succeeded in eradicating caries. U.S. suppliers should concentrate on supplies and materials aimed at improving esthetics, restorative and corrective measures and cosmetic appearance -- techniques in which they excel. Good sales prospects also exist in dental computerized systems, computer-aided ceramic inlays, orthopedic and implantology supplies, advanced materials such as composites, alloys and cements, and polymer and light drying and hardening (curing) fillings and preparations. Drugs and Pharmaceuticals: The pharmaceutical industry, dominated by Ciba, Sandoz, and Roche, is a key sector, accounting for 10 percent of total Swiss exports. Escalating Swiss government expenditures in a time of budget deficits have resulted in actions to freeze contributions and to curb costs, causing the semi-official health insurance companies to annually increase premiums by over 10 percent in recent years. Health insurance organizations push the increased use of generics and refuse to reimburse exorbitant doctor bills. On pharmaceuticals and drugs the profit margin of the wholesale and retail level combined is 44 percent of the retail price, leaving 56 percent to the manufacturer. There is a strong trend toward use of over-the-counter and homeopathic products. Biochemically produced products in excellent demand encompass Hepatitis B vaccine, human insulin, human growth hormones, alpha and gamma interferon, Interleukin-2 and various diagnostics. Automotive Parts and Service Equipment: The Swiss automotive market experienced a decrease of 5 percent in 1993, and new car sales dropped by 12 percent. As car owners postpone the acquisition of a new car, sales of spares, in particular clutches, drives, brake components and electrical parts, have increased. With the economic recovery expected to start in 1994, the situation should improve; new car sales were already up 7 percent in the first quarter over a year ago. A new clean air act calling for exhaust gas tests on diesel engines is expected to spur sales of diesel engine exhaust gas analyzers. U.S. cars are relatively popular in Switzerland, and U.S. suppliers of automotive parts and service equipment will find market opportunities. The most promising subsectors include clutches, bearings, drives, electrical parts and pistons (both OEM and non-OEM) for U.S., European and Japanese cars; diesel engine exhaust gas analyzers; and quality and/or fancy accessories. Plastic Materials and Resins: While production and trade in the very cyclic plastic materials and resins sector have felt the impact of the recessionary environment of the early 1990's, a slight improvement in the sector is seen for 1994, and business should definitely pick up by 1995. American shipments are important in epoxy and polyester resins and polyamides. Electrical Power Supplies: Domestic electric power production capacities are increasing at an annual rate of some 5 percent (present production exceeds 36,000 Gigawatts). The government plans to allow power consumption to increase by 18 percent total from 1990 levels until 2000, at which time consumption should be stabilized by means of integrated resource planning. Three Swiss nuclear power plants are approaching the end of their life cycles. Investments are focused on environmentally-friendly, gas-powered combined power/heat generating plants, as well as numerous smaller hydroelectric plants. One major project of European dimensions (Grimsel West) is pending. Modern energy management systems, software and equipment resulting in energy savings will find an attractive market in the years to come. U.S. expertise in integrated resource planning is of great interest. Domestic producers ABB and Sulzer Bros. represent strong state-of-the art competition. Building Materials: The construction industry is suffering from fierce competition, unsatisfactory profits, and strong overcapacity in office buildings. New-home and apartment- house construction is improving but it is too early to speak of a turnaround. Since new construction is down, the renovating and retrofitting business reports satisfactory results. Steady and lower mortgage rates together with the possible implementation of plans for employees to draw money for investment in personally-owned housing from their pension funds should infuse new vigor in the building sector in the coming years. The most promising subsectors for U.S. suppliers of building products include manufactured housing; plywood and veneered panels; insulating and special flat glass; high value-added, recyclable insulating materials; and wooden floors (parquet). Jewelry: Switzerland was the largest market for U.S. exports of jewelry in 1992. Total U.S. exports of jewelry increased nearly 50 percent between 1990 and 1992, to $131 million. Although the value of these exports to Switzerland declined significantly in 1993, Switzerland was still the second-largest U.S. export market for jewelry. Agriculture Horsemeat: Following implementation of GATT Uruguay Round results in 1995, tariffs will be cut by 36 percent, resulting in increased access and a duty savings of $58,000 (at current import levels). In addition, the Swiss food law will be amended in 1995 to allow retail sales of horsemeat in any retail store, not just special horsemeat butcher shops. This change, in addition to Uruguay Round adjustments, is expected to significantly increase U.S. exports. Wine Coolers: Swiss food law has effectively prevented imports of wine coolers by prohibiting their sale because there is no definition under existing laws for this product. The food law will be changed in 1995 when the new law is implemented. Per capita wine consumption in Switzerland is one of the highest in Europe, and fruit juices are also popular. With aggressive marketing, wine coolers could be positioned in Switzerland as a new and unusual product of interest to adults of all ages. Wine, Distilled Spirits, and Beer: Despite a general decline in Swiss wine imports, U.S. shipments have experienced strong growth. Consumers have shown an increased preference for low-priced wines in bottles. A retail price of about $8 to $10 is seen as the upper limit for a quality wine sold in supermarkets. There are currently no import restrictions on red wine, although a quota is maintained for white wine. This quota will be tariffied as part of Switzerland's Uruguay Round agricultural reforms. Fresh Green Asparagus: Despite an import licensing system that restricts green and white asparagus imports, Switzerland is an excellent market for U.S. fresh green asparagus, because of the Swiss preference for larger-stalked asparagus. The Swiss are willing to pay a premium price for this product, which U.S. exporters have found almost impossible to sell in most other markets. U.S. exports to Switzerland have increased significantly in the last five years, with U.S. sales in 1992 of approximately $11 million. Implementation of the Uruguay Round will create even more favorable conditions for U.S. asparagus exports to Switzerland. Sweet Corn: Sweet corn is growing in popularity in Switzerland. Once considered a novelty item, or something traditionally used as fodder (field corn), sweet corn is now appearing with greater frequency in Swiss supermarkets. The U.S./Swiss bilateral agreement includes a tariff concession on fresh sweet corn to reduce the present 25 Swiss franc per 100 kilogram tariff to zero. This is expected to be particularly advantageous to U.S. exporters competing against other suppliers with significantly lower transportation costs, like France. Pet Food: Pet food has been a growing sector in the past several years, totalling approximately $300,000 per year. The U.S. market share remains small, but nonetheless offers opportunities to U.S. exporters. Several U.S. pet food manufacturers have distributors in Switzerland, and products are sold through both pet shops and veterinarians. Some Swiss distributors say they would be more interested in carrying U.S. products if the U.S. manufacturers would not insist on large (for Switzerland) minimum orders. Beef: Swiss practice regarding beef imports has been to grant licenses depending on the amount of domestic beef an importer purchased; and importers preferred to import from low-cost countries because of a higher profit margin. American style (grain fed) beef is attractive to restaurants and hotels in Switzerland, and there is demand for additional quantities despite the higher price. Swiss consumers can afford more expensive cuts of beef and are familiar with the special characteristics of grain fed beef. Uruguay Round implementation (dismantling the existing licensing structure), as well as Switzerland's Uruguay Round bilateral agricultural concessions to the U.S., will improve U.S. market access in beef. Raw Tobacco: The U.S. is the third largest supplier of raw tobacco with shipments. The implementation of GATT Uruguay Round concessions will indirectly impact U.S. tobacco exports to Switzerland. There are currently no tariffs applied to imports of raw tobacco into Switzerland. Significant tariff reductions in Switzerland's export markets may help Swiss cigarette producers in the near future, although all GATT cigarette producing countries will benefit from MFN tariff reductions. In addition, lower cigarette consumption in Western Europe may be offset by increasing market opportunities in Eastern Europe.