National Competitive advantage of Switzerland

  Change:  9

  Switzerland a Wealth driven economy?  10

  Conclusion:  11

  Outlook - is Switzerland becoming more competitive again?  11

  Figures:  13

  Bibliography:  18

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Introduction

Switzerland has been a poor nation as late as the nineteenth century. Its major exports were mercenaries and emigrating citizens (Porter 1998, 307). In the early decades of the 20 ^th c entury, Switzerland has emerged as an industrial nation of importance. Because Switzerland avoided destruction during World War II the country was an early winner. The circumstances made them well positioned to prosper in early post war periods. By the 1960’s, using some measures, Swiss per capita income was the highest in the world (Porter 1998, 307). Industrial success was enough to more than employ all available Swiss citizens at high wages. Total unemployment was in the 60ies 0.0% (Porter 1998, 281) Swiss companies like Nestlé, Novartis, UBS, Roche, Schindler, Swatch Group or Lindt and Sprüngli, are global operating. The leading Swiss multinationals employ far more people outside the country than in Switzerland (Porter 1998, 307). Switzerland is an example how a small nation without a large home market can be a successful global competitor. At the moment Switzerland is still a prosperous country but it lost economic wealth. During the 1990ies Switzerland had the lowest growth rates compared to all OECD member states. This working paper tries to answer the question if Switzerland lost competitive advantage, and if the low growth rates are a result out of this. In the first part of the text Porters theory of national advantage is explained the second part reflects the state of the Swiss economy in the late 1980ies and the third part analyzes what has happened in Switzerland from 1990 to 2000.

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Determinants of National Advantage

Porter (1998, 72) used a diamond shaped diagram as the basis of a framework to illustrate the determinants of national advantage. This diamond represents the national playing field that countries establish for their industries. The determinants of national advantage are:

- factor conditions

- demand conditions

- firm strategy, structure and rivalry

- related and supporting industries

Factor Conditions:

Each nation has some factors of production to compete within an industry, such as labour, natural resources, capital and infrastructure. To explore the factors in competitive advantage of a nation, factors can be grouped into a number of broad categories:

- Human resources

- Physical resources

- Knowledge resources

- Capital resources

- Infrastructure

Demand Conditions:

When the market for a particular product is larger locally than in foreign markets, the local firms devote more attention to that product than do foreign firms, leading to a competitive advantage when the local firms begin exporting the product. A more demanding local market leads to national advantage.

Related and Supporting Industries:

When local supporting industries are competitive, firms enjoy more cost effective and innovative inputs. This effect is strengthened when the suppliers themselves are strong global competitors.

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Firm Strategy, Structure and Rivalry:

Local conditions affect firm strategy. For example, German companies tend to be hierarchical. Italian companies tend to be smaller and are run more like extended families. Such strategy and structure helps to determine in which types of industries a nation's firms will succeed.

Patterns of Swiss Competitive Advantage in 1985:

Clusters of Internationally competitive industries in 1985:

After Porter (1998, 316) in the following sectors Swiss international competitive advantage is situated: Petroleum/Chemicals, Multiple Business, Textiles/Apparel and Health Care. In Porters opinion is the range of industries in which Switzerland had a leading position extraordinary. The number and breadth of the clusters exceeded the ones from other comparable small nations like Sweden, Denmark or Singapore. One of the most important Clusters was health care related industries. Another important cluster was a group of industries related to textiles, followed by internationally orientated business services (table 1). Switzerland's position in these industries tends to be very specialized and focused on the most sophisticated segments. Compared to other countries Switzerland's position is very strong in marketing and service intensive goods.

Switzerland had a weak position in forest products, semiconductors, and computers, telecommunications, entertainment and leisure (except tourism) and defence.

Factor Conditions:

Switzerland has few natural resources except a beautiful landscape which attracts tourists. But one factor of importance is the location. Centrally located in Europe Switzerland had the advantage to become a trading and financial centre. Switzerland has, because of its german-, french and italian speaking parts a highly skilled and multiple languages speaking work force. Switzerland has a high saving rate and attracted also foreign capital because of a strong currency, political stability, neutrality and the bank secrecy law. This combination results in interest rates that are low and stable compared to other nations.

Swiss infrastructure is well developed. The only problem was telecommunication where the state monopoly resulted in too high costs. Public education was on high standards, and was taken seriously by all segments of society. Switzerland also had a strong tradition of university research and enjoyed a world class position in a variety of fields. Switzerland's spending on R&D as a percentage of GDP is compared to other nations relatively high (Porter 1998, 320).

Demand Conditions:

Switzerland has no large home market, that's why many Swiss companies had to adopt an international outlook and compete globally. Many Swiss industries has there roots in the textile industry. For example textile machinery and trading, synthetic dyes and chemicals.

The Swiss geography and climate helped to establish special industries l ike tunnelling technology, heating controls, railway equipment. The influence of wealthy tourism also influences the demand on luxury consumer goods and

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