Swiss Production Stays Put in Face of Strong Franc, KPMG Says

Most Swiss industrial companies are holding off from shifting production to cheaper countries even as Switzerland’s strong franc makes labor costs 50 percent higher than in Germany, KPMG’s Swiss industry chief said.

“Companies should not be and are not overreacting,” Bryan DeBlanc, KPMG’s head industrial adviser in Switzerland, said in an interview today in Zurich.

More than half of Swiss industrial companies said they hadn’t moved production abroad to counter the strong Swiss franc, according to a KPMG survey published today. Senior executives from 16 Swiss industrial companies were questioned between March and July this year.

Switzerland’s machinery exporters are facing prolonged margin pressure as the strong franc, capped at 1.20 to the euro, makes their goods more expensive, while fixed costs are higher than for competitors in the euro zone.

“The franc is just an anomaly right now which is going to go away,” said DeBlanc. “You shouldn’t plan any medium-term measures on the Swiss franc because it will come back to parity,” he said.

Swiss manual laborers are paid 45 euros ($58.75) an hour on average compared with 30 euros in Germany, the country’s biggest industrial competitor, Hans Hess, president of mechanical and electrical engineering trade group Swissmem, said Aug. 22.

Large companies including ABB Ltd. (ABBN), OC Oerlikon Corp. AG and Sulzer AG (SUN) have already shifted production as much as they can to lower-cost countries, said DeBlanc. Now attention is moving to procurement savings, which have not developed as quickly as other aspects of their businesses.

“I think they will outsource other things which aren’t core to their business, like back-office processes and IT,” DeBlanc said. In smaller companies the whole finance function could be outsourced, he said.

To contact the reporter on this story: Patrick Winters in Zurich at pwinters3@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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