April 29 (Bloomberg) -- Behind the headline-grabbing job reductions at Switzerland’s biggest banks is a manufacturing boom that is keeping the economy ahead of the rest of Europe.
Even after 10,000 Swiss job losses at banks led by UBS AG and Credit Suisse Group AG in the past five years, the nation’s unemployment rate has fallen to 3.1 percent, the lowest of Europe’s 10 biggest economies and less than the rate a decade ago. The nation of 8 million is adding workers in factories that make electrical equipment, airline seating, toilets and drugs.
“People think that precision engineering, watchmaking and the medical industry are minor, but collectively added up, they are quite sizeable in Switzerland,” said Hubertus Von Gruenberg, chairman of Zurich-based ABB Ltd., the world’s largest maker of power transformers. Banks are “overemphasized” in the public perception as there’s a big finance industry relative to the size of the country, he said, adding that the industrial base is “powerful and important.”
Banks and insurers had 152,000 full-time employees last year, compared with 588,000 who work for industrial companies. The banking industry’s share of domestic economic output fell to 6.2 percent in 2011 from 8.7 percent in 2007, according to the most recent data from the Swiss Bankers Association.
“Switzerland is like a Silicon Valley for the manufacturing industry,” said Markus Koch, a partner at Deloitte AG in Zurich. Given the higher cost base, no Swiss manufacturer would survive if it’s not world leading or top quality, he said.
The focus on high-quality engineering allows companies to compete with cheaper products from emerging markets even as the Swiss franc’s 1.6 percent advance against the euro from a 20-month low in January makes the nation’s exports more expensive.
“We always have to be better than the others, that’s the only way we can compete these days,” said Ilona Illing, director of design at Lantal Textiles, a maker of business class seats for Deutsche Lufthansa AG planes.
Global demand for air cushions that replace foams in airplane seats allowed Lantal, which morphed into an airplane seats manufacturer from making cheese cloths more than a century ago, to add 34 jobs last year. The success of the 127-year-old company, based in the Swiss town of Langenthal, and other local manufacturers helped keep the number of jobless in the mountainous canton of Bern at 2.5 percent in February.
Pressure to stay ahead has pushed Swiss companies from drugmaker Novartis AG to watchmaker Swatch AG to the top of the global rankings for 2012 patent applications. Universities such as Zurich’s Swiss Federal Institute of Technology and a pro-business regulatory environment have helped make Switzerland a home for research hubs for U.S. companies, including International Business Machines Corp. and Google Inc.
The growth in engineering and manufacturing helped to make up for job losses in the finance industry. In response to requests from regulators, Swiss banks have reduced their dependence on borrowed money and exited businesses that fail to deliver big enough returns. Banks employ 10,000 people fewer in Switzerland today than five years ago, the country’s association of banking employees said Jan. 28.
The number of Swiss bankers is set to shrink further after Zurich-based UBS, the country’s largest lender, said in October that it will shed 10,000 jobs globally and abandon most debt-trading operations to focus on money management. Credit Suisse has said it will cut costs by 4.4 billion francs ($4.7 billion) by the end of 2015.
With few natural resources apart from water and beautiful landscapes, Swiss companies have focused on specialized, knowledge-based industries because of competition from lower-cost countries, said Peter Chen, a professor at Zurich’s ETH university who has been a member of chemicals-maker Clariant AG’s board since 2006.
Switzerland has the world’s highest industrial production per capita and is the most competitive nation overall, according to the World Economic Forum’s Global Competitiveness Report. Industrial production in the country has grown “sharply” since 2005, while traditional manufacturing nations such as Japan and Germany saw only a slight increase, and the U.K. saw a decline, according to a report by Deloitte.
Swiss industrial production per person rose to $12,260 in 2010 from $7,177 in 1991, according to Deloitte.
The country’s resilience is also apparent in the global equity markets.
Treaty of Paris
The Swiss Market Index, which includes the country’s largest companies, gained 28 percent during the past 12 months, outperforming the 18 percent gain of France’s CAC index, the 16 percent advance of Germany’s DAX index and the 12 percent advance of the U.K.’s FTSE 100 index. Eleven of the 20 companies in the Swiss index are industrial companies.
The Swiss success story is rooted in the country’s history as a neutral nation that hasn’t fought a foreign war since its neutrality was established by the Treaty of Paris in 1815. That stability has attracted foreign investors and entrepreneurs.
Brown Boveri & Cie, one of two companies which were merged to form ABB, had founders with foreign roots. One was the son of a British engineer and the other the son of a German doctor. Henri Nestle, a German, started Nestle SA, the world’s largest maker of food and drink.
The country’s entrepreneurial spirit is still alive, with biotechnology company Actelion Ltd. being one of the country’s more recent showpiece start-ups. The Allschwil-based company makes drugs designed to treat pulmonary arterial hypertension, an incurable disease characterized by high-blood pressure in the arteries of the lungs. Actelion, founded in 1997 by a team that includes Chief Executive Officer Jean-Paul Clozel, has a market value of 6.5 billion francs.
A report from the European Commission on innovation said Switzerland is the regional “leader,” continuously outperforming all 27 countries in Europe’s political bloc.
Employer-friendly labor laws and a strong work ethic have helped keep job losses to a minimum, Deloitte’s Koch said. Switzerland has some of the longest working hours in Europe and a statutory retirement age of 65, giving companies leeway to cope with the country’s high wages.
“Some companies went to employees and said we have a poor situation with the franc,” Koch said. Workers were asked whether they would work two hours more per week for the next 1 1/2 years and “people agreed,” he said.
Chen from Zurich’s ETH University predicts Switzerland will maintain its industry-focused economy over the long term.
“When you travel around Switzerland, you see the idyllic Swiss alps, but you are never too far away from a chemical factory,” Chen said. “It would be a mistake to move to a pure service economy.”
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