[a p e r t u r e Podcast #2] Switzerland, wake up!
Ben Robinson discusses with Martin Naville, CEO of Swiss American Chamber of Commerce, whether Switzerland is losing its competitiveness in attracting multinational corporations
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Episode #2 — Switzerland, wake up!
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Ben Robinson: For episode #2 of a p e r t u r e, we’re on tour and we’re in Zurich. We’re in the office of the Swiss-American Chamber of Commerce, and we’re discussing multi-national corporations (MNCs) in Switzerland. Specifically, we’re discussing their importance as an engine of economic growth and prosperity and the key role they play as a bedrock of innovation and productivity. The question will be discussing is whether Switzerland is losing competitiveness in both attracting and retaining these MNCs. And to discuss this topic we are with Martin Naville, who is CEO of the Swiss-American Chamber of Commerce. Martin, please could we start by you telling us about your background, the mission of your organisation, and also why are you so interested in this topic of MNCs?
Martin Naville: Well, Ben, welcome to Zurich, the capital of business world in Switzerland. So my background is slightly convoluted. I am a lawyer by training and then I was a corporate banker with JP Morgan in Zurich in New York. And then I went to Boston Consulting Group, a strategy firm in Munich, Zurich, New York, and again Zurich for 16 years. And I’ve been now doing this work for 15 years. So what are we doing? We are a private association, totally funded by members, so no money from either government. And we have two big topics. One is improving the business relationship between Switzerland, America - anything that impedes the free flow of goods, services, investment of people. And the second one is improve the location Switzerland for multinational companies, multinational companies meaning large and small companies, Swiss and foreign, and improving the business location. So one -the companies come here - and two - they stay here. They provide a lot of tax revenue that can create a lot of innovation, strengths, a lot of jobs. And also, they help us in the social security system, which I will start collecting in five years.
BR: Okay. And how do you define a multinational corporation? Is it just one that operates in more than one country?
MN: Yes, so first of all, it’s very important. A multinational company has nothing to do with size. Its two different segmentation. You have large companies, small companies, but then you have domestic and multinational, so you have a lot of small multinational companies. And multinational companies, for our reports, we defined as cumulatively more than 25% of employees overseas or outside Switzerland, which is a proxy for Direct Investment, plus at least 25% of the sales outside Switzerland. So it needs both, it needs export and it needs foreign direct investment in other countries to be a multinational according to our definition.
BR: This is really your specialist subject because before we started the podcast, I think you told me you’ve personally written eleven reports on this subject. Why are you so passionate about this topic?
MN: Yes, I think that’s what really makes Switzerland. One third of it is made of MNCs. Two thirds of our gross domestic product is domestic. We need both. If we only have the domestic, we will be Belgium or Portugal. We’d like to be richer, well we need something on top. And this one thing on top is the multinational environment. Multinational companies who bring in a lot of investment, a lot of very talented people and make something more than what Switzerland would be just by having a domestic economy. Why am I really passionate? Because I like Switzerland and I’d like to leave Switzerland in such good shape also for my two sons who are now 21 and 24 and so Switzerland should be a great place for the next 40 years hopefully.
BR: That is a very worthy cause. And so I’ve just I’m referring here and so for our listeners, I’m holding up a page from the latest report that Martin has written, which is called Switzerland, Wake Up. And we will share a link to this report on our Twitter channel. For those of you that want to read it, I would very much encourage you that you read it, but this particular graphic here shows just the outsized impact, the disproportionate impact that multinationals have on the Swiss economy. Martin, would you mind just talking us through some of these numbers and I can pass the report to you if you — okay, Martin is indicating that he knows these numbers by heart.
MN: Yes indeed. There is this myth that multinational companies are just here to save taxes and they have no resources and they don’t really provide anything which is totally wrong. Multinational companies are only 4% if you count companies. So the number of companies is 4%. It’s 26% of the jobs. It’s 36% so more than a third of the gross domestic product. And they provide nearly half of the corporate taxes. This is about 6 billion francs per year. So they really provide a lot and that’s purely quantitative and then qualitatively in terms of innovation and strengths and competitiveness… it’s totally over dimension the importance that those multinational companies have for Switzerland.
BR: Wow. Okay. Sort of supersizing the Swiss economy — and these numbers that you quoted, so the 4%, the 26%, the 36%, the 50% are these direct impacts or do these also include the indirect impacts? Because one of the things that we very interested in is the extent to which large companies attract and build kind of — like an aircraft carrier for smaller companies , because they can fund them, because the people that work they go on to start startups and so on.
MN: So those are all direct numbers. So in terms of GDP value creation is really a third. If you take secondary effect, now we get on slippery slope. I mean, there are studies that say 3.7 jobs for every job, which would make more than 100%, but somewhere probably one job per for every multinational job, one domestic job, which would bring you to somewhere around half of the value creation, direct and indirect would be — due to multinational companies. But the indirect effect is always a very slippery one because if you count all the indirect effects, it will come to 300% total. So we like to have the direct effect. And that’s really the very strong numbers that we have here.
BR: Yes, it’s not as if you can’t demonstrate categorically the importance using the direct numbers. But I guess because it’s so important to attract multinational corporations, there is by extension, so much competition to attract these multinational corporations. And I suppose the — I mean why it’s difficult to make an argument against attracting them because the impact is so large. Is it not a risky strategy because these companies, and then you say this yourself in your report, these companies are very mobile in the sense that they could quickly shift part of their base or their entire base somewhere else, depending on multiple factors? So is it not a risky strategy to try to attract these corporations here? Because they could at any point leave and in the same way a virtuous circle is virtuous for as long as it’s virtuous. When it goes into reverse, it can be quite nasty.
the new-economy companies who have built European headquarters, you know; the Netflix’s, Amazons, Google’s, Uber’s, Airbnb’s of this world. None of them has chosen Switzerland as European headquarters. And that should really make us worried that this is not the place that it was ten, fifteen years ago.
MN: Well, we can be mediocre and then we don’t have those companies and we are Belgium or Portugal when we’d like to be better. And then we need to work very hard. And as long as you do the things right, there is no reason to leave. If we don’t do the things right then clearly, we have a risk of losing them. But I’d rather have them and risk losing them than not have them here in Switzerland. It’s like in tennis, Federer can easily play and be, say, number 100, that’s fine and I don’t need to train so hard, but if you want to become number one, you have to go on court every day. And that’s, I think what Switzerland needs to do is to go on court and train every day.
BR: Yes, so we’ll get into a few more of the numbers later, but I mean, it’s fair to say that Switzerland is still a very, very attractive place to have a multinational and it’s — I’m looking at another table here from your report in terms of global headquarters in the period 2009 to 2018, it has a 33% market share in Europe. So it’s doing well —
MN: Global headquarters in Europe, but then we only get 23% of regional headquarters, we have 26% R&D centers and operational center, we only get 5%. [Okay]. And so, you know, overall it’s not, if we had 33%, I would say great. But this is only global headquarters. And that’s also because we have a lot of Swiss global headquarters, clearly on some other things were much weaker.
BR: So Switzerland is objectively a very good place to put your global headquarters. It attracts a large number of global headquarters. But to get to the heart of your report, we, the country, this country, we cannot be complacent. Right? Because I think you said in the report that it’s dropped from number one globally as most attractive country for multinationals and I think to number three in Europe.
MN: Yes in Europe, [number three in Europe] in Europe, behind the Netherlands and behind Ireland.
BR: And what do you attribute that to? Why is it losing attractiveness?
MN: So first of all as this started the question, I think we’re still doing fine. But this fine is not good enough for what we would like to attain. There was a lot of remaining strengths that will always be here and it’s like a glacier. We’ll have a lot of ice, but it’s still, it’s melting relatively fast and we have to stop it quickly. We still have our strengths, but clearly the incertitude — 10, 15 years ago we were clearly number one.
I mean no company relocated into Europe or within Europe without having Switzerland on the shortlist. If you look back now, the last four or eight years, clearly we lost in a lot of places. So around 40 companies have decided to leave at the UK because of Brexit. None of the 40 chose Switzerland. And now for banks it’s evident you cannot come to Switzerland because of passporting. So they went to Luxembourg or Frankfurt, but for all the non-banks, Sony and Panasonic, for example, there’s no reason why they shouldn’t come to Switzerland.
Same for Asian companies. Twenty-nine Chinese companies have decided to put their European headquarters somewhere in Europe. One only, but a very small one went to Geneva. And then the new-economy companies who have built European headquarters, you know; the Netflix’s, Amazons, Google’s, Uber’s, Airbnb’s of this world. None of them has chosen Switzerland as European headquarters. And that should really make us worry that this is not the place that it was 10, 15 years ago.
BR: So we can see that companies are choosing elsewhere, but why? I mean, because naturally I would’ve said not being in European Union was important. But as you said, outside of banking, that’s not so critical. And for Asian companies, why are they not selecting? Because Switzerland is always had a very strong relationship with or always has a very strong relationship with China. It has a bilateral trade agreement with China. Why don’t these companies locate here?
MN: Well there’s always for every company in every segment of the industry, there are different reasons; but clearly some of the biggest strengths of Switzerland, which was openness to talent, which was low taxes and very stable taxes, very predictable taxes and political predictability, all those things have eroded. We’re still okay, but they have eroded massively. I mean, on taxes, now luckily the vote on May 19th on the federal tax level has been positive. But that was very unclear one year ago.
We have very unclear situation with EU on the framework agreement. We have very unclear, very unclear situation regarding some obligation of companies. We have a vote coming up in a year on the corporate responsibility initiative, which would make Swiss companies much more liable for anything that might happen within the value chain than most other than most other places, we have clear uncertainty about availability of talents in Switzerland. We will have a vote probably in 15 months that might stop the free movement of people agreement with the EU, which would basically then also crumble the rest of the bilaterals.
So there’s lots of uncertainty in very, very important sectors. And then we kept in the negatives that we’ve had for a long time, which is salaries, the level of salaries and the cost here, which were always negative but it was balanced before and now in some very important pillars of our strengths there’s been an erosion of certainty and uncertainty is this going to go on? And if you invest, you have a seven to 10 year perspective and clearly Switzerland 10 years ago gave the secure seven to 10 year perspective, today it does not.
BR: Yes. And so if we just pick up some of those themes in turn — so if you come to the availability of talent, for example so I remember back in 2014 there was a vote here to put quotas on EU migration. [Correct]. And the vote that you said is taking place; I think you said it’s in 18 months time. Is that related to that vote back in 2014?
MN: It’s a bit related. It’s not the same, but it is related.
BR: Okay. But I suppose to play devil’s advocate for a second, right? So it seems to me, and that was, it almost seemed like there was a sort of mini Brexit moment, right? The 2014 referendum, where the people sort of said, we don’t necessarily agree with the way that society is changing and so on. And there is a very large number of foreign-born people living in Switzerland and I suppose to play devil’s advocate for a second, for how long can Switzerland continue to absorb very high levels of immigration without maybe damaging or negatively affecting sort of social cohesion. And so because that would be what people I guess would play back, which is if these multinationals need a constant flow of immigration, can that be good long-term for Switzerland and social cohesion?
MN: No. So first starting 2014 was a mini, mini Brexit because it was an initiative that align on our constitution, which then went to [In a way, Brexit for me because yes, but somewhere stable as this] afterwards parliament brought around a solution which was feasible. The next one; that’s not only mini Brexit, that’s really Swiss exit. The one next year. If we fail that one, we’re in the same position as Brexit.
BR: And what did the polls, I suppose too early to have polls?
MN: There is no poll yet. I mean this is four or five votes away. So there are no polls until like two months before. But asking your question, I mean what’s really important, I mean Switzerland today has 25% non born. So foreign born people in Switzerland [which is a lot] in which clearly enough in a direct democracy might create some problems. And so I think it’s very, very important to start segmenting the foreign workforce as there are three types of workforces if you look at it from a not social, but from an economic point of view, you have the refugees, you have those who just come here because they want to earn more or something, [To make money], economic migrants and then you have the high value migrants.
And in our report we showed at the high value migrants through multinational companies, is only four even less than 4% of net migration. And I think we have to start figuring out is we are probably politically, socially from a voters point of view, we cannot go from 25 to 30 or 35, but we should start segmenting and make very clear that we want those who create value for Switzerland.
So it’s a bit Swiss first strategy. But that’s not bad. I mean we have a tradition of taking in immigrants and to taking in refugees through the — Switzerland as the protector of the Human Rights Convention. But still, I think we have to make very clear this is a competition out there. We are competing not only against Ireland and the Netherlands, we’re competing against Dubai, we are competing against Singapore, we’re competing against the US and UK and the UK might have a bit — be a bit in an adulter at the moment. But I mean they will come back and there are many other countries which really, really fight for a; good companies and two; for talent. [Yes]. And so we have to fight for those talents and we have to make sure we’re not complacent, we need them.
And we cannot just add on and add on and on. So maybe we have to be a bit more selective in what type of people we get into Switzerland. Many countries have done it. I mean, there is a scoring system, different points for different quality in Canada, in the Netherlands, in Australia. So it wouldn’t be the first. I think Switzerland has to start working. The title is wake up Switzerland, is we need to go out and compete. We’re still good.
My analogy is when Federer, sadly he discovered he is number 17 on the ranking, he could have said seventeen is not bad, have a final farewell tour and then relax. But he said, no, I want to be number one again. And so he went back on court and train and that’s what Switzerland needs to do.
BR: And in terms of, so the other things you mentioned with taxation was one thing. And so a lot of what’s happened with taxation has been sort of externally imposed on Switzerland, right? Because European Union, the US have said that you can’t have, you can’t make deals with an individual companies, but is that — I think you said it yourself that the vote on the 19th of May has now given way to — I think a more stable low rate, federal tax rates in Switzerland. So is that problem now largely resolved? Is taxation something that you aren’t losing sleep over anymore as a result?
I think the common factor is basically the people out there selling the business location Switzerland to other companies outside. They do a marketing job. They have a great product, but they have to explain it. […] And so we need people out there to sell it. And especially to the new tech companies who are not used to this European environment and also to Chinese companies. And we do a poor job selling this. […] this is a competition and we have to up our game.
MN: So let’s quickly go back. Switzerland was never one of the really low, low, low tax countries. And also, in Paradise Papers and the Luxembourg Papers and all those things Switzerland didn’t really appear. We were always slightly higher than others, but we were competitive and tax is only just the cost of the product - the product being political stability and the talents and everything. And so we were always, we had a great product and we weren’t the cheapest, but we were competitive. The way to be competitive was ringfencing the foreign revenue and giving them a priority over domestic revenue. And this is where the EU and then the OECD said, we’re not accepting this.
You can put the tax rate wherever you like, but all the revenue has to be taxed the same way. This is why we had to change this now as the taxes came out, I think we are sleeping a lot better, but it’s not done because now it needs to be implemented in every Canton and especially on — probably September 1st, that Canton of Zurich will vote on this. And so we still have another hurdle to climb. But the very strong result on May 19th on the federal tax, gives us some good hope that this will also turn right with the cantons. And then Switzerland again is competitive.
We have other places that they will be a lot cheaper; but we will be competitive and especially we are in line with the rules of OECD and the EU and so we are safe from any kind of gray or black lists. And so if we are then implemented in every canton then I will sleep well over it.
BR: And what about, you said so — and you talk about this a lot in your report too, which is certainty over the regulatory environment and you just mentioned something that I wasn’t aware of, which is a piece of legislation that might come in, that might create a bigger liability for companies based here. So what’s happening with the regulatory environment, the Minda report, and these kinds of things? I guess your view is that it’s become more negative. And is that still the case or is it changing course slightly as it becoming slightly more favorable? How do you feel about the regulatory environment?
MN: Five, six, seven years ago, remember, I’ve been on the job for 15 years, so I get some leeway on this. I will say until five, six, seven years ago, there were a lot of votes that were slightly or strongly against business and we always told the companies, don’t worry this is direct democracy which at the end is going to come up right. Which we mostly were correct. And then we had a few accidents. The Minda, the mass immigration, the tax and some others, which suddenly start going, hmm, and I think the business environment, was a bit complacent; that things come out right...
And I think we need to stop the complacency. I think on the tax vote on May 19th preparing for that complacency wasn’t not or at least not really around. People started to work really hard to make sure that this is going the right way. [Okay] And so what we have to make sure on all those things is we’re not complacent. We have to explain the case to the people because it’s complicated to understand how multinational company works and what it brings to Switzerland. And then we have to make sure that the case is really heard everywhere and that we are fighting for the right result. We cannot just expect people to understand how this works. They have to get — it’s a message that you have to explain. You cannot just expect people to really learn about this on their own.
BR: So you’re saying that was probably the lesson from the 2014 vote for example, which was the business community, the most important business stakeholders didn’t really come up because I was living here at that point. And it would seem to me that they did not come out in advance of that vote. And argue in favor of keeping the status quo.
MN: That’s the lesson we learned from the Minda vote, from the mass immigration vote, from the tax vote. Unfortunately, we had to learn it many times before. People really learned what this is all about. And I think it’s a lot better now, but it’s still — there’s still a serious case of complacency out there. Why the title…
BR: I was going to say that. So they haven’t woken up yet.
MN: It’s still, you know, there are too many people who think that Switzerland is the best place in the world and who laugh and say where should they go? Ha-ha. And do not understand enough that this is really competition out there and we have not over performed in the last four, eight years. We have lost some of our skills and some stamina and so we have to get it back. That’s now the moment to get it back before it gets really bad and then it’s too late because then we don’t have the resources or the strength to do it again.
BR: So it seems that Switzerland has done particularly poorly relative to other countries in attracting two really important constituents. Right? The first one is tech companies. The second one is Chinese companies. I think you alluded to both earlier. Are there exactly the same factors for both of those companies or are they slightly different?
MN: I think the common factor is basically the people out there selling business location Switzerland to other companies outside. They do marketing job. They have a great product, but they have to explain it. The Swiss product is much more complicated than the Dutch, or the Irish product. Be we have direct democracy, we have initiatives, we don’t have a head of state then we have Cantons who are very, very strong. I mean, it’s a very complex set, how does Switzerland work?
And so we need people out there to sell it. And especially to the new tech companies who are not used to this European environment and also to Chinese companies who are not. And we do a poor job selling this. We have too few people on the ground. We have about 50 people around the world selling Switzerland. The Dutch have about a hundred, the Irish have about 250, and the Singaporeans have about 700 people. So even if you —
BR: Why is that though because I guess this is where your reports could wake up Switzerland, but it seems crazy, right? Given the numbers you quoted earlier about the disproportionate impact of multinationals that you wouldn’t have a much bigger team than 50 people trying to attract and retain those companies within these borders.
MN: Where we were too successful for the last ten years. I think it really is too easy. I have the CEO of Logitech who’s on my board said very simply, the only thing that he fears is success because everybody becomes complacent. And I think that’s exactly what it is. People feel we don’t have to sell. Everybody knows Switzerland; everybody knows how good we are. We don’t really need to sell Switzerland.
Well the Dutch, they reacted to Brexit through 50 people in England and they went to see every CEO, the Singaporeans come and visit all the tech, I mean all the life science and R&D companies in Switzerland twice, three times a year, they come around with Nobel prize winners and ministers of the government. And they come and sell Singapore to Swiss companies. And this is a competition and we have to up our game.
BR: I am going to refer to the same graphic, exhibit five, page 21 from the report. So this is looking at 10 year period at how Switzerland is fairing versus other European nations. So Ireland, Luxembourg, Netherlands and the UK. And what it shows is this —Switzerland is losing market share in most areas except R&D centers. And there’s another, I think it’s on the previous page after where you say that in terms of industrial segments is losing market share in consumer, financial, industrial, IT and communications.
It’s not a very rosy picture, but it is gaining market share in life sciences. So I suppose the question is- is it not just developing a deeper cluster around life sciences and a deeper cluster around R&D excellence and can it not, using the engine analogy, can it not operate very successfully and grow nicely and continue to have very, very outsized performance for multinationals based on two engines, which is life sciences and R&D centers, does it need the others?
MN: It needs bigger. We lost a lot of market share. We have 27% market share ten years ago we don’t have 19 market, so we lost eight points or a third of our market share and so it’s not enough. I think it’s a great success. I mean, life science especially in the Basel area, but in a very large Basel area, it goes throughout Switzerland and also R&D especially stemming from our two technological universities, ETH and EPFL in Zurich and Lausanne, which are the top 10 in the world, less known than some others like MIT and Berkeley.
But they play in the same league. And I think those two clusters of strengths, which is having two of the largest Pharma companies in the same city, creating an unbelievable cluster with a lot of larger, smaller startup companies. A lot of innovation strength and the clusters around those two universities really make a fantastic success factor — but it is not enough. If we want to stay where we are, we need more. And this is why we have to do more to attract other companies.
BR: Yes. And then in your report you talk about STEM graduates —[science, technology, engineering and math]. So what you are saying is Switzerland produces lots and lots of engineers, but fewer high quality graduates in other areas. Is that —
MN: Oh, we don’t have enough engineers either. Engineer’s is the ear of the stem. [Yes] we don’t have enough engineers either. First of all, we don’t have enough people, period. We have, if you look at — as a proxy for globalization, you take global fortune 500 companies per million inhabitants. We have three to five times more than all our competitors. So we need additional people to keep those large companies here.
Second, we have an underproportional choice by our young generation to go into those, so called hard sciences. And so one, we have to increase the attractiveness of those sectors, but that’s certainly not going to be enough again, because we have too many large multinationals, Pharma, engineering companies. And so we will always need talent, highly qualified talent from outside.
BR: Okay. But one of your proposals was to expand the intake at some of the universities here, right?
MN: Yes, correct. Especially on the stem side. [Yes, okay] And then also make it more attractive to study in stem, especially for foreigners in those hard sciences maybe to give them a green card like they do in the US.
BR: Because at the moment they don’t get to stay. Is that right? They don’t use to get employed.
MN: They have, I don’t remember exactly six months and if they don’t have a good job after six months, they are out.
BR: You’re saying graduate from a Swiss university in STEM, in science. So just because it’s my science, technology, engineering or moths. And you get automatically, well, a permit C or B —
MN: We’re working on this now. There is going to be the deep dive on this. How do we attract and how do we keep the foreign talent and how do we make it palatable for the people around them to make them understand that they are really creating a lot of value. They create tax, they pay taxes, they make the innovation hub in Switzerland and the pay my social security and everybody else’s social security, but also extremely important for the long-term increase of innovation and global competitiveness. It’s very important to get those talents. If they come here, it’s great for Switzerland. If they go somewhere else, it’s a double whammy because they’re not in Switzerland, but they are in the Netherlands or in Singapore or in Dubai.
BR: Yes. Now you can see it. In preparation for this podcast, we look to what sectors of the economy are growing much faster than the others in its all of the sectors in which multinationals are present. So there’s — [correct]. Anyways, so what I want to do next was actually refer to a couple of your previous reports. And so you had a report that was from 2012 and it was called the Growth Engine at Risk and it looked at the cantons of Geneva and Vaud and the impact of multinationals on those two cantons.
And so I have a few questions in relation to that report. The first one was in that report you said that if multinationals have a disproportionate impact on the economy in general, it’s even more disproportionate when you look at the cantons of Geneva and Vaud. And so I think back in 2010 they were contributing 43% of GDP in Geneva versus 36% nationally and 41% in Vaud versus 36% nationally.
How is Geneva or how are Geneva and Vaud varying in the intervening years since 2012 because my impression living in Geneva is; multinationals are leaving Geneva. Is that correct or is that just an anecdote?
airports are very important, but just not for multinationals. But also for art and science and education and sports and everything. You need a very efficient airport system. And the title of this report is Flying Blind after 2030 because at least in Switzerland, but in many places around the world, you plan roads and railroads 40, 50 years out. Here, we all know that the system is already creaking.
MN: There are not many multinational leaving, but many multinational downgrade their presence. They take certain departments and send them to somewhere else because it’s cheaper or just — they do just a good job in Frankfurt and Munich or Paris or somewhere else. I think Geneva and Vaud have had mostly a flat development - since we haven’t looked at the numbers in depth. All those numbers are strong numbers, the latest report is with McKinsey Company and the report you mentioned is a Boston Consulting Group.
The numbers are really strong. We haven’t redone the numbers in a very analytical way, so probably they’ll be the same. What happened in the Romandie — we had the so called Lex Bonnie, which was a special tax advantage that ran out. On the other hand, EPFL has created a lot of attraction for tech companies. So probably it’s more or less net-net, maybe slightly less, but not a lot because another thing...
BR: What about banks though — because since the impression you get again anecdotally. I can back this up with any sort of definitive statistics, but it seems like the banks in Geneva have downsized. All right and is that coming through in the statistics? Is that…
MN: Not really. A bit yes, because of the banking secrecy and so some departments which were really specialized on non declared foreigners has been — that has shifted. And banks all over the world are downgrading because of automation, artificial intelligence, all the good things. The margins are coming down, but I think the, Arc Leman, the Geneva-Vaud region has not suffered unproportionally because of this.
BR: Okay, good. The second question was in the recommendations of that report; you state very clearly that these two cantons need a strategy for attracting internationalizing Asian multinational corporations. And based on what we discussed earlier, which is only one company has come here in the last four years [to Geneva]. But I guess what you would argue that strategy was not put in place?
MN: No that strategy was not put in place. Again there was a lot of complacency. It was also when we explained this in the report, it’s not easy because there are two things is, one is; especially Chinese companies, they go where Chinese clusters are, and we didn’t have any and second this whole strategy depends on having one light tower. A very famous company decides to come to Switzerland. There were a few tries, if you get Alibaba to come with a European headquarter and everybody else will follow. It’s really this light tower that was missing. And so probably not putting enough effort, but also it’s a difficult one. It was something we need to try. We failed; we could have tried harder but clearly would have been attractive.
BR: Okay. And then the obvious question is that report was called Growth engine at risk. The subsequent report looking at the broader nation state is called wake up Switzerland. So it’s like you’re stepping up the rhetoric, right? Is that because you feel that your previous calls to action just haven’t been heeded or is the situation deteriorating or do you just...
MN: I mean A to C situation has clearly deteriorated. In the report we did six years ago, Switzerland didn’t lose market share yet, but it was clear that somehow, some momentum is missing, and there’s some complacency around. Now we are a bit further down the line, but I think it should not be an alarmist. I mean, wake up Switzerland is not avoid being killed. It’s just — now is the time to start going back on court and train.
So I wouldn’t say this is more alarmist than the other and we said at risk and I would just say Switzerland wake up. The trick is always to get the title that attracts the read a bit [crosstalk — yes, it got my eyeballs] and not having an academic title that — there’s three lines. But I would say we’re a bit further down the line after the various votes that clearly went against business. There has been some additional doubts that Switzerland is really business freindly, with the extremely strong effort, especially in Netherlands and Ireland and some other countries. We have lost some of our edge and competitiveness. But we’re still okay. This is now time to wake up. Let’s get rid of complacency.
BR: Last year you published a report, this one was with BCG, your former employer and this one was looking at airports. And I think the point you’re making in that report was there’s growing demand for the aviation and the capacity isn’t increasing. How important a factor is that for multinationals in choosing to base themselves here?
MN: It’s a very important factor. There’s, every analysis shows that most headquarters go where there are a lot of direct combination, I mean direct flights. So airports are very important, but just not for multinationals. It’s for art and science and education and sports and everything. You need a very efficient airport system. And the title of this report is Flying Blind after 2030 because at least in Switzerland, but in many places around the world, you plan roads and railroads. So 40, 50 years out. Here, we all know that the system is already creaking.
There is a growth of one and a half, 2% per year, which in the last 12 years translates into some 22 to 25% growth. And there’s no plan after 2030, the system is totally full, will not accept any additional capacity and planning cycles in airports on not just to Zurich airport, all airports planning cycles are somewhere between 20 and 30 years. So we are already 10 years behind. And so everybody knows there’s this wall, but just politically it’s very unsavory to address this capacity problem and so people don’t… and so we’re trying… It’s another wakeup call on the airport system because that’s really quite stark.
BR: Without going too deep on airports, but isn’t it part of the problem that the, I don’t know — probably the two biggest airports are Zurich and Geneva, is that right?
MN: Oh is Zurich, Zurich, Zurich, and then it’s Geneva and then Basel.
BR: Okay. Thank you. But in both cases, Zurich, Zurich, Zurich and Geneva, so all four cases, the capacity is constrained by Germany and France. Is that not the case?
MN: A bit, but it’s also on your rules. When can you fly? So Zurich, you don’t land before six o’clock in the morning. Frankfurt and especially London, Luxembourg, they fly 24 hours. So it’s the rules, how you fly, what are the capacities. So because of very complicated airports system in Zurich. The best capacities of about 66 movements per hour, we would need 80 to 90 and so it is constrained physically. It’s constrained by rules. It’s constrained by Germany and France.
So it’s constrained by a lot of things. And this is why solutions are extremely complicated. And this is why planning is 20, 30 years. But the most important thing is in Switzerland there is one hub, which is Zurich, where a lot of people flying in to fly out direct flights, which allow for a lot of direct flights. And then Geneva and Basel are point to point.
So it’s not pejorative to say Zurich, Zurich, Zurich and then Geneva, because a lot of the flying out of Geneva also is very important for the entire system around Zurich. And so we looked at the whole thing in Switzerland, which because it’s really one ecosystem. London has many airports, there are much farther apart than Zurich, Basel and Geneva and it’s called Hampstead and Heathrow we call them — airports in London. And so this is basically airports in Switzerland; is really one system.
BR: Swiss quality of life. It’s a bit of a double edged sword isn’t it? And I — what I read in your report is the quality of life it attracts people. But then they never want to leave and they don’t even want to move within Switzerland. I think I’m speaking to somebody where this is the case where I moved to live with one employer and now I really don’t want to leave. And so how do you overcome that? How do you introduce geographical mobility into Switzerland?
MN: So I think first of all, it’s not a problem. It’s really a strength because people want to come and they want to stay. It’s just great for foreign talent. Long-term it is negative because especially Swiss talent, we would need to move them around the world because we are a very international country. And so the future leaders should have a lot of international experience. And that’s a bit of an issue, but I don’t know how to solve this. We’re just quality of life around here is just too good.
I left at 20 because I thought it was boring. I came back at 36 because I had to, because of my employer, I was the first Swiss Partner of Boston consulting group, told them five years. And then I pick my spot and I came here and then rediscovered Switzerland. And this is a fantastic place. I mean, why would you ever want to leave this place? And so clearly this quality of life is great to attract talent. Maybe for talent mobility, it has a drawback. Mostly ying has a yang, so that’s — I think we can live with that problem.
BR: And so you can’t just answer this question by the way — saying more multinational corporations. But the question is what would be your recommendations if you have any for creating a better ecosystem for the startups in Switzerland because there are a lot of people that listen to this podcast working in startups. And do you have any recommendations for that for fostering that ecosystem beyond just having more multinational corporations, which clearly feed them in terms of funding and people and so…
MN: I think that’s the two things: one is you need to create the cluster and the at the center of the cluster, you always find some leading edge companies from the world and that’s normally large multinationals. And then second, I think it’s an understanding in politics for everything, for working permits, for taxes, for regulation, for reports, for whatever. That startup is something very different.
And I think in Zug, in the so called Crypto Valley, very badly named because it’s a blockchain valley, there the Canton of Zug and the Swiss Federation have done some very interesting things, is like a banking allowing Fintech to work in finance without a banking license as long as they are really, really small and then be able to move to a light, to a banking license light before they really needed full banking license; same thing on taxation of the capital.
So if you’re a startup and then you get into the second round of financing and then certainly your stake, you have no money but your stake is certainly 10 million and you have to pay a wealth tax on this, there should be a lot of rules for startups. I think Switzerland has been doing a lot of progress on this one in the last five to 10 years. But still we need more and we need a better understanding in politics and in the political administration of the specificities of startups in all the whole sector around legal and tax.
BR: Yes. And the — just to speak a bit more about Zug in the Crypto valley, it seems that the government or the local government maybe was very pragmatic in that situation. Why do you think that was? Why do you think that is an exception to some of the complacency you’ve been talking about?
MN: I think the Canton of Zug is just doing some things really right because they are small and they really understand there’s no hesitation who’s bringing in the money. In the cantons, also, for most voters, it’s very evident that this large multinationals...
BR: So there’s a better alignment do you think between the different stakeholders, the population…
MN: Much better alignment. Great government, but at the end of the day, it’s also — it’s there, it’s in Zug because there’s a lot of trading companies there. There are a lot of foreigners, foreign companies there who are looking for the next best mousetrap. And so it’s not a coincidence that this thing is in Zug near the ETH but in a separate environment. So I hope this is still a small business with 3000 employees total, it’s a great — I mean the whole valley is a startup if you’d like and so we hope that this could be a bit of a lesson for everybody else. But it’s always always easier to get really excited about a small thing that grows than a large thing that should grow, but it’s less discernible. So this is a great example of, again, I think in R&D Switzerland’s doing really well in some other sectors, a little less.
BR: And in R&D, it seems that the government plays an important, but perhaps not. Does the government do enough of foundational R&D?
MN: No, [no] clearly not. But it’s also not the Swiss system. The Swiss system is the government sets the framework, a framework of conditions, and then companies should thrive. And so if you look at R&D and again, we are in the multinational companies, we have a lot, much higher percentage of private R&D than most of the countries around the OECD.
And of this 80% is eight or nine largest companies, 80%. And so it’s really the large companies who fund R&D by startups. And so you then get the whole startup scene around this and then you have to let them work. And you should have governments get out of the way because having somebody in government decide what is the better technology a or b it’s never going to work.
BR: So again, it comes back to multinationals corporations? [It comes back to multinational corporations]. And then just one more question, which is on venture capital in Switzerland. So there’s something we are very interested in and the numbers are getting better. I think there was something like a 35% growth or whatever last year in venture capital, but relative to most other developed nations is still very small per capital level absolute terms is dwarfed by Israel, by the US, by the UK. Do you think there’s a governmental role in channeling more capital intervention?
MN: First of all, take Israel out of your list because that’s really government money. In Israel it’s very strongly directed by government and otherwise there’s just, you named two very, very large economies. We are small and so by capita and everything, we are very, very forward and very, very advanced. But if you look at absolute numbers, it’s a lot smaller. And so if you’re a venture capitalist, is much easier to work in some of the hotspots in America where you have dozens of companies, which will become Unicorns, getting to one billion soon. Switzerland has a much smaller environment. And so I think government cannot do a lot. There is some technical stuff from taxes and some other permissions and stuff, but overall, I think we will always have to live with the fact that our venture capital industry will be less in absolute terms than in the US or in the UK.
BR: Okay. And again I think it’s much more important to have, “lions than Unicorns”, right? These top of the food chain companies, multinationals. Okay. So we don’t want to leave this podcast on a negative note, so we want to leave people feeling not complacent, but we want them to leave feeling relatively upbeat. So could we finish by you just making the case for, if you’re a multinational corporation, why you should put your headquarters here or your regional headquarters, or your R&D center or your operational center or your financial holdings. All the categories you have on page 21.
MN: That’s correct. Yes A, it’s a great place. Once you can explain that we have a political system that is very, very different from other countries, which if you don’t understand it, it leads to insecurity. The system is fantastic. We don’t change government every six months. We don’t do Brexit. We don’t have a government that comes in and says, you know, we will change everything. Our executive government has had the same four parties for the last 80 years. We have the ultimate grand coalition, so we’re extremely stable.
Two, this is really very welcoming for foreigners here. We have 25%. We are the only country in the world where most of the large Swiss multinational companies are led by foreigners. Try this in France, try this in Japan, try this somewhere else. So we are very welcoming, force for talent. I mean, people want to come to Switzerland. I mean, this is why Google has now two and a half thousand people here because the Zug-lers as they are called, they want to come to Switzerland, quality of life, the whole environment.
So we have enormously to offer to companies. Taxation is competitive. Yes, costs are high, but you look at productivity… we don’t do strikes. Our bridges don’t break down and we don’t exchange government every five, six months. So I think we have enormously to offer. And so the report is in no way to say this is bad, it is looking over the horizon and say, well guys, we are still great but other people do it really well. So we have to upgrade our game. But it is still a fantastic place.
I think the quality of life, but also the intellectual quality of life here is just fantastic. And so for great talents who come here is easy. And at the end of the day, every multinational that relocates needs to bring a great talents. And so if you put one somewhere in Siberia or in Switzerland, one talent want to come and the other talents don’t want to come.
And so it’s really all around the people and their talent, the quality of life, and everything else has to be competitive. And I think that is. brilliant.
BR: Brilliant! Okay. So just a reminder, we’ll tweet out the links to all the reports we’ve mentioned, the three reports we’ve mentioned, and Martin, thank you very much indeed for your time. Thank you. That was great.
MN: Ben, great. Thank you so much.
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