There are differing views on the matter of individuals seeking countries such as China, India, Taiwan, Vietnam, and others in today’s fiercely competitive global economy. Some aim to lower production costs and gain a competitive edge.
Switzerland, a small landlocked country in central Europe, has a population of 7,630,605. It is enclosed by the Alps and excels in various industries including chemical/pharmaceutical production and export, watch making, chocolate manufacturing, and a strong financial sector. However, despite acknowledging its potential in these fields, Switzerland has not fully explored corporate taxation.
Investorpedia.com (2010) defines comparative advantage as the ability to produce a particular good or service with a lower opportunity cost than another entity. Grasping this concept is essential for comprehending the achievements of countries such as Switzerland in today’s market.
The concept of comparative advantage in economics refers to the ability of a party, such as an individual, firm, or country, to produce a specific good or service at a lower opportunity cost compared to another party (Investorpedia.com, 2010). This advantage is observed when a nation can efficiently and cost-effectively manufacture products or offer services in comparison to its competitors. The principle also applies when a country, individual, company, or region can produce a good with less opportunity cost than its competitor.
Understanding how a country can produce something with a lower opportunity cost involves recognizing that opportunity costs pertain to the most valuable alternative that is given up when choosing one option over other exclusive options.
Switzerland faces limitations in terms of its geographic location, access to affordable human resources, population growth, and other factors that contribute to a country’s competitiveness in inexpensive production.
Switzerland, in 2010, stood out for its multitude of strengths. These included the exceptional education levels among its population, the ability to attract highly skilled individuals, and the overall excellence of its products and research. The Swiss economy thrives on three key sectors: agriculture, industry, and services. Notably, Switzerland excels in manufacturing chemicals utilized for pharmaceutical advancement—an industry valued at $44,846 million annually.
Switzerland’s ability to produce specialty products and services, which contribute to its maintaining a comparative advantage despite higher consumer costs, can be attributed to two main factors: production and investment in its citizenry through education and apprenticeships.
Switzerland differentiates itself from other developing nations by placing importance on higher education and specialized industries. In contrast to many developing nations that depend on a less-educated workforce for simple assembly or construction work, Switzerland actively promotes education in sectors like finance, chemistry, pharmaceuticals, and confectionaries.
Switzerland’s gross inland product heavily relies on foreign trade, as stated in Introduction to Switzerland (2010). The nation’s primary exports consist of chocolates, chemicals and pharmaceutical products, precision tools, watches, and jewelry. Although Switzerland is unable to globally compete in the production of economical goods and services such as toys and manufactured items, it is advised that the country concentrates on maintaining the production of its existing specialized products while also enhancing its services sector to encourage foreign investment in the economy.
Switzerland is renowned for its production of top-notch chocolates, including Toblerone and Lindt brands. The nation excels in chocolate production and can create two pounds of chocolate within an hour by sacrificing the production of one pound of cheese. In contrast, if Switzerland devotes that same hour to cheese production, it would forfeit two pounds of chocolate. Thus, chocolate is the good that Switzerland produces with utmost efficiency.
Therefore, if a country is presented with the option to produce two goods (or services), it will optimize its resources by choosing to produce the good with the smallest opportunity cost and the one in which it has a comparative advantage, while trading for the other good. ” (Globalization101.org, 2010) Although Switzerland is well-known for its expertise in producing chocolates, it also excels in other areas. An example of this is the production of high-quality and sometimes pricey watches, which is already recognized and effectively utilized by the Swiss.
Brands include; Rolex, Citizen, Swatch, Invicta, and Omega just to name a few. The watch industry is an example of the use of a highly trained and skilled workforce and becomes the primary factor in this country’s comparative advantage over others. The pharmaceutical and financial industries are two other fields dominated by the Swiss globally. As with the watch industry, Switzerland has invested a significant amount of time and resources in capital to develop its populous into a well-educated and highly trained group of individuals, thus maximizing its resources in these industries.
The Swiss banking system is widely used globally to manage various issues and accounts for individuals, organizations, and nations. It provides guaranteed security and peace of mind. However, Switzerland has not fully explored the potential of attracting corporations to relocate their operations from their current home countries to Switzerland. Such a move could generate additional revenue due to the country’s lower corporate tax rates.
Switzerland’s tax system is decentralized due to its federal structure. While certain taxes are imposed solely by federal authorities, others are levied simultaneously at the cantonal, communal, and federal levels. The tax rate remains consistent at the federal level but differs among cantons at the cantonal level. Choosing a specific canton becomes vital for tax planning because of substantial variations in tax rates. As of now, companies in Zug face a tax rate ranging from 14% to 17%. (Lowtax. et, 2010)
To effectively tap into an untapped sector, it is strongly advised that the federal government initiates a comprehensive marketing campaign aimed at foreign entities. This is mainly due to the evident advantages associated with engaging in business and finance activities within this particular sector. Switzerland, known for its liberal trade and investment policies as well as conservative fiscal policy, serves as an example of protectionism. The commercial law system in Switzerland is highly advanced and well-defined, ensuring clarity in legal matters concerning business transactions. Moreover, there are robust laws and policies implemented to safeguard investments. With its globally recognized stable currency, the Swiss franc, and renowned banking and financial services industry, Switzerland enjoys a reputable position.
Switzerland has faced economic challenges caused by the liberalization of trade laws, which used to provide protection for sectors like agriculture, industry, and services including pharmaceuticals, watch manufacturing, and finance. Presently, Switzerland is taking steps alongside other countries to protect these industries that are vital to its economy while maintaining positive international relations.
Switzerland has taken action on different policy fronts, as part of a “revitalization programme,” which included implementing the Uruguay Round agreements. A report from the WTO Secretariat on Switzerland’s trade policies and practices states that the main motivation behind this “revitalization programme” was to align with European regulatory developments after Swiss voters rejected the European Economic Area (EEA).
According to a report from the World Trade Organization (WTO) in 2010, certain industries such as finance and innovative manufacturing, including pharmaceuticals and advanced electronics, are performing well. However, traditional industries and tourism are facing significant pressures for adjustments. The report highlights the air transport sector as especially affected by Switzerland’s decision not to participate in the European Economic Area (EEA). As a result, Swiss importers may invoke intellectual property provisions to protect exclusive arrangements from “unauthorized” supplies.
Switzerland safeguards trade secrets in domestic businesses by utilizing a blend of trademark and copyright laws, alongside traditional business methods, corporate regulations, and laws. This comprehensive approach allows companies to thrive within Switzerland and leverage its comparative advantage. Situated in central Europe amidst the Alps, Switzerland may be small with a population of 7,630,605; however, it maintains its export market dominance due to its highly educated and skilled workforce. Consequently, it currently ranks as the world’s third largest exporter.
Switzerland has untapped potential as a host nation for foreign businesses in sectors like Pharmaceuticals, chemical exports, and chocolate making. Although it excels in finance, Switzerland can enhance its appeal by providing corporate tax advantages at discounted rates. To take advantage of this opportunity, it is recommended that Switzerland launches a comprehensive marketing campaign targeting major corporations. This will unlock new sources of revenue for the country.
- About. h, (2010) Information about the Economy of Switzerland, http://www. about. ch/economy/index. html, Retrieved; July 5, 2010
- Globalization101. Org, (2010) The Theory of Comparative Advantage, http://www. globalization101. org/index.
- Retrieved; July 5, 2010 LOWTAX. NET, (2010) Switzerland; Domestic Corporate Taxation, http://www. lowtax. net/lowtax/html/jswdctx. html
- Retrieved; July 5, 2010 Investorpedia. com, (2010) Comparative Advantage, http://www. investopedia. com/terms/c/comparativeadvantage. asp, Retrieved; July 3, 2010
- World Trade Organization (WTO), (2010) Trade Policy Reviews; Switzerland 1996, http://www. wto. org/english/tratop_e/tpr_e/tp31_e. htm, Retrieved; July 5, 2010