Economy of Switzerland

8/3/2019 Economy of Switzerland

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Economy of Switzerland:The Swiss economy is one of the most stable and strongest economy of the world. Thecurrency of Switzerland Swiss Franc which is one of the world’s strongest currency withthe lowest inflation rate. According to the world economic forum’s “Globalcompetitiveness report” they ranked Swiss economy as the world’s most competitive

economy. In 2005 Swiss median house hold income was estimated about 95000 CHF,which is equivalent to 9000 USD (as of Dec 2009). In the year 2008 the Swiss GDP(nominal) was about 500.260 billion which is the 21 st largest in the world, with thegrowth rate of -1.2% nominal. Switzerland also ranked as the world 15 th highest GDP per capita, where it is about $63170.The main sectors of Swiss economies are trade, tourism, banking, agriculture andtechnology. The largest exported goods are chemicals (34% of exported goods),machinery/electronics are (20.9%) and precision instruments/watches are (16.9%).Exported services amount to a third of exported goods. Where in trade they are exportingabout $247.2 billion products and services which is about (50.2% of GDP). Whileimports are about $198.2 billion which is about (40.3% of GDP).

Tourism, where Switzerland has a highly developed infrastructure especially in themountainous regions, tourism contributes about SF 1.5 billion every year.Banking sector is the most developed one in the world, where long-term monetarysecurity and bank secrecy has made Switzerland a safe heaven for investors.In agriculture where Switzerland has the world most famous and developed dairy farmingsystem where 70% of it subsidies by the government and its cheese industry is also very popular.Pharmaceutical industry in one of the most developed one around the world. Hoffman LaRosh and Novartis are there 2 big firms which rated number 3 rd and 5th in the world. Andthey both also rated in the fortune 500 companies with the rank of 171 and 183respectively. Swiss pharma also hold the 12% of the world share which is quiet

remarkable.Technology wise they are also advanced where they made world finest brands of watchesand also the famous LHC tunnel in the largest laboratory in Geneva.Their famous companies include Nestle, Glencore, Novartis, Hoffman-La Roche, ABBand Adecco. Nevertheless the domestic purchasing power is one of the best in the worldand Switzerland is also considered as the honorable member of (EFTA).



Types of industry suited: Manufacturing industry (49% of GDP):Machinery, watches (54% of world market share), chemicals (2% of world marketshare), Pharmaceuticals (14% of world market share), and textile.

Baking sector (banks plus securities) (46% of GDP).

Agriculture sector (5% of GDP).

Porter 5 forces model of competition: (pharmaceuticals)Here we taking Pharmaceutical sector in consideration because manufacturing industry isthere leading industry in which pharmaceutical sector contribute the most. Hoffman LaRosh and Novartis are there 2 big firms which ranks 3rd and 5th largest pharmaceuticalfirms in the world and also rank in the fortune 500 list.

forcesThreat of newentrants

Bargaining power of buyers

Bargaining power of suppliers

Threat of substitute products

Rivalry amongcompetitors

Result Low threat.Largecompanies tomanipulate.

Pricedifferentiationis there.

High.All big nationsand cannegotiate goods

or move toother sellers.High qualityand servicedemanded.

High.Italy,Germany.Because they

have other countries tosell and bothare developed.

Low.Because lifesaving drugs areto be purchased

at any cost.Unlimited profitand pricing.

Very high.UK basedcompaniesGlaxoSmithKline

& Astra Zeneca arethere rivals.Both rated 4th and7th in the top list.Customer loyaltychallenge is there.

Threat of SubstituteProducts

Threat of SubstituteProducts

Bargaining power Of suppliers

RivalryAmongexisting

Competitors

Bargaining Power of Buyers

Bargaining Power of Buyers

Threat

ofNew

Entran

t

s



Ricardo’s model of comparative advantage: (Chemical industry)Here we are taking Swiss chemical sector in consideration because this is the sector which cost them less as compare to other sectors both in labor and nominal cost. So it isthe product which they are relay heavily in export. They are the 8 th largest chemicalsupplier to the world market and contribute 2% in the world share. As it is told before

that chemical accounts for 34% of total goods exported. So it is quiet clear that chemicalindustry has a comparative advantage in Switzerland over other sectors.

Graphical presentation of Ricardo’s model of comparative advantage:

Comparison of Swiss chemical industry with Chinese chemical industry:China is the 9th largest chemical exporter of the world right after Switzerland so we arecomparing them both in Ricardo’s model.



Heckscher Ohlin model.(Net revenue) in millions:

Capital Intensive Labor Intensive

• Textile = (5403)• Machinery = 7947

• Watches = 21710

• Vehicles = 11375

• Banking & Insurance = 34969

• Tourism = 24220

• Net revenue from capital goods= 105624.

• Agriculture = 13036• Metals = (2979)

• Pharmaceuticals = 27551

• Net revenue from labor intensive= 37607.

Explanation:This simply means that Switzerland is a technology driven country not a labor intensivecountry. Because they are generating much revenue by using technology not their labor.So they should focus more on their main strength and source which is technology andthey are.

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Economy of Switzerland