Information about the Economy of Switzerland - Term Paper Example

?Opening a Business in Switzerland I. Executive Summary Switzerland is a country rich in natural beauty of mountains, forests, and lacks but the country lacks mineral resources because of which it has to rely heavily on trade with other countries. Switzerland has a cold climate generally. Swiss population is composed of German, Italians, French, and Romanish because of which these have also become the national languages of Switzerland. Switzerland is primarily a Roman Catholic country by religion. In spite of the European Union (EU) being the largest trading partner of Switzerland, Switzerland is so far not a member of the EU because of doubts about the sustenance of the EU among the Swiss people as well as the concerns regarding cost and neutrality. Switzerland is a democratic country with good relations with a vast majority of countries across the globe. Swiss workplace is decentralized with respect to power. There is an informal culture wherein employees freely interact with the managers and also expect to be involved in decision making. There is great respect for values and traditions in Switzerland. The opportunities of doing business in Switzerland include low tax rates tax exemptions, and business without licensing in some cases whereas the risks include the need to rely upon imports and the debt crisis that the Swiss banking sector is currently facing. With proper planning of the business and prudent management of resources, there is a lot of room for expansion of business in Switzerland. There is a whole procedure of establishing a new business in Switzerland that includes activities like registering the company, getting the signatures over the application form notarized, obtaining a legal entity, paying the stamp tax at the bank, registering for the VAT, and acquiring social insurance for the employees. II. Country Profile Location and size/population The total area of Switzerland is 41285 km2. Switzerland shares its boundary with Italy, France, Germany, Liechtenstein, and Austria. There are three main geographic divisions in Switzerland; Alps that covers about 60 per cent of the total area, Middle Land that makes up to 30 per cent of the area, and Jura that 10 per cent of the land (about.ch, 2012). As of July, 2011, the population of Switzerland was 7,655,628 (indexmundi.com, 2012). Topography and climate Almost two-thirds of the total land of Switzerland constitutes forests, mountains, and lakes. About 20 per cent of the Alps are hosted by Switzerland. “Approximately 100 peaks are close to or higher than 4000 meters (13125 feet) above sea level” (about.ch, 2012). There are many lakes in Switzerland that include the Lake Geneva and numerous little lakes. Glaciers constitute above 3000 km2 of the total area in Switzerland, though they are decreasing with the passage of time. Switzerland lies in the transition zone from the climatic perspective. The Atlantic ocean influences the west. There occurs frequent rainfall in Switzerland because of the moisture brought in with the winds. In the east, continental climate prevails whereas there is a climatic divide at the alps. Towards the alps’ south, the Mediterranean climate prevails. Natural resources Switzerland has almost no mineral resources because of which, most of the natural resources are imported and processed and then used or resold in the form of different kinds of products. The most important part of Swiss economy is services that include but are not limited to tourism, assurances, and banking. A very important part of the Swiss economy is farming. However, despite the country’s dependence on farming, Swiss farmers’ production is insufficient to meet the needs of the population which is why Switzerland has to import goods from other countries to meet the demand. Language and religion Switzerland has about four national languages that include French, Romanish, German, and Italian. The largest followed religion in Switzerland is Roman Catholic which is the religion of 47.6 per cent of the population, 44.3 per cent of the people are Protestants while 8.1 per cent of the people belong to other religions (about.ch, 2012). Political and legal system Switzerland is a democratic country that has endorsed the ideals that are also identified with the US. Switzerland is stable politically and has a quite strong economy. Throughout its history, Switzerland has played a very important role in the expansion of the democratic values and institutions all over the world. Switzerland has also provided assistance to other countries in economic development and humanitarian relief. “With referendums held as often as four times a year, Swiss citizens don’t just elect their politicians, they also direct their policy” (blog.transparency.org, 2011). Switzerland is a peaceful country with no significant internal crisis and has good relations with other countries. Foreign policy and membership in international organization The diplomatic relations between the US and Switzerland date back to 1853 when a unified Swizz state was formed. Switzerland has gained membership of the United Nations (UN). III. The Role of the European Union membership for Switzerland There is a range of bilateral treaties that have framed the relations between the European Union (EU) and Switzerland. The Swiss Confederation has taken several provisions of the law of EU to be able to partake the European Union’s single market. Switzerland does not have the membership of the EU. The likelihood that Switzerland would become member of the EU would increase if the majority of the Swiss population is convinced about the sustenance of the EU. In the year 1992, the Swiss voters turned the single market down. Becoming the member of the EU is still a stated option of the Swiss cabinet. Although an application for membership of the EU has already been launched in Brussels, yet it has remained dormant because the direct democracy system of Switzerland necessitates the support of a national referendum and the consent of a majority of voters in order to launch an actual application of acquiring the membership of the membership of the EU by Switzerland. “The union is perceived as falling short in democratic institutions. Switzerland's frequently used system of initiatives and referenda would need drastic reform and curtailment to comply with EU rules” (swissinfo.ch, 2009). Cost is also a big concern for the Swiss since Switzerland would be EU coffers’ net contributor whereas there is suspicion about the compatibility of neutrality with the EU membership. IV Economy Business in Switzerland can be a risky option because of a whole range of factors that primarily include debt crisis. In its attempt to bring down the Swiss franc, the central bank of Switzerland has bought debt from the German and French government from the markets. “But the Swiss central bank has tried to weaken the franc by injecting liquidity in the money markets, pushing short-term yields into negative territory” (CNBC, 2011). Macroeconomic indicators  The situation in Switzerland is assessed by means of a range of macroeconomic indicators that include but are not limited to consumer price index (CPI), Kof leading indicator, retail sales, gross domestic product (GDP), trade balance, purchasing managers index (PMI), industrial production, producer price index (PPI), 3 month LIBOR range, and balance of trade (metatrader5.com, 2012). Foreign Direct Investment  As of the year 2010, the foreign direct investment in Switzerland was 12.41. In the past 27 years, the highest value of foreign direct investment in Switzerland was 19.57 in the year 2006. In 1983, it was the lowest with only 0.48. “The latest value for Foreign direct investment, net inflows (BoP, current US$) in Switzerland was $21,706,580,000.00 as of 2010. Over the past 27 years, the value for this indicator has fluctuated between $44,992,740,000.00 in 2006 and ($525,048,900.00) in 2005” (indexmundi.com, n.d.). Research and Development  Like most advanced economies, Switzerland depends a lot on research and development. In 2004, more than 2.9 per cent of the gross national product was attributed to research (swissworld.org, 2002). Foreign Trade and Trade Barriers  Switzerland heavily relies on foreign trade since it highly contributes to the gross inland product. Industrialized countries are the most important partners of Switzerland in trade. In the year 2003, 77.2 per cent of the total goods were exported by Switzerland to the industrialized countries whereas 89 per cent of the total imports came from them. “In particular, 60.3% of the goods were shipped to and 81.7% of the imported goods came from countries which belong to the European Union (EU)” (about.ch, 2012). Financial Institutions, Currency and Stock Exchange Financial institutions in Switzerland include but are not limited to asset managers, stock exchange that offers infrastructure, banks, fund providers, and insurance companies. Currency of Switzerland is the Swiss Franc. Switzerland’s stock exchange is SWX Swiss Exchange in Zurich. SWX offers different kinds of securities like stock options and bonds. Industries and Logistics  Basel is the capital of logistics in Switzerland. Basel provides the shippers with access to almost 90 main cities in Europe within two hours through numerous channels including by air, road, water, and rail. 15 per cent of all foreign trade in Switzerland happens through Basel since it is the only port’s home in Switzerland. Taxation in Switzerland  In Switzerland, the municipalities, the cantons, and the Swiss Confederation levy the taxes. Tax rate in Switzerland is low which is why it is often referred to as a tax haven. There is political stability and different types of exemption of tax to the Swiss companies as well as foreign residents in Switzerland. V. Setting up a Company in Switzerland The Swiss constitution provides the opportunity of free trade and growth of industry because of which, everyone including both the local nationals and the foreigners can easily establish a business in Switzerland. The “red tape” in the business regulations in Switzerland is much less as compared to in the UK, Italy or Germany. However, in order to personally own a business or run a business on a permanent basis, it is imperative that an individual has a work and resident permit. In Switzerland, a joint stock corporation for which, AG is used as an abbreviation in German is the most common kind of company. For their Swiss subsidiary, it is commonly chosen by the foreign companies as a legal form. Another kind of company that can be established in Switzerland is the limited liability company in which one or more parties jointly establish a company as a legal entity. The liability of a company is determined by the registered capital amount that is necessarily equal to or more than 20,000 Swiss francs (switzerland-4you.com, 2012). There are certain legal and bureaucratic hurdles in the way of establishment of business in Switzerland by the entrepreneurs. The entrepreneurs need to place the capital that is paid-up in a bank’s escrow account. The bank releases the capital after completing the procedure of registration and free ranges anywhere between 200 CHF and 2000 CHF. After the registration of the company, the individual is charged a fee of 200 CHF at minimum to get the capital transferred from the escrow account of the individual to the account of the company. It takes one to two days to complete this procedure. After this, the individual needs to draft the association articles in a notary public’s presence so that the corporate as well as personal signatures on the application form can be notarized and the articles of association can be authenticated. One corporate or personal signature costs up to 20 CHF, and this process completes in about a week. After this, it takes another week to file the deed to get the articles of association certified to the register of the local commercial so that a legal entity can be obtained. The fee of this process can be anywhere between 600 CHF and 10,000 CHF. After this, it takes a day to pay the stamp tax at the bank or the post office once the assessment has been received by mail. The entrepreneur then files an application for the VAT registration with the Federal Tax Administration (FTA). There is a procedure to check if the company needs to file for this tax because certain kinds of businesses are exempt from this tax. After this, the entrepreneur can enroll the employees into the system of social insurance. VI. Other Factors to Consider before setting up a company A very important factor to consider before establishing a company in Switzerland is that since the company lacks mineral resources, most of the raw materials and goods have to be imported from other countries, so new business entrepreneurs must have sufficient capital and arrangements for the imports. In addition, the backing sector in Switzerland has traditionally faced numerous challenges and has suffered significant losses during the global financial crisis. Switzerland is experiencing pressure from the US and the EU to reform the secrecy laws in its banking sector. VII. Business Etiquette and Culture Swiss culture when explores with the 5-D Model lens of Geert Hofstede (n.d.) offers a comprehensive insight into its drivers with respect to other cultures in the world. On the dimension of power distance, “there is a vast difference with the French speaking part of Switzerland, which scores a PDI of 70 (very similar to France), which means that people accept a hierarchical order in which everybody has a place and which needs no further justification” (Geert Hofstede, n.d.). Power in Swiss business and workplace is decentralized. Managers tend to benefit from the team members’ experiences. Employees are involved in the decision making process through consultation. Employees maintain an informal attitude with the managers and dislike the control. Communication between the organizational personnel is direct as well as participative. In the dimension of individualism, the French and German speaking Swiss score high with a score of 64 and 69 respectively and are thus considered as individualistic. Rankings on the dimension of masculinity / femininity for the French speaking Swiss is 58 whereas for the German speaking Swiss is 72 which indicates Switzerland as a masculine society that is highly driven by success. French speaking Swiss score 70 in the dimension of uncertainty avoidance whereas the German speaking Swiss score 56. Most of the Swiss people are risk averse in nature and prefer to avoid uncertainty. In the dimension of long term orientation, the score of the Swiss people is 40 which depicts the Swiss culture as sort term oriented. Swiss people are normative and have much respect for traditions. VIII. Switzerland Profile Data According to the statistics noted by data.un.org (2012), the summary statistics of Switzerland are that the country is located in the Western Europe, its currency is Swiss Franc (CHF), the surface area of Switzerland is 41277 square kilometers excluding the communazas and the state forests, the estimated population of Switzerland in 2009 was 7568000, the population density in 2009 was 183.3 per square kilometers, the annual rate of population growth in Switzerland has been estimated to be 0.4 from 2010 to 2015, the GDP of Switzerland in million current $US was 491923 by the year 2009. Switzerland has been the member of the UN since 10 September 2002. References: about.ch. (2012, Apr. 30). Geography of Switzerland. Retrieved from http://www.about.ch/geography/index.html. about.ch. (2012, Dec. 19). Information about the Economy of Switzerland. Retrieved from http://www.about.ch/economy/index.html#CH_Eco_foreign_trade. about.ch. (2012, June 8). Statistical information about Switzerland. Retrieved from http://www.about.ch/statistics/index.html#CH_Stat_Religions. blog.transparency.org. (2011, Oct. 13). What lies beneath: Switzerland’s opaque politicial donations. Retrieved from http://blog.transparency.org/2011/10/13/what-lies-beneath-switzerland%E2%80%99s-opaque-political-donations/. CNBC. (2011, Sep. 3). Swiss C. Bank Buys German, French Bonds: Report. Retrieved from http://www.cnbc.com/id/44382588/Swiss_C_Bank_Buys_German_French_Bonds_Report. data.un.org. (2012). Switzerland. Retrieved from http://data.un.org/CountryProfile.aspx?crName=SWITZERLAND. Geert Hofstede. (n.d.). What about Switzerland? indexmundi.com. (2012, July 19). Switzerland Demographics Profile 2012. Retrieved from http://www.indexmundi.com/switzerland/demographics_profile.html. indexmundi.com. (n.d.). Switzerland - foreign direct investment. Retrieved from http://www.indexmundi.com/facts/switzerland/foreign-direct-investment. metatrader5.com. (2012). Macroeconomic Indicators of Switzerland. Retrieved from http://www.metatrader5.com/en/terminal/help/analytics/economic_indicators/economic_indicators_switzerland. Swissinfo.ch. (2009, Nov. 17). Switzerland and the EU. Retrieved from http://www.swissinfo.ch/eng/country_information/country_profile/Switzerland_and_the_EU.html?cid=5764106. swissworld.org. (2002). Research and development. Retrieved from http://www.swissworld.org/en/economy/the_swiss_economy/research_and_development/ switzerland-4you.com. (2012). Setting up a company under Swiss jurisdiction. Retrieved from http://www.switzerland-4you.com/business_development.htm. Read More