Globalization creates challenges for Swiss industry

Globalization puts Swiss industry under pressure

The Swiss trade surplus has risen steadily since 2008 – despite the strong and sometimes dramatic appreciation of the Swiss franc. The pharmaceutical industry in particular is poised to benefit from the boom in global trade and growing globalization. Swiss industry, on the other hand, has suffered. And the forecast for the MEM sector remains mixed.

Swiss exports grow in the wake of globalization

Globalization has sharply transformed the economy and the world at a breakneck pace. This is reflected in Swiss exports, which have more than doubled since 1998, increasing 122 percent. And trade from Switzerland is becoming more and more global every year. Before the turn of the millennium, 44 percent of all exports went to our four neighboring countries. Today, it's only 32 percent. Destinations such as Canada, China, Russia, and the US – who has become Switzerland's second largest trading partner – have grown increasingly important.

Exports to distant markets growing in the wake of globalization

Globalization is transforming the export landscape for Swiss companies

Share of Swiss exports by country and development since 1998
Source: Swiss Federal Customs Administration

Swiss industry exports losing importance

Since 1998, the pharmaceutical industry has greatly benefited from growth in the US and China. The share of pharmaceutical exports in relation to all Swiss exports has nearly tripled since then and now stands at almost 40 percent. On the other hand, the chemical sector and, above all, the mechanical, electrical and metal (MEM) industry, which has a strong presence in the European market, have experienced significant losses. This has consequences for the labor market. In 1998, almost 8 percent of all Swiss workers were employed in the MEM sector. Today, less than 6 percent are.

Swiss industry exports have lost importance since 1998

Export share of Swiss industry has fallen continuously

Bars: share of exports for each industry, dots: percent of workers (right-hand axis)
* including medical technology, electronics, and measuring and control devices
Source: Swiss Federal Customs Administration, Swiss Federal Statistical Office

Globalization challenges the Swiss MEM industry

One reason for this development is that internationally oriented Swiss companies have been forced to adjust to increasingly global competitive pressures. The MEM industry in particular, which positions itself on the market mainly through high quality, is suffering from short-term fluctuations in demand. According to calculations by Credit Suisse, the development of MEM exports reacts sensitively to changes in GDP growth in buyer countries. The same applies to the watch industry.

The situation is a bit different for pharmaceutical exports. They are resistant to short-term economic fluctuations in buyer countries. Over the long term, increasing economic output in other countries tends to lead to more imports of Swiss pharmaceuticals as the quality of health care rises with increasing prosperity and GDP.

Swiss industry exports react sensitively to economic fluctuations

High GDP elasticity of demand challenges Swiss industry

GDP export elasticity of the MEM sectors (2004–2019)
Percentage of exports from MEM sectors for each country, 2019
Shaded coefficients are significant
Source: Swiss Federal Customs Administration, Datastream, Credit Suisse

A strong franc is problematic for Swiss industry in the long term

Looking at exchange rates paints a similar picture. Pharmaceutical exports are robust against short-term foreign exchange developments. The same applies to exports in the watch and chemical industries. However, the situation is somewhat more difficult for the MEM industry. The structural appreciation of the Swiss franc negatively influences the long-term exports of this sector and has short-term impacts.

Overall, the stable development of pharmaceutical exports braces total exports even in volatile times and during economic downturns abroad. But this dependency also poses risks. Healthcare reforms in the US, the leading export market, or decreased demand from the emerging markets could adversely affect the situation in the future. It is therefore all the more important that Swiss exports become further regionally diversified whenever possible. Service exports could reduce the dominance of the goods exports, not least in the pharmaceutical sector.

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