Intensive locational competition is forcing the Swiss cantons and regions to take steps to make themselves more attractive to inward investors. The Credit Suisse Locational Quality Indicator measures the attractiveness to businesses of the various Swiss cantons and regions. It looks at seven "hard" locational factors and provides businesses with a basis for evaluating locations. On the other hand, it can be used as a benchmarking tool for enhancing cantonal or regional location policy.

Zug: Leading the Pack
According to the locational quality indicator, Canton Zug offers the highest locational quality, followed by Zurich. This result is due to its attractiveness from a tax perspective and the ready availability of skilled employees. While the cantons of Central Switzerland tend to stand out because of their low tax rates, the two Basels plus Zurich and Aargau shine in terms of the accessibility of the population, the workforce, and airports.

Mountain Cantons with Below-Average Levels of Locational Quality
The rural and mountain cantons, including Jura, Valais, Neuchâtel and Graubünden, come in below the national average. According to Credit Suisse's economists, this is largely due to their challenging topography, which reduces the attractiveness of their transport infrastructure. The central cantons, Vaud and Bern, also have below-average scores. However, a closer look at the individual parts of these cantons shows that the city of Bern and the Nyon region boast above-average attractiveness. It therefore makes good sense when examining heterogeneous cantons to take a closer look at the locational quality of the economic regions within each canton.

New Data and Changes to the Methodology Mean Changes in the Rankings: Basel and the Cantons of Central Switzerland Come off Better While French-Speaking Switzerland Loses Ground
As a result of changes to the methodology underlying the locational quality indicator, it is not necessarily possible to make comparisons over time. The biggest changes affect Cantons Geneva, Vaud, Thurgau and Graubünden, which have fallen back in the rankings. These changes are the result of applying new indicators (e.g. the accessibility of labor and airports) and, for the first time, including traffic congestion and new data on educational quality. The winners include Basel-Stadt, Schwyz, Lucerne and Uri, not least because of recently implemented tax cuts.

Tax Competition: the Limits of Discretionary Tax Policy Become Apparent
In recent years Switzerland's cantons have demonstrated high levels of activism in relation to corporate income tax rates. The most notable winners are Cantons Lucerne and Neuchâtel, which have cut their tax rates sharply. In contrast, St. Gallen has lost ground in terms of its tax attractiveness; its falling income and the cantonal debt cap have forced the canton to take this step. As far as the tax burden is concerned, the French-speaking cantons tend to be less attractive because the calculation of locational quality is based on publicly available tax rates and cannot take account of the discretionary tax agreements that are common in French-speaking Switzerland. However, the international controversy about corporate tax rates and the seemingly inevitable abolition of tax privileges for special companies should bring statutory tax rates back into sharper focus. The fact that some companies have relocated in recent times could be related to this.

Immigrants Account for 17% of All Highly Qualified Individuals
According to Credit Suisse's economists, there is a town/country divide in the availability of highly qualified staff. This is particularly pronounced in the Lake Geneva regions and the major German-speaking cities. Around 17% of all highly qualified individuals resident in Switzerland have moved here since 2000, and in both the Lake Geneva region and Zurich the figure is substantially above 20%. Knowledge and innovation – the most important factors in the success of the Swiss economy – are therefore dependent to a large extent on the movement of individuals internationally. In contrast, as far as the availability of skilled employees with a completed vocational apprenticeship is concerned, there is a distinct east/west divide. Skilled employees of this kind are relatively rare in the French-speaking cantons.

Zurich: Traffic Congestion Primarily Affects Commuters from the North and South
Analysis of the traffic infrastructure down to square kilometer level clearly shows that in Switzerland small distances can produce major disparities. In some areas, for instance, public transportation makes a major contribution to the accessibility of the zones around major rail hubs. Where private motorized transport is concerned, Credit Suisse's economists found that the major highways and their feeder roads have a broader effect on accessibility. A look at the delays due to traffic congestion shows significant differences between the regional centers. While people commuting to Lausanne from the west had to put up with delays of 15-20%, the equivalent figure for commuters from eastern and northern areas was around half of that. In Zurich, the northern by-pass is having a delaying effect on traffic, with commuters from Winterthur, Schaffhausen and Frauenfeld to central Zurich having to factor in delays of 20-30% on journey times. Similar congestion-related delays are also experienced by commuters from the Knonaueramt and Zimmerberg regions.
 
The Credit Suisse Locational Quality Indicator
Since 1997, Credit Suisse research has produced quantitative analysis of the locational quality of the Swiss cantons and regions and published the results annually. The method used for calculating locational quality was last comprehensively revised in 2004. In this study, Credit Suisse's economists have completely overhauled the methodology on which the calculation of locational quality is based. The data has been brought up to date and numerous refinements, as listed below, have been introduced.
- The transport infrastructure for both private and public transport is now calculated at square kilometer level. The figures now also take account of time delays caused by traffic congestion.
- The availability of skilled and highly qualified employees now also includes cross-border workers and people who commute to a region as well as those who live there.
- In order to produce a more complete picture of the operating environment for businesses, business-related traffic (i.e. the accessibility of employees) was added as a new factor. In addition, access to airports, a key requirement for internationally active businesses, has also been included.
- The tax burden for natural persons and legal entities continues to figure as a locational factor.