Switzerland: It's Not Just for Banks Anymore

Switzerland is a country long known for four things:

  • Fervent neutrality.
  • Strong, secretive banks.
  • The International Committee of the Red Cross and Red Crescent.
  • World-class chocolate.

The chocolate brings with it certain joie de vivre, and the global Red Cross/Red Crescent headquarters assures the country an international leadership role. But it's the first two on that list that give the country an incredibly solid economic foundation in an ever more global economy.

Strength from stability
Switzerland's neutrality and strong banking system help it maintain a stable currency, and its stable currency encourages investment beyond just in the banks themselves. Add to that a stable, democratically elected government, relatively low corporate tax rates, and a well-educated, multilingual workforce, and you have a very solid foundation for encouraging companies to flourish.

Because of these advantages, many multinational companies call Switzerland home, including:

  • Pharmaceutical giant Novartis (NYSE: NVS  ) .
  • Industrial & electric equipment titan ABB (NYSE: ABB  ) .
  • Offshore drilling kingpin Transocean (NYSE: RIG  ) .

Transocean's location in Switzerland may seem especially strange on the surface, given that Switzerland is landlocked and thus has no "shores" from which to drill. But when you realize that its effective tax rate of around 23.9% is several points below its Texas-based competitor Diamond Offshore Drilling's (NYSE: DO  ) 28.5%, the financial reasoning behind that location choice becomes clearer.

Of course, low taxes are just one aspect of what make Switzerland attractive. Successful pharmaceuticals research and development takes both a highly educated workforce and a stable government that respects property rights. That's why the country is attractive not only to Novartis, but also to American pharmaceutical giant Johnson & Johnson (NYSE: JNJ  ) , which also has R&D there.

And speaking of stability, industrial and electrical equipment titan ABB has a history in Switzerland going back as far as 1891. No company can survive 120 years in a country that's actively hostile to it. ABB's longevity and success there showcases just what's possible when a country has the right conditions for its businesses to thrive.

ABB's reputation and success have global implications, as well. For instance, its U.S. competitor Emerson Electric (NYSE: EMR  ) appears regularly in Fortune magazine's "World's Most Admired" companies list. While Emerson certainly deserves the credit for the effort it takes to be considered for that list, smart companies do benchmark against others in their industry. Competitive pressure has to play a part in keeping Emerson striving for that spot -- competition for customers, employees, and investors.

You can still bank on it
Of course, Switzerland is still home to some of the strongest banks in the world. UBS (NYSE: UBS  ) and Credit Suisse, for instance, can pass stress tests that put most of the rest of Europe's banks to shame. In a time where much of the European continent is in danger of financial collapse triggered by the potential Greek default, there's something to be said for having world-class banks as the anchor of the Swiss economy.

All told, whether it's from the top-notch chocolate, the fortress-like banks, the global Red Cross & Red Crescent headquarters, or the fervent political neutrality, Switzerland has a lot going for it. Investors looking for a place to park their capital while the rest of the world straightens itself out could do far worse than buying shares in some of Switzerland's strongest businesses.

Fool contributor Chuck Saletta is proud to call himself a volunteer of the American branch of the International Committee of the Red Cross & Red Crescent. At the time of publication, Chuck owned shares of Johnson & Johnson. Click here to see his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson and Transocean.

Motley Fool newsletter services have recommended buying shares of ABB, Johnson & Johnson, Emerson Electric, and Novartis. Motley Fool newsletter services have recommended creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (8)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 21, 2011, at 6:16 PM, reflector wrote:

    switzerland is a great country to be sure.

    but this article's comment about stable currency is puzzling, given the recent decision to peg to the euro.

  • Report this Comment On October 21, 2011, at 9:46 PM, TMFBigFrog wrote:

    Hi reflector --

    Great question. Personally, I don't expect the Swiss peg to the Euro to last very long. The Swiss people are too smart and fiercely independent. I could be wrong, of course, and only time will tell.

    -Chuck

  • Report this Comment On October 22, 2011, at 12:17 PM, Mega wrote:

    Just 4 things? What about watches or the Alps? Switzerland is much more known for those than the Red Cross.

  • Report this Comment On October 22, 2011, at 3:16 PM, xetn wrote:

    1. It has the most democratic system in the world.

    2. One of the highest (if not the highest) private gun owners per capita with the lowest crime rate.

    3. Swiss banks are no longer so secret as once, since the US has bullied them into disclosing US citizen accounts. The banks without foreign branches still maintain their secrecy.

    4. The have a bill being strongly promoted to introduce a new gold backed CHF, that would parallel the existing CHF.

    5. The cleanest country I have ever been in.

    6. Their central bank is of course mercantilists and believe they need to inflate their currency so they can be competitive in exports. This is the same stupidity exhibited by all central banks (they are all on a race to the bottom).

  • Report this Comment On October 22, 2011, at 4:45 PM, bornboring wrote:

    My understanding is that all Swiss citizens are reservists. They receive training every year, and issued with a current weapon which they keep in a safe place at home. Each is responsible for the firearm´s condition, and there are annual inspections. That is not ¨private¨ gun ownership.

    ¨Need to inflate a currency¨ contradicts ¨gold standard¨. That is why don´t believe any modern government or any future ¨reserve¨ currency will be tied to gold.

  • Report this Comment On October 22, 2011, at 5:08 PM, VolkOseba wrote:

    Logitech :)

  • Report this Comment On October 23, 2011, at 1:26 AM, ershler wrote:

    bornboring,

    All Swiss citizens are not reservists. Military service is compulsory for males and voluntary for females. The total size of the Swiss Army is less than 200,000. Swiss soldiers are allowed to keep their service rifles after they leave the service (I don't know if they have to pay for them or they are gifts) after the fully automatic function is removed.

    bornboring,

    I agree with bornboring, rifles owned by the Swiss military can't be called private gun ownership, it would have to be called gun possession. Do you have any information on what the private gun ownership rate in Switzerland is? The figures I've seen never specify.

  • Report this Comment On October 23, 2011, at 10:52 AM, Shawnerz wrote:

    I read (in the perverbial) somewhere, that the Swiss central bank is shunning investment and bond puchasases in their bank. Because they are so stable, they are afraid of the "pump and dump."

    All of this capital comes in from all over the world pumping up their ecomony. Everything looks great for a few years until other investment opportunities look better. Then everybody dumps their investments in Switzerland leaving their ecomony in shambles.

    I guess the upside would be good quality, chocolate for cheap!

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