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 (NYS: NVS) .
- Industrial & electric equipment titan ABB (NYS: ABB) .
- Offshore drilling kingpin Transocean (NYS: 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 (NYS: 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 (NYS: 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 (NYS: 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 (NYS: 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.
At the time this article was published 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.
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