Economy of Switzerland:

The Swiss economy is one of the most stable and strongest economy of the world. The currency of Switzerland Swiss Franc which is one of the worlds strongest currency with the lowest inflation rate. According to the world economic forums Global competitiveness report they ranked Swiss economy as the worlds most competitive economy. In 2005 Swiss median house hold income was estimated about 95000 CHF, which is equivalent to 9000 USD (as of Dec 2009). In the year 2008 the Swiss GDP (nominal) was about 500.260 billion which is the 21st largest in the world, with the growth rate of -1.2% nominal. Switzerland also ranked as the world 15 th highest GDP per capita, where it is about $63170. The main sectors of Swiss economies are trade, tourism, banking, agriculture and technology. The largest exported goods are chemicals (34% of exported goods), machinery/electronics are (20.9%) and precision instruments/watches are (16.9%). Exported services amount to a third of exported goods. Where in trade they are exporting about $247.2 billion products and services which is about (50.2% of GDP). While imports are about $198.2 billion which is about (40.3% of GDP). Tourism, where Switzerland has a highly developed infrastructure especially in the mountainous regions, tourism contributes about SF 1.5 billion every year. Banking sector is the most developed one in the world, where long-term monetary security and bank secrecy has made Switzerland a safe heaven for investors. In agriculture where Switzerland has the world most famous and developed dairy farming system where 70% of it subsidies by the government and its cheese industry is also very popular. Pharmaceutical industry in one of the most developed one around the world. Hoffman La Rosh and Novartis are there 2 big firms which rated number 3rd and 5th in the world. And they both also rated in the fortune 500 companies with the rank of 171 and 183 respectively. Swiss pharma also hold the 12% of the world share which is quiet remarkable. Technology wise they are also advanced where they made world finest brands of watches and also the famous LHC tunnel in the largest laboratory in Geneva. Their famous companies include Nestle, Glencore, Novartis, Hoffman-La Roche, ABB and Adecco. Nevertheless the domestic purchasing power is one of the best in the world and Switzerland is also considered as the honorable member of (EFTA).

Types of industry suited:

Manufacturing industry (49% of GDP): Machinery, watches (54% of world market share), chemicals (2% of world market share), Pharmaceuticals (14% of world market share), and textile. Baking sector (banks plus securities) (46% of GDP). Agriculture sector (5% of GDP).

Porter 5 forces model of competition: (pharmaceuticals)

Here we taking Pharmaceutical sector in consideration because manufacturing industry is there leading industry in which pharmaceutical sector contribute the most. Hoffman La Rosh and Novartis are there 2 big firms which ranks 3rd and 5th largest pharmaceutical firms in the world and also rank in the fortune 500 list.

Bargaining power Of suppliers

Rivalry Among existing Competito rs

Threat of Substitute Products Threat of new entrants

Low threat. Large companies to manipulate. Price differentiation is there.

Threat of New Entrant s

Bargaining Power of Buyers Bargaining power of buyers
High. All big nations and can negotiate goods or move to other sellers. High quality and service demanded.

forces
Result

Bargaining power of suppliers

High. Italy, Germany. Because they have other countries to sell and both are developed.

Threat of substitute products

Low. Because life saving drugs are to be purchased at any cost. Unlimited profit and pricing.

Rivalry among competitors

Very high. UK based companies GlaxoSmithKline & Astra Zeneca are there rivals. Both rated 4th and 7th in the top list. Customer loyalty challenge is there.

Ricardos model of comparative advantage: (Chemical industry)

Here we are taking Swiss chemical sector in consideration because this is the sector which cost them less as compare to other sectors both in labor and nominal cost. So it is the product which they are relay heavily in export. They are the 8th largest chemical supplier to the world market and contribute 2% in the world share. As it is told before that chemical accounts for 34% of total goods exported. So it is quiet clear that chemical industry has a comparative advantage in Switzerland over other sectors.

Graphical presentation of Ricardos model of comparative advantage:

Comparison of Swiss chemical industry with Chinese chemical industry: China is the 9th largest chemical exporter of the world right after Switzerland so we are comparing them both in Ricardos model.

Heckscher Ohlin model.

(Net revenue) in millions: Capital Intensive Textile = (5403) Machinery = 7947 Watches = 21710 Vehicles = 11375 Banking & Insurance = 34969 Tourism = 24220 Labor Intensive Agriculture = 13036 Metals = (2979) Pharmaceuticals = 27551

Net revenue from capital goods = 105624.

Net revenue from labor intensive = 37607.

Explanation: This simply means that Switzerland is a technology driven country not a labor intensive country. Because they are generating much revenue by using technology not their labor. So they should focus more on their main strength and source which is technology and they are.