It has become a cliché to say that Israel and Switzerland share many common features: more or less the same population size, economic successes built on brainpower rather than on natural resources, and two of the most innovative nations in the world. It is therefore no surprise that scientific and trade relations between the startup nation and the #1 innovative country are thriving. According to Israeli statistics, Switzerland is the second most important provider of goods and services to Israel after the US, with a value of nearly $8 billion in 2018. Israeli exports to Switzerland are unfortunately much lower ($1.35 billion), and are shrinking somewhat. Swiss official figures are much more modest (Swiss exports to Israel: $2 billion; Swiss imports of goods and services from Israel: $739 million). What has been the most remarkable development in the last seven years, however, is the exponential growth in the export of services from Israel to Switzerland, from a mere $50 million in 2012 to $459 million last year. A ten-fold increase matched by a more than doubling of Swiss exports of services during the same period (from $408 million to $937 million). These figures demonstrate that the potential of cooperation between these two high-tech labs is mostly in the digital economy.
Switzerland remains an industrial powerhouse, with high-performing major companies in pharma, the machine and metal industries, food, and, last but not least, watches, obviously. Like Israel, Switzerland invests a lot in R&D (3.2% of its GDP, or $14 billion, against 4.2% or $11 billion for Israel), and enjoys one of the highest productivity rates in the world. This is seen as the recipe for maintaining its competitive edge on world markets. Furthermore, Switzerland has implemented a very liberal policy. It is fully integrated in the European market and enjoys free-trade agreements with a large number of countries, including Israel, but also China. The Alpine country was the second European country after Iceland to sign such an agreement with Beijing, in 2013. Since then, there has been a steady growth in trade with China, which has greatly benefited Swiss exports.
Three specific features explaining the success of the Swiss economic model over the long term need to be highlighted. Its legendary political stability is the first one. It is true that roughly the same coalition has ruled Switzerland since 1959. Second, its decentralized federal system allows for healthy competition between the 26 cantons, as taxation, corporate and individual, is mostly a cantonal competence. For instance, corporate taxes amount to over 20% in Berne, but less than 15% in Zug or Nidwald. Finally, its unique education system, based on vocational training, provides companies with a highly skilled labor force tuned to the needs of the market. Almost two-thirds of young Swiss join a company when they are 16 years old instead of entering a purely academic path. The beauty of the model is that anyone can access university, even after having begun her/his professional career as an apprentice. A mason or a carpenter can end up as an architect if he/she has the skills and the will.
These special characteristics have attracted a large number of multinational corporations to Switzerland. It is estimated that over 25,000 multinational companies are active there, among which may be the largest concentration of companies ranked in the Fortune 500. Nestlé, which has a significant presence in Israel, remains the largest Swiss company in terms of number of employees (over 320,000 worldwide), while Glencore comes first in terms of annual turnover (more than $200 billion). ABB, Novartis and Roche are the most famous companies ranking in the top ten. They are all active in Israel.
We realized two years ago that the start-up scene in Israel was largely unaware of the potential offered by Switzerland. Why exit in California when much closer Switzerland can open the world's doors? We have started a dynamic program aimed at making the Swiss ecosystem better known to Israeli companies. In March 2020 we are launching the Israel-Swiss Lean Launchpad: we will invite Israeli and Swiss start-ups to work together in a common space, both in Switzerland and in Israel. We aim at a cross-fertilization process that will on the one hand lead Israeli innovative companies to realize the advantages of regarding Switzerland as a perfect hub to reach out to the world, while on the other hand we wish to inject some of the Israeli culture into Swiss habits. Swiss are more risk-averse than risk-takers. In Switzerland, it is hard to bounce back after a bankruptcy, whereas Israeli venture capitalists looking precisely for individuals who have learnt from their mistakes.
Venture capital in particular needs to be boosted in Switzerland. With $1.24 billion invested in Swiss start-ups in 2018, the sector pales in comparison with Israel (over $6 billion). One could argue that innovation in Switzerland takes place within the hundreds of thousands of SMEs as well as in the large corporations. Furthermore, thanks to the Swiss cautious mindset, a far larger number of startups survive and become profitable. Maybe. But in a world where startups are like speedboats showing the way to the large carriers, we need to have many more speedboats than we have today. That is something we can learn from Israel.
The author is the Swiss ambassador to Israel.
Published by Globes, Israel business news - en.globes.co.il - on January 13, 2020
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