For decades, the town of Visp at the foot of the Swiss Alps enjoyed the steady stream of affluent skiers heading to Zermatt and the tax income from chemicals maker Lonza Group AG. (LONN) Lately, the inflow of money has ebbed.
Lonza is making the deepest cuts in its 115-year history, as the drug-additive maker seeks to eliminate 400 jobs out of 2,890 at its complex in Visp. The plant employs about one in 10 of the valley’s workers, and every third person depends on the site indirectly, facility manager Stefan Troger said.
Visp is emblematic of an industrial decline that has gripped Switzerland. Manufacturers of steel pipes and heating radiators are cutting jobs as they struggle to absorb Europe’s highest-paid workforce. At the same time, the creeping gain in the Swiss franc lures customers away to cheaper neighbors including Germany.
“What we are now experiencing in Visp did not start two weeks ago, it started more than a year ago,” Lonza Chairman Rolf Soiron said in an interview in Zurich. “So now you have a kind of a tip of the iceberg coming out of the water.”
Visp’s population of 7,100 has counted on Lonza for an inflow of almost 400 million francs ($428 million) into the local economy from wages to contracts for local suppliers. Now the town is having to make do with less, as the cuts extend as far as less sponsorship money for the local ice hockey club.
The Lonza site, which makes chemicals ranging from vitamins to snail-killing powder, is implementing cuts it sees as necessary to survive in Switzerland. Even though the Swiss central bank imposed a 1.20 ceiling against the euro last year, exports are suffering and chief executive officers are acting to prevent profits from dwindling.
“We are talking up to 10,000 lay-offs in Switzerland in our industry,” said Hans Hess, the president of Swissmem, an association of 290 local manufacturers with 340,000 employees.
A Credit Suisse AG survey of 1,000 Swiss voters published Dec. 11 showed that unemployment is their biggest concern, beating angst about foreigners, pensions and health care. Swiss unemployment was unchanged in November, with a jobless rate at 3 percent, the highest since March 2011.
Companies from steel-maker Schmolz + Bickenbach AG (STLN) to radiator-maker AFG Arbonia-Forster Holding AG (AFGN) are eliminating positions as budgeting for Swiss workers becomes more difficult. The country’s manufacturers have accounted for more than 20 percent of gross domestic product for the past decade, though Switzerland’s average monthly wage of $7,765.5 is the highest in Europe, according to the United Nations.
Swissmem said October was the most idle month for local factories this year. The valuation of the euro versus the franc makes German exports cheaper than Swiss competitors. With companies including Daimler AG, the maker of luxury vehicles, scrapping profit targets because of an increasingly volatile market, Swiss suppliers are fighting harder for business.
“The slowdown in Germany is hitting Swiss industry quite substantially,” said Claude Maurer, an economist at Credit Suisse in Zurich. “If you compete in an environment with an overvalued currency, then it makes it much harder.”
Georg Fischer AG (FI/N), one of hundreds of Swiss suppliers to German carmakers including Daimler and Bayerische Motoren Werke AG, is reducing overtime, vacation days and the number of part- time employees after cutbacks in auto production in recent weeks, spokesman Beat Roemer said.
Shares of Geberit AG (GEBN) dropped the most in more than a year on Oct. 30 after the maker of toilet flushes reported a bigger- than-estimated sales decline across Europe. Textile-machinery maker Rieter Holding AG (RIEN) dropped 11 percent on Oct. 31 after curbing forecasts.
“There’s an incorrect expectation that even these companies are not vulnerable,” said Hess of Swissmem, adding that he “would not be surprised” by other Swiss industrial companies reducing their forecasts.
Companies can limit the impact by introducing shorter working hours, said Bernhard Signorell, chief executive of 3v Asset Management in Zurich, which holds Swiss small- and mid- sized stocks including AFG and Schmolz.
“You don’t sack 1,000 people and hire them again like in America,” Signorell said. “You go down to short-term working until the business is improving again.”
Instead, companies will transfer manual labor to lower-cost countries, Hess said. Swiss specialty chemicals maker Clariant AG (CLN) has opted to sell textile-, paper- and emulsion-chemical units after acquiring catalyst maker Sued-Chemie. The move highlights a strategy for Swiss companies to move toward niche products to contend with the higher energy and labor costs relative to European competitors.
“The future will be value-added products,” Lonza’s Soiron said in the Nov. 19 interview. “We will have to squeeze out of products which look like commodities.”
Three thousand feet below Zermatt in the town of Visp, the change in tack threatens local government coffers as job losses affect tax income in the short-term.
“It is a shock,” Visp Mayor Niklaus Furger said. “Our tourism is also suffering because of the high Swiss franc. Now it’s Lonza, too. The accumulation of all these things hurts.”
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