International Tourism Exchange TIA FDI report:
‘Is there Tourism related FDI in Switzerland and if so, what are both the sustainable tourism and leisure tourism consequences?’-
That is the question that puzzled our team, when we started inquiring on the Swiss-FDI topic.
What is FDI?
Stands for foreign direct investments and It’s an investment from a foreign company made in another company than its own. The difference between direct and indirect investments is that with direct investment the company has a significant degree of influence and control over the company in which they invested.
Influences on the FDI:
Some logical factors that influence the investment in a country are e.g. the political stability of country or the legal system. But one important factor is the exchange rate.
If there is a lot of foreign investment for example in Switzerland then the value of the Swiss Franc will go up. If this goes on for a long time then the Swiss Franc will become too high and this will discourage foreign companies to make investments in Switzerland.
To compensate this, the Swiss national bank is buying Euro’s on a large scale to keep the Swiss Franc at 1.2.
FDI in Switzerland
Switzerland has always wanted to have an “open economy”, being an economical system that contained a lot of foreign actors so they really played a big role in the Swiss open economy. Thanks to the location in Europe and thanks to the stable political, legal and social system in the country, Switzerland was able to attract quite a lot of so-called inward Foreign Direct Investment. The crisis though has been a risky period for Switzerland. To make sure Switzerland remains an attractive country to invest in, they will always have to make the business environment better. If Switzerland stagnates, other countries will win the ever-lasting competition.
In 2008, Switzerland was the second country on the list of countries with the most inward FDI. On the first place were The Netherlands.
As tradition, the outward FDI in Switzerland is relatively high. Switzerland is a small country and has not so many natural resources. Because of their position, being encircled by Europe, the companies of Switzerland like to do more activities abroad. The outward FDI reflects the amount of companies that give their business a go on foreign, global markets.
The financial crisis pushed everyone in a recession, including Switzerland, but still the Swiss outward FDI grew in 2008 and 2009. This is thanks to their economy, which is well balanced, thanks to innovation and knowledge, and a good governing structure.
Is there FDI in tourism?
Yes there is foreign investment. But it’s not the biggest sector where there is FDI in Switzerland. The sectors with the biggest FDI is parmaceutic sector, Bankin, insurance and finance, IT, Environment. Tourism is not in the list but can be associated with environmental technology and the real estate. So the FDI for tourism is hidden in the other sectors.
A form from FDI in tourism can be found in hotel chains. In the hotel chains also here in Switzerland is a lot of international money involved. E.g Accor, Best Western, Marriot, Movenpick…
But another form from FDI in tourism we found in the next table. Five of the ten largest greenfield projects have a target industry in tourism. The money invested in Swiss tourism was mostly used for the construction of hotels.
Consequences from FDI:
Swiss Labor Law is applied by default for any business operating in Switzerland (except for some organizations, which benefit from a special status, like permanent missions). A company willing to hire foreign employers has no direct technical barriers to import labor, but through special mechanisms Swiss Labor System (“third” countries notion) favorites Swiss employees, indirectly working against the leakage.
-support the economy
FDI influences the country’s economic attractiveness, through exhibiting successful ROI to the world and either attracting even more investors, or ruining country’s reputation. It also indirectly strengthens the national currency, thus may be encouraged by countries willing to do so. In Swiss case, however, this aspect of the FDI (especially related to Tourism Industry), this is considered a negative influence, due to existing exchange rate stabilizing policy.
-leakage and linkage due to dividend outflow
FDI is often considered beneficial, on the earliest stages of a business set-up or renovation (creation of jobs, money inflow, etc.) However, once a company starts making considerable profit, despite the fact, that some of taxes may be retained by the host country, there’s still a considerable outflow not only through such phenomenon as outsourced employees, but also due to the dividends owed to foreign shareholders, or other forms of ROI.
There’s an exchange between the FDI-actor and company invested, which may be mutually beneficial or undesired by one party, due to the unwillingness to allow secret or technique leakages.
TIA Team: Laura Jacobs, Heidi Dillen, Karl Arsiriy
•Endo, K. (2006, August). Foreign direct investment in tourism—flows and volumes. Retrieved from Science direct: http://www.sciencedirect.com/science/article/pii/S026151770500021X
•European commision. (2012). Top ten countries as extra EU-27 partners for FDI positions, EU-27, end 2009-2011. Retrieved from Eurostat: http://epp.eurostat.ec.europa.eu/statistics_explained/index.php?title=File:Top_ten_countries_as_extra_EU-27_partners_for_FDI_positions,_EU-27,_end_2009-2011_%28EUR_1_000_million%29.png&filetimestamp=20130722084750
•HAMIDA, L. B. (2007). Inward Foreign Direct Investment and Intra-Industry Spillovers: The Swiss Case. Fribourg: Faculty of Economics and Social Sciences.
•Integrated foreign economic information portal. (n.d.). Retrieved from ved.gov: http://www.ved.gov.ru/eng/
•Kothe, A. B. (2013). FDI in figures. UNCTAD.
•LLoyd-Williams, O. (2013, March 11). Switzerland has to reinvest itself to accommodate for China. Retrieved from Jing Daily: http://www.jingdaily.com/switzerland-has-had-to-reinvent-itself-to-accommodate-for-china/24505/
•Monthly Statistical Bulletin October 2013. (2013). Retrieved from Banc swiss national: http://www.snb.ch/en/iabout/stat/statpub/statmon/stats/statmon