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(Updates with Schindler earnings in 17th paragraph.)

Aug. 13 (Bloomberg) -- The mighty franc is undermining the “Made in Switzerland” label.

For exporters, it’s a double whammy. The depreciation of emerging-markets currencies against the franc is making Swiss products less attractive. At the same time, operating factories in the Alpine nation is becoming increasingly expensive.

“The way the franc is now is not acceptable in the mid- term or long-term,” said Nick Hayek, chief executive officer of Swatch Group AG, the Swiss watchmaker that exports 90 percent of its goods. “We have to fight against it, not say ‘Well, we can’t do anything about it.’”

As Europe’s slumping economy pushed the franc near parity with the euro in 2011, Swiss companies ramped up exports to faster-growing countries like China. The Swiss National Bank’s effort to protect industrial exports by enforcing a cap of 1.20 francs per euro for the last three years has failed to halt gains against other currencies.

The value of exports to emerging markets such as Indonesia and Turkey has been dented as investors pulled cash out of developing economies, weakening their currencies. Over the last 12 months the rupiah and lira have lost 14.1 percent and 12.8 percent respectively against the franc.

“If it carries on like this, we’re worried,” said Rudolf Minsch, chief economist of business lobby Economiesuisse. “The strong franc compared with emerging nation currencies, the yen and the dollar, once more burdens the margins of Swiss companies.”

FX Fluctuations

The franc traded at 1.2137 against the euro and at 90.88 centimes against the dollar at 12:10 p.m. in Zurich today, little changed from yesterday.

The foreign-exchange fluctuations have reduced the value of sales from abroad for multinational companies such as Holcim Ltd., Roche Holding AG and Nestle SA when they’re converted back into francs.

The gain of the Swiss currency wiped $1 billion off sales in the six months through June for Holcim, the Jona-based maker of cement.

“The Swiss franc clearly has strengthened considerably more than other currencies,” Thomas Aebischer, Holcim’s finance chief, said on July 30. As a general rule, companies that report in francs feel a bigger impact than competitors reporting in euros, he said.

The strong franc is a more serious challenge for exporters like Swatch and small- and mid-size companies with factories in Switzerland, where shop-floor workers earn some of the highest wages in Europe.

Wage Costs

Freitag, a Zurich-based maker of designer bags, said it feels the effect of the strong franc since most of its production and wage costs are Swiss. For now, Freitag isn’t considering moving production abroad, Chief Executive Officer Hans Haefliger said by e-mail.

“Such considerations shouldn’t be taboo, if they make financial sense and also fit from an environmental point of view,” he said.

Landlocked Switzerland, which has a population about three times smaller than Texas, created some of the world’s first multinationals, as industrialists took their drugs and machinery abroad.

Mikron Holding AG started in 1908 and helped industrialize the watchmaking industry with its metal-cutting tools. With a majority of its 1,100 employees spread across production sites in Agno and Boudry, Switzerland, Mikron is vulnerable to the ebbs and flows of international currency movements.

The company has countered fierce competition from European and U.S. rivals in recent years by ramping up production in Germany as well as buying from countries that use the euro, Chief Finance Officer Martin Blom said by e-mail.

‘Swissness’ Rules

Schindler Holding AG, a Swiss elevator maker founded in 1874, said today that currencies cut reported sales by 233 million francs in the first half.

The government is making it harder to enjoy the price premium and reputational privileges of being “Made in Switzerland.”

A bundle of “Swissness” laws will come into force in 2017 to guard the authenticity of the marketing tag. Industrial products such as watches will have to prove that at least 60 percent of manufacturing costs are Swiss.

VIU Ventures, a Zurich-based start-up, which makes spectacle frames, has Swiss designers and outsources manufacturing to Italy.

“Honestly, it would take 3D printing to manufacture our glasses in Switzerland,” VIU’s co-founder Kilian Wagner said in an interview. “The manufacturing expertise for making frames is in Italy, and the personnel costs in Switzerland are extremely high.”

‘Painful’ Franc

The SNB should be more unpredictable to drive down the franc’s value and keep industry in Switzerland, said Swatch’s Hayek, adding that he’s competing with Japanese, Chinese and Indian companies that have lower cost bases.

“The SNB is giving the impression that it’s happy with 1.20 francs per euro, and it’s not going to move anymore, and that’s bad,” Hayek said. The SNB should create the impression it’s possible it might let the franc weaken more, he said. “The uncertainty that maybe the SNB still would go up to 1.25, if it’s at 1.23, would help.”

One franc was worth 25 cents in the early 1970s. Today it’s worth more than a dollar, which shows how exporters have had to adapt to the currency to thrive.

Hariolf Kottmann, CEO of Basel-based chemicals maker Clariant AG, began a restructuring of the company five years ago that included closing or selling some Swiss operations and shifting production and employees to emerging markets where revenue is growing. In the end, strong currencies make companies more efficient, he said.

“It’s more painful, but in the long term more rewarding to have a strong currency.”

--With assistance from Corinne Gretler in Zurich and Andrew Noel in London.

To contact the reporters on this story: Patrick Winters in Zurich at pwinters3@bloomberg.net; Jan Schwalbe in Zurich at jschwalbe6@bloomberg.net To contact the editors responsible for this story: Vidya Root at vroot@bloomberg.net Zoe Schneeweiss, Thomas Mulier

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