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Domestic production key despite shift abroad

Yves Serra says Switzerland has the right infrastructure to make it a conducive location for innovation Keystone

Yves Serra, chief executive of Swiss industrial giant Georg Fischer, tells that the company’s presence in Switzerland remains vital for the company’s future despite shifting production to emerging economies.

Faced with an economic crisis in Europe and the shift in demand for its products towards emerging markets, the firm decided in 2009 to manufacture most of its machine tools in China.

At the same time as closing a plant in Schaffhausen and selling off its Meyrin factory, with the cost of hundreds of Swiss-based jobs, Georg Fischer expanded its presence in China, India and the United States.

Yet Serra argues that increased investment in research and development in Switzerland, coupled with the automisation of production lines, has underlined Georg Fischer’s commitment to its home base. Given exchange rates, economic volatility in Europe and new markets emerging elsewhere, is deindustrialisation in Switzerland inevitable?

Yves Serra: No it is not. Of course we have to manufacture where our customers are, and we do so more and more, but the core competencies of our company will stay in Switzerland.

We want to retain our image as a manufacturer of quality products and a large part of this reputation derives from our presence in Switzerland. Switzerland has the right infrastructure, in terms of quality education, skilled labour and a flexible workforce, to make it a conducive location for innovation and high quality production. Nevertheless, in recent years Georg Fischer has closed some production in Switzerland whilst opening plants in India and China.

Y.S.: Adjustments are possible and sometimes required in order to adapt ourselves to market shifts. We had in 2009 to adapt the footprint of GF AgieCharmilles because 50 per cent of the world market for machine tools had shifted to China in the last 10 years.

In Switzerland we have kept research and development, the manufacture of key components for our Asian factories and the production of high-end machinery for Europe and other parts of the world. How much of Georg Fischer’s production takes place in Switzerland?

Y.S.: We manufacture about 80 per cent of our products abroad and 20 per cent in Switzerland. Ten years ago, our Swiss production was maybe 25 per cent.

Because we are buying factories or opening new plants in higher growth markets, such as the US and Asia, we will probably manufacture a higher proportion of our products in these areas in future.

But that does not mean we will manufacture less in Switzerland. What impact has the strong franc made on your production strategy?

Y.S.: The Swiss franc has been strong for the last 50 years; it is not a new phenomenon.

It forces all Swiss companies, especially those who want to manufacture in Switzerland and export abroad, to be very efficient and innovative – and that is not a bad thing. It forces us to look at every product and ask whether it makes sense to make it in Switzerland or produce abroad.

We manufacture abroad because customers want us to be close to them and we manufacture products in Switzerland that require a high degree of quality and where it is possible to automatize production. It is not a one size fits all proposition. How can you justify Swiss-based production, with its higher costs, to shareholders?

Y.S.: You cannot just look at labour costs, you have to look at total costs. If you automatize production then labour costs are less of a factor.

Switzerland also gives us an image of quality, reliability and stability. It is an important factor for the company, not just for shareholders but also for customers. You can win more market share if you have a reputation for reliability and quality.

Formed in 1802, Georg Fischer now employs 14,000 staff in 30 countries.

The industrial company is divided into three business sections: Piping Systems, Automotive and AgieCharmilles (tool and mould making).

The company achieved sales of SFr3.64 billion last year with a net profit of SFr168 million.

Georg Fischer was hit by the global economic downturn that followed the 2008 financial crisis.

Sales dropped 35% to SFr2.9 billion in 2009, resulting in a net loss of SFr238 million.

The company was forced into a wide ranging restructuring programme that included the streamlining of production at its AgieCharmilles division with a loss of 281 jobs.

This resulted in the closure of its factory in Meyrin, canton Geneva and the concentration of Swiss manufacturing in Ticino.

At the same time, operations were expanded in India and China. An SFr11 million machine tools plant was established in Changzhou, China last year.

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