Switzerland PESTEL Analysis

Introduction

Switzerland is an interesting country with a notable reputation globally drawn from its governance system and incredible diversity (Steinberg, 2015). This report provides an in-depth analysis of Switzerland’s macro-environmental factors. While conducting the study, PESTEL was employed as the key tool in the research. Some of the critical areas examined within the report comprise the political, economic, socio-cultural, technology, environment, and legal indicators. Besides this, the report also details an overview of the country, including its governance, demographic summary, cultural analysis, and other cultures, particularly the United States. While examining the cultural similarities and differences, the Hofstede cultural dimensions model was employed. Additionally, the geographic challenges affecting Switzerland have also been detailed within the report. 

Country

The country covered in this analysis is Switzerland. The Swiss confederation was founded in the year 1921 as a defensive union among three cantons after securing independence from the Holy Roman Empire in the year 1499. Initially, it was governed solely by the confederation; however, the 1848 constitution was modified to 1874 to allow the citizens to introduce new referenda on the proposed laws. It is a nation located at the confluence of western, central, and southern Europe. The county has a total area of 41,285 square kilometers, to the west, France borders it, Germany to the north, Austria, and Liechtenstein to the east, and Italy to the south. It is a federal republic with 26 cantons; the administrative capital or rather federal authorities are based in Bern while its judicial center is in Lausanne (Steinberg, 2015).

Besides, Switzerland is a landlocked country with its central geographical representation being the Alps, Jura, and Swiss plateau. It has deep alpine lakes, grassy valleys that are dotted with neat farms and small villages. Moreover, its cities are thriving and blend both the old and the new. It is recognized as the nexus of the diverse physical and cultural geography of the Western Europe region. Due to its modest population, the country has gained international significance. For foreigners, the nation evokes affluent, stain, and unexciting society, an image that can be described as dated (Steinberg, 2015).

Demographic Overview 

Out of the 41,285 km2, 25.5% is nonproductive, while the remaining part is productive, particularly in the settlement and agriculture sectors. The used agriculture area covers 35.9% of the land, while forestry covers 31.3% while the settled region covers 7.5%. Transport and infrastructure, on the other hand, account for almost one-third of the country. The country’s total population is 8.5 million people. Out of this population, 84.8% live in urban areas, while around half of the urban population reside in the top five biggest cities; Zurich, Geneva, Basel, Lausanne, and Bern (Rérat, 2019). Up to the end of the 20th century, Switzerland’s population was 33.3 million people; however, since then, it has grown so first to hit the 8 million mark. In 2018, the population change was a 0.7% increase. Research shows that the population increase has been fostered by international migration flows and increased fertility rates and low mortality rates. In 2019, the birth rate increased by 1.7% (Steinberg, 2015).

Regarding religion, Christians make up most of the population, followed by Muslims and Jews come third.

• Roman Catholic 35.9%
• Protestant 23.8%,
• Other Christian 5.9%
• Muslim 5.4%
• Jewish 0.3%
• Other 1.4%
• None 26%, 
• Unspecified 1.4% (2017 EST.) (Maxwell, 2020).

Official languages in Switzerland are German, French, Italian, and Romansh. Swiss-German is the most spoken language followed by French, while Italian comes third. 

• German (or Swiss German) (official) 62.6%
• French (official) 22.9%
• Italian (official) 8.2%
• English 5.4%
• Portuguese 3.7% 
• Albanian 3.2%
• Serbo-Croatian 2.5%
• Spanish 2.4%
• Romansh (official) 0.5%
• Other 7.7% (2017 est.) (Maxwell, 2020).

Geographic Challenges in Switzerland 

Several geographic challenges affect Switzerland. First, the nation is densely populated, with a population density of 219 per Km2 (567 people per mi2). Globally, it is ranked 101 among the countries that are densely populated. Research shows that Switzerland is rapidly becoming overpopulated due to the heightened number of migration. Nearly 70-80 thousand people come to Switzerland annually. This leads to challenges in the transport and housing sector. Another challenge arises from its climate. Statistics show that the country’s climate is changing, with the average temperature rapidly rising while low temperatures are rare. There is evidence showing that Glaciers are melting away, indicating that there will be a need to change activities in the near future. The OECD notes that Switzerland’s environment is under immense pressure due to its geography and other human propagated factors. Some of the critical things affecting Switzerland’s environment are spatial restructuring, pollution, and improper use of natural resources. The major sectors bringing about these challenges are transport, tourism, industry, and agriculture (Maxwell, 2020).

Hofstede Cultural Dimensions: Country Profile

Hofstede evaluates countries basing on the 6-D model. For Switzerland’s case, the model makes it possible to examine the deep drivers of the country’s culture in relation to other cultures around the world. However, several things should be taken into consideration when reviewing the culture of Switzerland. For instance, the French and German areas in Switzerland can have broad variation scores, and the same applies to the Italian canto. 

Deducing from the comparison chart extracted from Hofstede’s website, it is apparent that there is more power distance in the United States than Switzerland. Also, the rate of individualism in the United States is still higher than that of Switzerland. However, the masculinity score in Switzerland is higher compared to Switzerland. The same case applies to uncertainty avoidance score and long term orientation scores. On the other hand, Switzerland has a slightly lower score when it comes to indulgence. The power distance dimension tackles the fact that people in society are not equal. Therefore, it expresses the attitude of culture in relation to societal inequalities. It is defined as the degree to which the less powerful individuals of institutions and organizations within a nation expect and accept that power is distributed disproportionally.

The individualism indicator addresses the degree of interdependence individuals within a society maintain among themselves. It reflects how people’s self-image is defined, whether in terms of ‘I’ or ‘We.” In individualistic societies, people look after themselves and their immediate family only while in a collectivist society, people below in groups and take care of one another, and in turn, loyalty is rewarded. On the other hand, a high masculinity score shows that society is driven through competition and success, whereas success is defined by the winner being someone who is the best in the film. A low score is denoted by feminine denotes that the dominant values within the society are caring for others and the quality of life. In a community that is described as feminine, the quality of life is the primary indicator of success. Uncertainty avoidance rating is the extent to which people of a particular culture feel threatened by unknown situations and have established beliefs and institutions that prevent them from these obscure or somewhat ambiguous situations. Long term orientation is a score that describes how societies have to maintain some links with their past while handling present and future challenges. The last rating is an indulgence that examines the extent to which individuals in society try to control their desires and impulses.

PESTLE Indicators analysis

Political Indicators

Government debt 

One of the critical political indicators in Switzerland is government debt. The indicator is used to examine a country’s government stability in relation to its financial management and usage. It’s usually computed as the total sum of liabilities particularly the currency and deposit liabilities, which are made of things such as debt securities, standardized guarantee schemes, loans, and pensions, accounts payable, and insurance. The change in government debt reflects the effect of past government deficits. Government debt is calculated against the Gross Domestic Product (GDP) of the country. For Switzerland, the government debt from 2015 to 2019 stands at 41%. The Swiss government has been stable and projections showcase that the Swiss government stability will grow stronger with time. However, this depends on future governments (Bruneau, 2016).

Political freedom 

Another major political indicator in Switzerland is political freedom. This indicator is measured through a survey that evaluates freedom based on two significant divisions: civil liberties and political rights. In the 2019 survey, Switzerland was identified as a free nation having scored 1/7 in both categories.

The Swiss political system allows all the cantons to enjoy an equal share of decentralization. The country is known for its exploration of democracy. Switzerland is the country where the citizens enjoy direct democracy, whereby they can provide their individual opinions on matters affecting them. Usually, this freedom is exercised several in a year via regional or national referendums and citizens’ initiatives (Kern, 2017).

The nation has been much advantaged due to the stability of its political environment. Research has shown that it is one of the safest countries in the entire world. It has remained a politically stable nation in the region, while some of its neighboring countries continue to face political upheavals from time to time. 

What makes the country even more stable politically is that most voters are loyal to their political parties. Some of the political things that remain a concern for Switzerland’s citizens are health insurance, migration, social insurance, climate, and the environment, asylum, and the employment industry (Bruneau, 2016).

Economic Indicators

Switzerland is known for having one of the most advanced free-market economies globally. The service sector has significantly boosted the economy of the country. The leading industries in the country are banking and tourism markets (Žídek, L., & Šuterová 2017). In 2015, Switzerland was ranked first in the entire world based on the Global Innovation Index, while in 2020, it has been ranked third by the Global Competitive Report. Furthermore, a study conducted by the United Nations in 2016 showcased that Switzerland is the third most prosperous country globally among landlocked nations; Liechtenstein and Luxembourg are taking the first and second positions, respectively (Guex & Guex 2020).

Income inequality

The income inequality indicator is determined by comparing the country’s cumulative proportions against the cumulative balances of income. 0 means that there is perfect equality, while 1.0 means that there is perfect inequality. From 2015-2019, the average ratio of income inequality in Switzerland was 0.25, meaning that it is not far from attaining complete equality.

The banking and service sector is the pillar of the nation’s economy due to excellent financial authorities and regulators’ presence. The central bank of Switzerland’s primary goal is guaranteeing that there is price stability. It is also accountable for different kinds of economic development (Guex & Guex, 2020). Due to the presence of a stable economy marked by constant GDP growth, the citizen’s benefit a lot; a reason for their high standards of living

Gross Domestic Product (GDP) 

GDP is another core economic indicator in Switzerland’s economy. It entails the total sum of the gross value. All the resident producers within a nation’s economy added to all the product taxes subtracted from subsidies not incorporated in product values. Switzerland’s 2019 GDP was $703.082 billion a drop from 2018, which was $705.141 billion.

Switzerland recorded a GDP of 703.8 billion in 2019. 74% of the GDP comes from the service sector, while 25% of the GDP. The agricultural industry only produces around 1% of the country’s GDP. It majorly trades within the European Union (EU). The majority of its imports, approximately 80%, comes from the EU. Around 40 percent of its exports are also exported to European Union nations. In entire Europe, Switzerland has the lowest value-added tax rate. 8% of the tax is imposed on goods and services while 3.8 percent is levied on accommodation services. Only 2.5% of the tax is charged on the necessities used daily by Swiss citizens (Kalogeraki, Papadaki & Pera Ros 2018).

 The nation’s highly skilled labor sums up to around 5 million skilled laborers. The majority of the companies in Switzerland are small and medium enterprises (SMEs). Moreover, it has low public debts and a low rate of unemployed people. The top five leading industries in the nation are the service sector, banking, agriculture, tourism, and agriculture. Top exports by Swiss companies are gold, vaccines, jewelry, and packaged medicaments. According to Moody’s analytics, the Swiss Consumer Price Index (CPI) has been continuously rising in the country. In 2019, the CPI was standing at 101.2 while in 2020, it grew to 101.25. On the other hand, the Producer Price Index (PPI) has also been increasing. In 2019, the PPI was 98.14, while in 2020, it rose to 98.26 on a monthly frequency (Guex & Guex 2020).

Social Indicators

Sociocultural Indicators are the statistical measures used to describe the different kinds of social trends and conditions that affect a population’s well-being within a particular region (Pecoraro et al. 2019). 

Education 

This indicator encompasses all the money spent on schools and educational institutions, both public and private, to provide students with educational assistance. Switzerland spends USD 24 848 for every student. Statistics provided by OECD (2020) shows that the nation spends USD 24 848 per student. Education spending entails all the expenditure used by schools, universities, and other educational institutions, both public and private. It incorporates the sum of money spend on teaching and ancillary services for the students and families. It is calculated as the gross domestic product (GDP) (Kalogeraki, Papadaki & Pera Ros 2018).

The top universities in Switzerland have garnered a global reputation internationally due to the critical roles in enhancing innovation, particularly within the innovation sector. The most notable universities in Switzerland are the University of Basel, Basel, University of Bern, Berne, University of Fribourg, Fribourg, University of Geneva, Geneva, and University of Neuchâtel, Neuchâtel, among others (Arvanitis, Loukis & Diamantopoulou 2016). Some of Switzerland’s critical areas explored technologically are medical, architectural, medical, and robotics. There is also intense research in Switzerland that aims to improve elderly individuals’ lives or, somewhat, population (Arvanitis, Loukis & Diamantopoulou 2016). The recent past has seen many investments in the information communication and technology (ICT) sector. Currently, Switzerland is identified as a global research Centre and has been noted as one of the countries with the maximum number of novel prize winners per capita globally. 

Population change 

The yearly growth rate is usually calculated in percentage by dividing the percent of population growth by the number of years. The annual population change is 0.76. According to a World Bank study in 2018, the nation has a 0.76% annual change in terms of population growth rate. The country’s total population is grounded upon the definition of the term population, which counts all the residents of a nation without considering their legal status. Population change has a significant impact on the natural resources and the social infrastructure of a country. Data from OECD (2020) shows that Switzerland spends around USD 5600 per capita on health services. The only countries that spend more than Switzerland are the United States and Norway. Switzerland is also known for having one of the world’s healthiest populations (Pecoraro et al. 2019).

Switzerland has a vast workforce population. Among this population, foreigners make the largest percentage. The majority of the migrants in Switzerland are people from countries such as Germany, France, China, Spain, Italy, and Turkey. Therefore, since the nation largely relies on the foreign workforce, the negative social and cultural aspects are a setback to the country’s general performance in other sectors, such as political and economic factors (Pecoraro et al. 2019).

Technological Indicators

ICT value-added indicator

ICT value-added indicator includes the variation between ICT sector gross output and the intermediate consumption. The aggregate of information companies within this indicator encompasses ISIC rev. 4 Division 26. 

Generally, the IT market is growing. Even though there is rapid digitization, the ICT sector in Switzerland is not growing faster than in other industries. 2015 research conducted by the Swiss Economic Association for the Suppliers of Information (Swico) showcases that the ICT sector shows that the industry stood at 18. 3 billion Swiss Francs. There was a 0.7 increase in 2019, making the industry to be worth 19 billion CHF. The forecast shows that Switzerland’s IT industry will continue to grow, and by 2021 it will be above 20 billion CHF (Steinberg, 2015).

Research and Development Expenditure Indicator 

Research and development expenditure is calculated as a percentage of the GDP. It is defined as the overall expenditure; both current and capital, on R & D carried out by all the resident firms, research institutes, government, and universities within a country. In Switzerland, it was reported to be at 3.4% in the year 2017 basing on the OECD data on development indicators. Gross domestic expenditures on R & D, expressed as a percentage of the GDP, encompasses the capital and current spending in four main sectors: higher education, private and nonprofit, business enterprise, and government sectors (Arvanitis, Loukis & Diamantopoulou 2016).

Switzerland is identified as one of the most advanced nations globally. According to the year 2019, it was listed as the most innovative country in the world in the Global Innovation Index. It is also known as the home of global research, a region where scientists in worldwide accredited institutions are involved, particularly in groundbreaking studies and experiments (Arvanitis, Loukis & Diamantopoulou 2016). Since the country does not have any natural resources in disposal, science and technology have always been their Centre of exploration to improve its economy. Both the government and the private sector come in handy when it comes to promoting technology in Switzerland.

The majority of Switzerland’s studies are carried out in research-intensive universities, private companies, and research institutions. Drawing from OECD statistics, the gross domestic expenditure on R&D is conducted by 24.17% by the Higher Education Sector. The business sector conducts around 73.50% of the total research, while the government sector conducts 0.74% (Porter et al. 2019). On the other hand, the private and nonprofit sector research amounts to 1.6% of the total study. From these statistics, it is apparent that the Swiss business enterprise sector is the one that carries out most of the research, followed by the GERD (Arvanitis, Loukis & Diamantopoulou 2016).

Environment Indicators

The key environmental indicators covered in the analysis were carbon dioxide emissions, municipal waste, and renewable energy and water withdrawal indicators. These indicators were chosen because they are the ones that have the most impact on Switzerland’s environment, social, economic, and political sectors. Data for the indicators were drawn from the organization for Economic Co-operation and Development (OECD) and the World Bank. However, only two indicators will be used in this final report.

Carbon dioxide emissions 

CO2 emissions refer to the total direct emissions of CO2 from the burning of fossil fuel. The intensity of CO2 emissions is expressed as tons of carbon dioxide emitted per unit of the gross domestic product (GDP). According to an OECD (2020) report, Switzerland’s environment faces immense pressure, particularly from various factors such as spatial restructuring, pollution, and natural resources, which is the main reason for the country’s CO2 indicator’s negative score. Multiple sectors, such as the industry, tourism, agriculture, and transport, contribute to the Swiss’s high CO2 emissions. The environmental pressures are also due to the high population densities and activities and the country’s geographical location. On the contrary, the nation has incredible natural scenery marked by a wide variety of wilderness, as mentioned above (OECD, 2020).

Renewable energy 

Renewable energy is the contribution of the gross primary energy supply. It includes the primary energy corresponding to hydro, geothermal, wave, wind, and solar sources. The forecast shows that Swiss’s renewable energy market might grow at a CAGR of more than 3% during the 2020-2025 period. Major challenges arise from greenhouse gas emissions and other populations. Therefore, there is a dire need for the country to seek cleaner power generation options. The hydro sector is the major dominating renewable energy sector within the market. The government has already signed an agreement to reduce greenhouse gas emissions by 50% come the year 2030. The major anticipated driver of the renewable energy market is an increase in solar installed capacity (Arvanitis, Loukis & Diamantopoulou 2016).

Legal Indicators

Legal-Regulatory indicators, also known as law or governance indicators, are measures of how the legal system performs in a country. It is a source of knowledge for societies showing the mechanisms of governance via legal systems. The indicator examines how reliable and valid are the legal systems and policies within a country. The examined legal indicators in this report are the rule of law and monetary policy. 

The rule of law

Basing on the definition provided by the United Nations (UN), the term the rule of law refers to the principles of governance whereby every person, institution, public and private entities are accountable to the independent legal system. It is a measure of how well legal policies are implemented and practiced within a nation. Deducing from OECD report, the rule of law indicator in Switzerland ranges from -2.5, which is weak and 2.5 thus denoting that the rule of law is strong (Steinberg, 2015).

Globally, Switzerland is known for having a good reputation, particularly due to having an independent judiciary. It is a nation where democracy is expected and individuals, whether citizens or foreigners, have confidence in attaining a free trial. Due to this, it is apparent that the nation has a good legal system that protects its people. The main characteristic of Swiss’s legal system that makes it different from others is the presence of a substantial decentralized legal system. The legal system has been given to cantons and half-cantons who are responsible for deciding their own social and economic policy. On the other hand, the federal government handles foreign affairs and a section of the economic policies (Arvanitis, Loukis & Diamantopoulou 2016)

Monetary Policy indicator 

Monetary policy indicator is shown through different liquidity measures, such as interest rates and quantity of money. OECD (2020) notes that there is equity of judgments in Switzerland’s legal framework of business. One example provided is that federal law is applied uniformly regardless of an individual or an entity’s status; both foreigners and nationals receive a fair trial from the nation’s judicial system. The federal court is the highest court in the land; it is also the final appeal court. 

On the other hand, a report provided by the OECD (2020) has shown that Switzerland has not done any major regulatory policy reforms since the year 2015. It recommends that there is a need for the country to carry out RIA for all the regulations. The last time the country’s federal Audit Office reexamined the nation’s RIA framework’s quality was in the year 2016. It was then discovered that the available regulatory policy framework was not sufficiently employed/ nearly 30% of RIAs that were examined showcased that they were of insufficient quality. The RIA quality can be improved through the improvement of the control mechanisms.

Interconnections

There are several issues from the PESTEL analysis, which involve more than one sector. For instance, the gross domestic product. When examining different factors such as economy, government debt, and income inequality, all these factors are calculated in reference to the nation’s GDP. Even though GDP in itself is an economic indicator, it forms the basis of assessing of examining a country’s ability to repay its debt. Annual economic output is identified by calculating the annual GDP, which is also used to calculate income inequality. 

Education is also one of the indicators that involve more than one sector. For instance, education can be used as a social-cultural indicator and at the same time, used when examining other sectors such as technology and the economy. Another indicator that involves more than one sector is political freedom. As much as it plays a role in indicating the political state of a country, it has also been used to show social-cultural factors in Switzerland. 

Conclusion / Implications / Recommendations

Summing up, the report has provided an in-depth exploration of different factors in Switzerland. One of the notable issues in Switzerland is the country’s diverse population. The country is small in population and area; however, it has diverse languages and religions. There are more than nine languages spoken in Switzerland, four of these being the official languages. Besides language, it is also diverse in terms of religion. More than five religions are being practiced in the region.

On the other hand, Switzerland is a rapidly growing economy, which can be attributed to good governance. From the PESTEL analysis, the nation scored high in political freedom, income inequality, GDP, and the rule of law. Even though most of the country’s sectors are performing well, the environmental sector continues to face significant hurdles, especially due to pollution. Moreover, the country is densely populated, and the situation might continue to worsen to high rates of migration into the country. The Swiss government must put strict measures through policies that will control migration rates. Also, there is a need for effective policies that will see a reduction in pollution since it is a key environmental challenge in the region.

References

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Maxwell, R. (2020). Geographic divides and cosmopolitanism: Evidence from Switzerland. Comparative Political Studies, 53(13), 2061-2090.

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Pecoraro, M., Manatschal, A., Green, E. G., & Wanner, P. (2019). Does integration policy improve labour market, sociocultural and psychological adaptation of asylum-related immigrants? Evidence from Sri Lankans in Switzerland (No. 19-08). IRENE Working Paper.

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Steinberg, J. (2015). Why Switzerland?. Cambridge University Press.

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