When computer giant Compaq bought Digital Equipment Corporation a few years ago, Swiss economic development officials urged the company to set up its Europe, Middle East, Africa (EMEA) headquarters where Digital was in Geneva rather than relocate 100 employees to Munich as planned. Compaq did not listen, but its employees, far too spoiled by the good life in Switzerland, would not budge. Only 10 accepted the offer to go to Munich, and in the end only three actually did.

They need not have bothered. Two years ago, Compaq went shopping for a better tax deal than it was getting in Germany and moved its EMEA headquarters to Switzerland after all, although it opted for German-speaking Zurich. But in a final coup d’etat for the Geneva officials, Hewlett- Packard then bought Compaq and selected Geneva for its regional headquarters.

Why does Switzerland keep coming out ahead? Jean-Max Arbez, general manager for Hewlett-Packard Switzerland, puts quality of life at the top of the list. There is a reason why three Swiss cities appeared in the top 10 of the most recent William M Mercer World-wide Quality of Life Survey, with Zurich ranking number one. Fantastic scenery, political and economic stability, and an almost eerie kind of orderliness make for easy living in Switzerland.

David Davies, senior vice president corporate affairs for Philip Morris International in Lausanne, said the importance of quality of life should not be underestimated. He says: “It’s very important when you’re seeking to recruit people and move people around. Having a living environment that is pleasant and easy to deal with is not insignificant.”

In this regard, Switzerland is tough to beat. “It’s not a challenge getting people to move here, but it is a bit of a challenge getting people to leave,” he adds. The Welsh-born Mr Davies admits after seven years in Switzerland “it would be difficult to persuade me to go anywhere else”.

A benchmarking study by Arthur D Little Switzerland reported that, according to European executive search firms, it is easier to convince a top manager to move to Switzerland than any other country. And foreign companies doing business there confirmed that Switzerland is a strong selling point for attracting top managers.

Philip Morris came to be in Switzerland by way of a “fortunate accident,” according to Mr Davies. The New York-based company first began to look abroad in the mid-1950s, when it made its first international acquisition in Australia. Its second was the purchase of a Swiss cigarette maker in 1963. Management “decided Lausanne was a nice place to be” and set up the company’s international headquarters there, Mr Davies says.

The moniker “international headquarters” was a bit grandiose for what it actually was, he says, “a place with just three people reporting back to the New York office about how many cigarettes the factory in Neuchatel was making”.

The Lausanne office has since earned its title as Philip Morris used Switzerland as a base for its expansion into Western Europe and later Central and Eastern Europe and as a regional EMEA headquarters. Last year, the company decided to make a proper international headquarters out of Lausanne and brought about 50 employees over from the New York office, where Philip Morris’ international operations had in practice been managed.

“We did not look around for a place for our international headquarters and pick Switzerland, but rather made a conscious decision to stay here and grow and last year made a conscious decision to move people here from New York,” Mr Davies says.

The decision was “a reaffirmation of our commitment to Lausanne and our belief that Switzerland is a place where we can do business efficiently and effectively,” he adds. Philip Morris now has 1300 employees in Lausanne and 1200 in Neuchatel.

US firms lead the way

Many other US companies have decided on Switzerland as a headquarters location. In fact, the Arthur D Little study found that 88% of the regional headquarters that moved to Switzerland in recent years have been those of US companies as well as 23% of the global headquarters.

Over the last 10 years, Switzerland has seen a growth in its share of global and regional headquarters transfers, capturing 59% in 1999-2001, compared with just 9% in 1990-1992. Generally, European companies choose Switzerland for global headquarters, while US companies choose Switzerland for regional headquarters locations.

Despite the prestige associated with landing a global headquarters, regional headquarters often bring more tangible value to the host country, according to the report’s author Dr Herbert Wanner: “Global headquarters tend to be smaller and less operational than regional headquarters.”

This is increasingly the case, as companies downsize headquarters and focus on creating value for business units.

Switzerland’s high standard of living no doubt appeals to executives making relocation decisions, although it comes at a price. Switzerland is certainly one of the more expensive places in Europe, but some argue it all balances out in the end. “The cost of living is high, but it’s fully loaded,” says David Pignolet, finance and administration manager of Autodesk, a California-based design software and digital content company operating in Neuchatel. He says: “Costs must be analysed for comparison – for example, salaries, social charges, personal taxes, working hours, strikes.”

The Swiss government has tried to offset the high costs with a generally favourable tax regime, including low corporate and personal taxation. Corporate taxes vary by canton, ranging from 29% to 12%, with an average of 21%. According to KPMG’s 2002 Worldwide Corporate Tax Rate Survey, Switzerland has better corporate tax rates than most other European countries, except perhaps Ireland, which has an average tax rate of 16% and is set to lower it even more. The UK has an average tax rate of 30%, the Netherlands 35%, France 36% and Germany 42%.

There are other reasons for choosing Switzerland. The country also has a good high-tech and transportation infrastructure, a central location in the heart of Europe, flexible labour laws and a highly skilled and multilingual workforce. For Medtronic, a Minneapolis-based medical technology company, the Swiss reputation for precision was the draw. This is an understandable priority for a company that makes products such as pacemakers.

“Product quality is always important, but you can imagine when it’s something that’s going to be placed inside a person, that’s essential,” says Herbert Riband, vice-president and deputy general counsel for legal and external affairs for Medtronic International. “A device that is Swiss-made carries with it an image of quality that our patients and doctors identify with.” Two years ago, Medtronic expanded its EMEA headquarters near Lausanne, essentially doubling its investment in Switzerland.

Switzerland’s primary disadvantage would seem to be its exclusion from the European Union, which means extra paperwork and human resource headaches for international companies operating there and doing business with Europe. However, new bilateral agreements with the EU will soon make European expatriate hires and transfers easier. International executives in Switzerland shrug off concerns about disparate regulations with the EU: “We haven’t lost any business from [Switzerland not being in the EU]. It hasn’t held us back at all,” says Daniel Scovilla, CFO of Johnson & Johnson subsidiary Cilag’s facility in Schaffhausen.

Separate inclusion

But Switzerland’s separateness from the rest of Europe can play to its advantage. It is right in the middle of Europe, yet somehow apart. Citrix Systems International, a Fort Lauderdale, Florida-based software company, had been managing its European operations out of London and Munich, but its executives feared choosing either for the regional headquarters as this would have caused jealously or rivalry. So they opted for Switzerland and set up in Schaffhausen in 1999.

Being in Switzerland helps avoid nationalistic complications, says Stefan Sjostrom, vice president EMEA. “Switzerland is a neutral concept. As much as Americans like to think Europe is one entity, it’s not.”

Philippe Meyer, who handles economic promotion for the canton of Geneva, says the same famed neutrality and cosmopolitan approach that attracts international organisations, such as the United Nations and the World Trade Organisation to Switzerland also works for international companies. “American companies set up in Germany or France, but after a few years they’re not international. Ninety percent of the employees are French or German, which makes it difficult to get into other markets in Europe. It’s important to have different cultures in a European headquarters,” he says.

Nicolas Cudre-Mauroux, European technology manager at Dupont’s regional headquarters in Geneva, agrees: “Switzerland is one of the few places in Europe where you can stay international. Here we are able to keep neutral and focused on Europe.”

The headquarters, for example, is an “extremely international site,” he says, with 45 different nationalities represented. Dupont set up its EMEA headquarters in Geneva 1959, and built a technical centre and

laboratory in Meyrin (a city suburb) in 1989. Dupont now employs 600 people between the two facilities.

The way Mr Arbez of Hewlett-Packard figures it, Switzerland’s tiny size makes it naturally more international than its larger neighbours. “It’s different here by definition,” he says. “It’s a small country so you have to look outside.”

For multinational companies seeking a foothold in Europe, that is exactly the sort of mentality they want to hear.