Pricing power – using the difficulty

When, on 15 January, 2015, the Swiss National Bank abandoned the floor rate of chf1.20 for 1 euro, the national currency appreciated by almost a fifth in one day – a punishing rise for Swiss exporters¹.

In Canton Vaud, a French-speaking region of Switzerland on the shores of Lake Geneva, businesses drew on past experience and responded by cutting their export margins, trimming costs and innovating. In the view of Philippe Miauton, director of the CVCI Chamber of Commerce for Canton Vaud, this mindset – of leaning into challenges – has enabled businesses in the region tomake the most of difficulties, helping them to prosper. By making exporters’ goods more expensive in foreign markets, the strong franc puts them under constant pressure. They need to reinvest and innovate to stay competitive. Otherwise they will die. Switzerland does not have a big historyof intervening to support companies. In the end, businesses have only themselves to rely on.

By shaping up and innovating, firms inthis region have been able to carve outdistinct value propositions that canwithstand economic turmoil. Today’sthriving regional economy is home to amix of tech, pharmaceuticals, healthcareand food and beverage industries, along with the luxury Swiss watchmakers. In the 15 years from 2005 to 2020, the Vaud economy grew by 45.8 percent – or 2.4 percent per year on average – outpacing Switzerland as a whole, which grew by 33.2 percent (or 1.8 percent per year on average)².

A blend of multinationals and SMEs, many of whom work hand in glove, support each other and many manufacturers are now benefitting from the global reshoring trend. Underpinning this success is the emphasis on quality which creates and justifies price premia. It was not always thus.

In the 1990s, Vaud suffered from high public debt, a real estate crisis, and unemployment of close to 10 percent. The canton responded by slowly repairing its public finances while investing in infrastructure and innovation. EPFL, the public research university established in 1969 in the canton capital Lausanne, developed and helped SMEs to innovate.

The result was the creation of a series of successful new businesses, such as Vaud-based medicine software start-up Sophia Genetics, which was founded in 2011 at EPFL and listed on the Nasdaq³ 10 years later with a market valuation of USD 1.1 billion. At Pictet, the Partners had the vision to open an office in Lausanne 25 years ago, realising the region’s potential despite the challenges of the 1990s.

Employment evolution between 2005 and 2020

Today, the structure of the Swiss education system, with a mix of apprenticeships and advanced higher education, helps support the Vaud business ecosystem by delivering the right people for the right jobs. The proximity to France and Switzerland’s bilateral accords with the EU ensure that the local labour supply is complemented by a talent pipeline from the EU.

Of course, Vaud’s successes and the pricing power its businesses can exert do face challenges. The strength of the franc is one; another is Switzerland’s relations with the EU as the two sides negotiate the way ahead for their relationship; and a new minimum corporate tax rate is yet another. But Vaud’s successes are proven and its experience offers some takeaways on creating pricing power that apply to businesses in other countries:

1. Make the most of your resources,
2. Invest in training and education,
3. Innovate to stay ahead,
4. Facilitate an entrepreneurial spirit5. Support links between businesses.