It is advisable to undertake a feasibility study coupled with a sound business plan prior to signing new franchisees. To achieve maximum market penetration, U.S. franchisers should therefore adapt to the norms, standards and high end user expectations. Only rarely can a franchise concept be implemented directly from the United States. Thus, a U.S. franchiser should show flexibility when entering the Swiss market. Since Switzerland is a high-priced country, potential franchisees may find it advantageous to centralize the purchase of supplies in order to offer attractive prices to the consumer. The legal framework for franchising is the Swiss Code of Obligations, which covers legal situations in agency/licensing agreements, contracting, order placing, business formation and incorporation, as well as brand, trade name and commercial or intellectual property protection.

Direct Marketing

Home shopping is becoming increasingly popular in Switzerland. This method of direct marketing has grown enormously in the past few years. The Swiss home shopping boom has reached a record high, and products range from well-known Tupperware and Mary Kay Cosmetics, to lingerie to new recipes and cleansing agents. There are more than 5,700 members of the Swiss Association of Direct Marketing Companies (Schweizerischer Verband der Direktverkaufsfirmen VDF), excluding mail order companies.

Most of the products sold at so-called home shopping parties are top quality and innovative and cannot be found at retail stores. Within the VDF association only the British company Body Shop offers the identical cosmetic and personal hygiene products that can be found in company shops and for the same price. Most Swiss consider the advantages of home shopping to be the following: competent advice offered by the sales person; the relaxed and friendly atmosphere of the private location; the combined experience of shopping and meeting with friends; and the possibility of testing the products on the spot. The following paragraphs describe some of the most popular types of products sold through the direct marketing system in Switzerland. Books and music: The Bertelsmann-Verlag (Random House) is an example of a large multimedia firm that sells books, CDs, DVDs, videos and a range of products and services.

Beauty products are sold via personal demonstrations at private locations. Personal hygiene products ranging from soap to night creams are ideal for direct sale as home shoppers can try out the various products and profit from the personalized consultation. Amway is one of the strongest representatives in this sector, offering cosmetics and a whole variety of personal hygiene products. Other companies established in the Swiss market include Mary Kay Cosmetics, Deesse, Just, Jafra, Blidor AG and the Body Shop.

Companies like Jenny Lane, Pierre Lang and Swiss Feeling AG successfully sell costume jewelry. The direct sale of clothing items has by and large failed due to the modest margins and the huge variety of products. However, direct sales of lingerie for women are gaining in popularity.

Items range from Tupperware (every Swiss household has at least one of their famous items) to special cooking pots and pans. A huge variety of electrical appliances and various cleaning devices can also be found in this sector. New-tomarket products are especially popular with home shoppers. Borna, Bandar Genossenschaft and Lux are all active in this market segment.

Direct sales are growing for food items like fat-free bouillon, sauces and salt-free spice mixes; multivitamin products and food supplements and power-drinks that cover a whole day’s requirement for vitamins, proteins and minerals. Nahrin AG, Edifors and NBC Nutrition & Bodycare Concept AG are the major competitors in the nutrition sector.

The members of the Swiss Association of Direct Marketing Companies (VDF) are obliged to comply with a code of honor, and by Swiss law, sales contracts may be rescinded within seven days. Many of the VDF members are willing to accept returns even after this time period has elapsed. The association offers assistance should consumers experience problems or misunderstandings that cannot be solved directly with the sales person or manufacturer. New companies that apply for VDF membership must undergo an extensive examination, conducted by the association.

Joint Ventures & Licensing

Legally, a joint venture consists of two or more individuals or corporations joining for the realization of a particular project. Swiss law does not provide specific guidance for joint ventures, which may have any legal form allowed by Swiss law. The name JV is not protected nor can it be registered in the Swiss Commercial Registry (Handelsregister). Swiss companies often rely upon licensing arrangements to acquire know-how or the right to manufacture new products. In most sectors, U.S. licensors may readily find prospective Swiss licensees with the manufacturing and marketing skills to cover the Swiss market as well as other European markets. Swiss expertise in exporting, flexibility in adapting to difficult markets, and skill in precision engineering can be a competitive advantage for prospective U.S. licensors.

U.S. exporters should carefully evaluate the pros and cons of a licensing strategy in comparison to other methods of market entry. The key to success in licensing lies in screening the prospective licensee to assess capabilities, interest and motivation. Swiss intellectual property legislation protects know-how and patent transfer arrangements. Some cantons allow tax write-offs on intellectual property and tax-free or preferential treatment of royalties earned through know-how transfer and licensing. Appropriate legal advice can be obtained from competent Swiss-based patent and licensing attorneys. The Licensing Executives Society has an active chapter in Switzerland.

Selling to the Government

Swiss government agencies use competitive bids for procurement. As a signatory to the WTO GPA, Switzerland complies with general international rules on procurement by government entities. Switzerland’s federal government and cantonal governments are covered. Procurement at the federal level is generally limited to projects in sectors in which it has primary responsibility -- utilities, transportation, communications, defense and construction.

In fall 2006, the Swiss Federal council decided to spend more on research and education with an annual budget increase of six percent between 2008 and 2011. U.S. manufacturers of scientific and laboratory instruments stand a realistic chance to supply a significant portion of the resulting procurement. Total federal government procurement averages over USD 6 Billion annually. The Defense Ministry has some restrictions on foreign purchases. The cantonal and communal governments implement public projects amounting to procurements of about USD 15 Billion annually.

The federal government exercises a great deal of discretion in inviting bids, and selective, discretionary tenders are more common than are public tenders. Contrary to cantonal and communal practice, federal authorities are not required to inform an unsuccessful bidder of the tender award or reasons for the choice. In general, quality and technical criteria are more important than price in bid decisions. Cantons and communes usually prefer local suppliers. Foreign firms may be required to provide a Swiss bank guarantee if they have no local office or representation. Notices of Swiss government tenders are published in the official trade journal Handelsamtsblatt. Tender documents can be obtained free from the Swiss government agency. While there is no requirement to have a local agent to bid, it is advantageous when equipment needs training, service or parts. CS Switzerland also lists Swiss government tenders on its website and has a direct link to the CS EU website with a comprehensive listing of tenders.

Swiss Offset Policy

Procurement by armasuisse, part of the Federal Department of Defense, Civil Protection and Sports better known by its acronym DDPS, may involve offsets. With regard to national security and armament policy, offset or compensation transactions in cases of procurements abroad have proven successful. As in the past, offset transactions are expected to open up access to foreign markets for Swiss industry or to strengthen its position in these markets. In particular, offset transactions may lead to the acquisition of additional know-how and consequently to additional export value, if the Swiss industry can offer its services at competitive conditions. The Swiss defense department is heavily reliant upon cooperation and expertise from foreign companies due to limited capability in Switzerland.

Distribution & Sales Channels

The most effective method of importing into and distributing within Switzerland depends on the type of product and the location of manufacturing or distribution sites. Capital goods manufacturers may find direct exporting most desirable when contracts with a limited number of customers represent an appreciable share of the market. However, most new-to-market exporters and exporters with products that require training for use and after-sales service should engage the services of a technically qualified Swiss agent with good market knowledge. As a rule, Swiss buyers of raw materials use specialized importers. Large orders, however, may also be placed directly with foreign producers. Some of the largest international trading and transit companies are based in Switzerland. They operate a network of bonded warehouses and other relevant facilities offering any kind of services needed in international trade.

Suppliers of consumer goods may deal with an importer/wholesaler, engage the services of a representative, or sell directly to buying offices of large retail chains, especially if dealing with mass-produced goods. Often a representative or agent, who usually specializes in one or more product groups, is responsible for distribution in the whole country.

Many Swiss wholesalers are also importers who generally expect exclusive regional or national rights for the imported product. Wholesalers maintain stocks of a range of products and provide quality control, transport, warehousing, and financing. Associations of wholesalers in various sectors protect their common interests and facilitate more effective competition with other forms of distribution. Most wholesalers and importers also belong, either through sector associations or individually, to the Federation of Swiss Importers and Wholesale Traders (Vereinigung des Schweizerischen Import- und Grosshandels).

Vertically integrated retailers dominate the Swiss market. Department stores, chain stores, consumer cooperatives, discount stores and supermarkets comprise the majority of such retailers that deal in a wide range of products and services. Their vertical structure and centralized buying give them a competitive advantage over independent retailers. The structure of retail trade in Switzerland is changing fast. The number of independent retailers is decreasing, giving way to a growing number of discount stores and supermarkets. Retailers with competitive prices such as Ikea and Media Markt are gaining market share. Individual retailers have set up organizations to provide wholesale purchasing, importing, and other services to compete with the large, vertically integrated retail establishments. Most of the leading retailers are legally structured as cooperatives. In addition to the common department store product lines, they also carry textiles, leather goods, sports articles, pharmaceuticals, toys, and hardware.

Swiss retailers continue to streamline their operations in response to domestic and international competition. Scanner cash registers for bar-coded articles are now standard, and state- of-the-art systems for automated payments without cashiers are in the testing phase. The use of credit cards for payment is now acceptable in most shops. Swiss retail groups belong to an Electronic Payment System Association (Verband Elektronischer Zahlungsverkehr).

Selling Factors & Techniques

New-to-market U.S. exporters gain considerable market exposure through trade shows in Switzerland. Moreover, participation in trade shows demonstrates a commitment to the market. Swiss buyers, agents and distributors, to a greater extent than their U.S. counterparts, visit trade shows to find new products.

An exporter's offer must be accurate and comprehensive if it is to be taken seriously by the Swiss. The Swiss receive offers from all over the world, and they are unlikely to devote time to requesting additional details if not already included in marketing information. Relevant information must be provided at the outset with objective and detailed information, including the following: exact product description with technical specifications; price details (CIF or FOB) in U.S. dollars or Swiss francs; method of payment; quantities available; packaging; and transport and delivery terms. An offer should also include information on the exporting firm; production equipment available and quality control factors; and financial references. If minimum quantities for accepting orders are part of contract negotiations, the exporter should adapt to the Swiss importer’s needs, taking into account the relatively small size of the Swiss market. Commitments should be scrupulously observed or the likelihood of success in the market may be seriously compromised. In the relatively small Swiss market, maintaining a company’s good reputation is critical. Prospective Swiss business partners place high value on a long-term business relationship and commitment to the market. Payment terms are usually stipulated in the sales contract, can be negotiated, and depend upon the amounts involved. Most common terms are the following: payment 30-60 days net (from the date of the invoice); payment within 10-15 days with 2-3% discount; and payment after 30-60 days with an interest charge. Good customers may expect credit of up to three months. Except for single, one-time transactions, or first time transactions where there is doubt about the recipient's credit-worthiness, the costly letter of credit (LC) procedure should be avoided. An LC is perceived as depriving the recipient of the means to make deductions for faulty products or shipping problems.

Electronic Commerce

With over 75 percent of the Swiss population regularly using the Internet and over 80 percent doing so via broadband access, Switzerland is among the leading countries in the world in broadband Internet usage. With a moderate growth rate of Swiss companies engaged in online procurement, the total value of B2B e-commerce in 2006 is estimated at over USD 25 billion, or approximately 10% of all purchases of goods and services. Swiss companies use online procurement to accelerate and streamline business processes and to optimize their supply chain and internal processes. On the whole, Swiss companies are currently investing in security, intranets, services (such as web-enabled process optimization), storage, mobile internet, integration of conventional IT and the internet, content management, CRM, ERP, networking, and web publishing. Initially the domain of large corporations, e-commerce is being embraced by more and more of Switzerland’s 300,000 small and medium-sized enterprises.

Trade Promotion & Advertising

Print Media: With much linguistic and cultural diversity, Switzerland has one of the highest per capita densities of newspapers in the world. As a result, many papers are geared to particular regions or localities. The number of dailies has changed only slightly in the past 50 years, but circulation figures have more than doubled. There are over 100 daily or weekly local papers distributed for free and supported by advertising. The Swiss also publish an extensive range of periodicals, trade, and special interest magazines, including those concentrating on travel, gastronomy, medicine, environment, and hobbies. Given the diversity of publications and the intrinsic characteristics of Switzerland, it is advisable to work through a professional advertising firm, such as Publicitas, when planning an advertising campaign.

Pricing

In determining the selling price of a product, particularly for consumer goods, an exporter must take into account the difference between the price an importer is prepared to pay and the prevailing retail selling price. The costs of distribution combined with retail margins may increase the selling price substantially. Markups in Switzerland generally range from 20 to 100 percent and can be even higher.

Price controls, part of Swiss competition law since 1986, are primarily aimed at reducing abusive prices for goods and services resulting from a lack of competition and apply only to members of a cartel or similar organizations subject to this law. Parliament has established an office to look into prices that appear to be too high. Although this office maintains considerable informal clout, it cannot institute legal action. The prices of some products are directly influenced by government measures; these products are primarily agricultural goods and pharmaceuticals.

Sales Support & Customer Service

Finding a reliable means of providing rapid and efficient quality service and after-sales customer support is absolutely essential in Switzerland. Concluding a sales contract is usually dependent upon the ability to provide this follow-up service which may involve one or more of the following measures: opening an office in Switzerland; finding a competent agent/distributor to provide after-sales service; and/or keeping replacement stock in a Swiss or European warehouse.

Protecting Your Intellectual Property

Switzerland has one of the best regimes in the world for the protection of intellectual property, and protection is afforded equally to foreign and domestic rights holders. This topic is discussed more thoroughly under Investment Climate section on "Protection of Property Rights." http://www.ige.ch/defaulte.htm.

Due Diligence

Although the vast majority of Swiss importers are financially reliable business partners for U.S. exporters, there are, nonetheless, occasional bankruptcies. Therefore, U.S. exporters should use normal precautions and analyze relevant company financial background information before establishing a business relationship. The Swiss Trade Register is a key source for checking the background of Swiss companies. Whenever a Swiss company reaches annual sales of SF 100,000 it must be listed in the Swiss Trade Register with the following information:

• name of firm
• legal form
• head office (legal domicile)
• list of branch offices, purpose
• owners, partners, managing directors
• persons having power of attorney
• number of shareholders
• year of establishment

Any firm listed in the Swiss Trade Register is considered to be a legitimate company and is required to keep accounts and to maintain a balance sheet. However, the register does not reveal information about a company’s financial status and business practices.

The Swiss Commercial Register is based on Federal Law, the Code of Obligations, and is implemented within the individual cantons. The Federal Office of Justice maintains Zefix (Central Business Names Index on the Internet), a listing of the cantonal registers of companies. Entries and changes in the commercial register are published in the Swiss Commercial Gazette (SHAB). Each canton also maintains information on whether or not a registered company has defaulted on payments. That information can be obtained directly from the relevant cantonal debt enforcement office. CS Switzerland offers a business facilitation service to assist U.S. companies in obtaining this information.

The Kompass Register, a listing of most Swiss companies, is roughly equivalent to the American Thomas Register. Provided by the listed companies, the information includes complete contact address, bank reference, name of president, members of the Board and managing director, a short description of company’s activity, trademarks, share capital, number of employees, and year of establishment. The Kompass CD is available from:

Kompass Schweiz Verlag AG
Hagenholzstrasse 81
CH-8050 Zurich, Switzerland
Tel: (41-44) 305 12 80, Fax: (41-44) 305 12 14
E-Mail: info@kompassonline.ch