Gleeful German exporters target Switzerland after franc's gains

MUNICH (Bloomberg) - Hartmut Neidlein was driving back to his home near Stuttgart in southwest Germany when he heard the gleeful news on the radio: Switzerland's central bank had scrapped its currency cap.

The franc's ensuing gain of 20 per cent versus the euro could mean a major sales boost for his business, Wurotec GmbH & Co. KG, which has been making machines dubbed "root rats" that remove tree roots from the ground since 2008.

"The first thought to cross my mind was that this would be great for me and my company's deliveries in Switzerland," Neidlein said. "It's now cheaper for them to buy our products and that could increase demand."

Wurotec is one of the thousands of small and medium-sized companies that make up the German Mittelstand, which account for more than half of the country's gross domestic product. Neidlein has now set up a meeting with his Swiss distributor to try to boost sales of his machines, which start at 2,000 euros, beyond the current 10 per cent of the total.

"German industry is very complementary to that in Switzerland, because they are both very big in precision engineering," said Karsten Junius, chief economist at Bank J. Safra Sarasin in Zurich. "So that means Germany has an edge on France or Italy, where the industries don't overlap as much."

witzerland imports more from Germany each year than it does from the next three countries - Italy, France and China - combined, according to data compiled by Bloomberg. The US$56 billion in goods make Switzerland the ninth-biggest export destination for Europe's largest economy.

Closer to Germany's southern border, E. Breuninger GmbH & Co. expects more customers to drive the 42 miles from Basel in northern Switzerland to its 9,500 square-meter department store in Freiburg in the Black Forest, according to spokesman Christian Witt.

The retailer, which generates 650 million euros in sales across its 11 shops, has several thousand customers with loyalty cards in Switzerland, as well as a sales assistant who even speaks Romansh, one of Switzerland's four national languages alongside German, French and Italian.

"If currency levels remain like this, we expect a significant increase in Swiss customers," he said. "It just doesn't make sense for them to buy clothes and accessories in Switzerland as things stand."

The Swiss National Bank's decision to stop the sale of francs used to protect a cap on the currency's strength at 1.20 per euro has turned everything from shoes to iPads into an instant bargain. Swiss shoppers flocked to German town Constance last weekend to visit Lago Konstanz, one of the biggest shopping centers on the Swiss-German border. Swiss rail company SBB AG added extra wagons on the line from Zurich to Constance to accommodate the surge in passengers.

Not all German businesses doing trade with Switzerland stand to gain, since some of them may supply Swiss customers whose sales will suffer from the strengthening franc, said Safra Sarasin's Junius. Some Swiss companies will ultimately find ways to cut costs to remain competitive, he said.