September 14th, 2013

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Productivity and competitiveness are buzzwords in the present political discussion. For AmCham Denmark, competitiveness is all about attracting companies and their investments. If Denmark is an attractive place to do business, companies will invest here. And in turn, the Danish economy will prosper. 

There are more than 3,500 foreign subsidiaries doing business in Denmark – all competing for a share of their respective company projects and investments. These companies are well aware of the advantages and disadvantages of the Danish business climate. And more international branding of Denmark as an investment location will make little difference. They’re already here – and most are here to stay.

However, staying here does not guarantee that they will grow or even maintain their current size. In our recently published survey of international companies, more than half of the companies indicated that they have moved (or are considering moving) jobs and investments out of Denmark. This doesn’t mean the companies themselves are leaving, but it does mean that the jobs they create will be in other places than Denmark. This is not a mass exodus, but rather a slow erosion, not really noticeable in the short-term, but over a few years, everything will look very different.

READ MORE AmCham: Denmark too expensive for international investors

Investment Crisis 
Statistics show that Denmark is in the midst of a serious investment crisis. The onslaught of the financial crisis led to a serious downturn in investments, and Denmark has yet to recover. In fact, net investments from 2008 to 2012 were close to zero, which will have a long-term impact on job creation in Denmark.

One of the key factors in the investment crisis is the lack of new foreign direct investments (FDI). Until 2003, incoming and outgoing FDI were relatively balanced. Since then, Danish companies have continued to increase their investments abroad, whereas FDI into Denmark has been stagnant. Denmark is now facing an ‘investment gap’ of nearly 500 billion kroner. The consequences have been most significant in the manufacturing sector, where close to 100,000 jobs have been lost over the last five years – mainly due to the lack of competitiveness, and thus investments.

Costs are too high

Our survey also identifies reasons why companies are considering moving their investments and jobs, and one concern stands out: the high cost of doing business; Denmark has simply become too expensive! While we recognise that cost is not the main concern within certain industry sectors, for most, it is. And whenever cost is an issue, companies will look elsewhere.

With high taxes and a large public sector providing free services, it is inevitable that overall costs will be high – and I respect Denmark’s decision to be a high cost country. However, this can only be sustained if the underlying productivity is equally high. Unfortunately, this is not the case in Denmark. Currently, Denmark’s productivity growth lies near the bottom among European countries, and Denmark recently dropped three more places in the World Economic Forum’s ‘Global Competitiveness Index’.

The role of Foreign Companies

Foreign companies play a vital role in the Danish economy and have tremendous potential to help Denmark out of its economic challenges. 

Today, foreign companies make up just 1.2 percent of all companies in Denmark. But they are responsible for more than 20 percent of private sector employment and 25 percent of all production and exports. And we see potential for more. Not that foreign companies are the only ones capable of growing, but by introducing new technologies and best practices from around the world they have something unique to offer in terms of innovation and productivity. In fact, the government’s Productivity Commission (Produktivetskommisionen) has confirmed that productivity seems to be higher in foreign-owned companies.

That’s why we need to continually improve conditions that attract and retain foreign companies. To do this, the government must address the issue of high costs head on. As a small market, Denmark has a built-in handicap when seeking to secure foreign investments. Therefore, simply being on par with other countries is not enough – all things being equal, they’re not coming!

If Denmark is to become attractive to foreign investors, the Danish Government needs to fundamentally commit to making foreign investments a top priority and act accordingly!