Denmark’s Competitiveness Threatened - Reaching Critical Limits
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It is now reaching a critical point. Denmark’s investment framework conditions need to be improved. This coupled with the shortage of highly qualified labor and slow growth forecast mean foreign investments are at risk – a negative for the Danish economy and a blow to Denmark’s competitiveness. This was the main message at the fourth annual AmCham Foreign Investors Summit held at the historic Landstingssal at Christiansborg Palace (Danish parliament) on Sept. 23.
The Summit provided a platform for discussing the key issues related to investment in Denmark and its future competitiveness. Among these included what is necessary to attract and retain investment by global companies, satisfy talent requirements, and increase productivity and growth. Opening comments were made by Laurie S. Fulton, the U.S. Ambassador to Denmark, and 150 delegates, including top business executives, diplomats and members of State, joined together to better understand the issues, and explore solutions to these critical challenges. With the eminent danger of reduced growth, current economic climate and future uncertainty, it is clear that the time to act is now.
Michael Aastrup Jensen, Denmark’s Liberal Party (Venstre) spokesperson on foreign affairs and information technology, hosted the Summit again this year. In his opening remarks, he emphasized that the current national growth strategy is not sufficient, and that a solution cannot be found without a higher level of international cooperation.
Investors see greener grass
AmCham’s Executive Director Stephen Brugger presented results from the 2010 “AmCham Business Barometer,” an annual survey of evaluating the current business climate in Denmark as reported by the general managers of AmCham’s member companies. For the second year in a row the study found that there are a significant number of companies considering relocating operations and/or employees outside of Denmark (44 percent), citing Denmark’s high cost of doing business including wage costs, taxation, VAT, labor regulations, production costs and lack of international school capacity as some of the key reasons.
Stephen Brugger pointed out, “The majority believe that Denmark is open to foreign companies. Paradoxically, responses from the international business community show a much different reality.” Of the respondents, 85 percent reported that Denmark’s policies are “Average” to “Very Low” in helping to attract and retain global companies.
Leif Beck Fallesen, CEO and editor-in-chief of the Danish business newspaper Børsen, discussed the threat of low productivity growth and stated, “Denmark’s model of Flexicurity, that of combining a flexible labor market and social security as a competitive alternative to the U.S. capitalist model, has provided high growth rates, low unemployment and sound finances for several years, however the bottom line is that in 2010, the model no longer provides growth going forward.” “Denmark needs a new model in order to produce growth,” Fallesen said. He concluded by expressing that the government’s current growth strategy is unclear, and stressed the importance of the upcoming 2011 election.
Minister of Taxation, Troels Lund Poulsen, followed on Fallesen’s comments by stating that the government has already taken considerable measures, and assured that it will do whatever it takes to make a strong economy. Despite this however he did admit that the government could not promise any new initiatives at this time, and would not likely be in a position to face these issues until 2011. Poulsen agreed that more could be done to improve the marketing of Denmark abroad and said, “Denmark has gone from growth to a difficult time where public finance is strained. There needs to be a debate with all of Danish society on how to move forward.”
A further sense of urgency was supported by the findings of a Copenhagen Economics and Copenhagen Capacity’s study entitled, “Udenlandske investeringer og det danske produktivitetsproblem, or “Foreign investment and the Danish productivity problem.” Senior Economist Claus Frelle-Petersen from Copenhagen Economics participated in the panel discussion on attracting and retaining existing companies expressed that, “Foreign companies are more productive, innovative and experience higher growth than Danish-based companies. Denmark simply needs a more global outlook in order to grow.”
Another area discussed was the need for more innovation, entrepreneurship and focus on growth sectors like green business, energy and transportation. Regionalization as a solution for increasing growth and stability was another area explored due to the limited size and amount of resources in Denmark alone. Anne Skovbro, director member of the executive board for the City of Copenhagen, said, “We agree that more needs to be done with the country’s green growth strategy and even more for the life science sector. Regional issues should be a part of the solution, including an agreed upon cooperation strategy with Skåne and Malmö, which offers the largest labor pool of Scandinavia.”
Low growth and talent shortage
Corporate interests were represented at the Summit by senior vice president and area director for North and West Europe for GlaxoSmithKline, William S. Allen, group senior vice president of Corporate Human Resources for A.P. Moller-Maersk A/S, and Charlotte Mark, CEO of Microsoft Development Center Copenhagen. Each expressed concerns regarding the growth prospects and sustainability of their respective businesses in Denmark. Industry consolidation, lack of highly skilled labor, ability of foreign employees to integrate into Danish society, taxation schemes for expats, and lack of capacity in international schools were mentioned as some of the major barriers.
Erik van Snippenberg emphasized that Denmark is a small market, and generally not the first market companies think of when looking where to invest. There is a need for the Danish government to be more aggressive in how it’s selling itselft to international markets. In addition, van Snippenberg pointed out that 44% of companies surveyed looking elsewhere to place investments and jobs is troublesome. It is costly to a country for companies to come in and acquire companies and competencies and then lose them to sub-optimal framework conditions.
Proposed solutions included a more global mindset, clearer leadership and more transparency. Availability of more information in English concerning public services, social programs and networking, and a better tax scheme for businesses and expats was also suggested. More specifically, changing the current timeframe of three years with 25 percent tax to five years was put forth, and an incremental increase in taxation was also proposed. Whatever the outcome will eventually be, it was unanimously agreed upon that something more concrete is necessary.
Jan Rose Skaksen, professor of International Economics at Copenhagen Business School, considered the role of education with respect to the future of Denmark’s shrinking labor force into 2020. Skaksen outlined two major issues: fiscal sustainability, or the challenge of increased public debt, and the structural problem related to generating growth. “The shrinking labor force will create major problems for public budgets. There are essentially two solutions: Danes can work more or we can increase immigration,” he said.
Openness is not nice, it’s needed
Margrethe Vestager, party leader for the Social Liberal Party (Radikale Venstre) took a closer look at Denmark’s talent shortage, and discussed some of the human and cultural challenges around immigration and integration. Vestager pointed to the fact that a significant number of people will retire in the coming years while fewer will enter, not only in Denmark but also in Europe, making labor supply even shorter in the coming years. “I share the sense of urgency. We need a strategy to attract talent, to be more open and find the courage to act,” Vestager said. “It’s not a competition for jobs, but a push for more jobs,” she said when explaining how highly qualified foreign employees create more jobs for Danes by building departments and expanding organizational competency. “Openness is not “nice”, it’s needed,” she said.
In summary, Denmark needs to enhance its framework for making it more attractive for companies to invest and stay here, in addition to accommodating foreign talent that contribute their skills for the benefit of the country. Stephen closed the Summit by expressing, “Foreign companies in Denmark play a vital role in the Danish economy, but must compete for their share of inter company projects and investments. I can’t emphasize enough the need for Denmark to act swiftly and decisively. We must provide the tools necessary for them to be successful.”
Download a copy of the presentation (PDF 5mb)