Barriers to growth – six challenges face Danish companies Unambitious growth expectations – Danish companies expect organic growth Time to go global – put globalisation on the corporate agenda Why global is good – global companies show higher margins and productivity What does it take? – high performing companies have a clear globalisation strategy, a cost-and-cash conscious mindset and access to markets and talent Empower middle management – establishing responsive and agile governance
Globalisation on the corporate agenda Go global or defend base
Six factors challenge Danish companies in maintaining growth in the global context Taxation levels are among the highest in the world High taxation levels
Decreasing productivity
Denmark is number 12 when it comes to work productivity; this is close to the average level both in the euro zone and OECD. However, Denmark had a negative growth in productivity between 2007-2009 although positive in 2010
Increasing salary levels
Among OECD countries, Denmark and Norway have the world's highest labour costs. From 2000 to 2009, the Danish salary costs per hour/unit have risen by 23% (EU average is ~5%)
Decreasing educational levels
2
In the Science Citation Index (SCI), Copenhagen-Lund dropped to number 22 in 2006-2008 from number 15 ten years earlier
Lack of ability to attract foreign investments
Figures from the Bank of Denmark, OECD and the Confederation of Danish Industry show that in Western Europe, only Ireland and Greece have performed worse than Denmark in attracting foreign investments between 2001 and 2008
Lack of ability to attract foreign workers
According to calculations by the Danish Society of Engineers, Denmark – even with a careful estimate of the economic development – will be 7,600 engineers short by 2015
However, Danish companies expect to grow organically, mainly in the local and the neighbouring markets A majority of Danish companies expect to grow in "the backyard" over the coming five years
Sweden, Norway and Finland
A majority of Danish companies expect to grow organically over the coming five years
Organically
35%
9% 2% Denmark
North America
Western Europe
2%
57%
Russia
Other means
23%
Eastern Europe
7%
China
3%
6%
India
Acquisitions
17%
1% Africa and the Middle East Central and South America
0%
Partnerships
12%
Asia
1%
Negatively
4%
Do not expect to grow
5%
1%
Do not know
3
3%
Note: Respondents may have given more than one answer. "Do not know" is not included in the figures. Survey question for the chart to the left: "How do you expect your company will grow in the future?"
Danish companies need to put globalisation on their corporate agenda Companies generally have two options: go global or defend base Go global Seek opportunities in the new growth markets – new customers, cost benefits and talent
Globalisation strategy We believe the winners will pick the go-global strategy • Build the right global business portfolio, embracing the diversified risk environment while ensuring access to customers and markets • Ensure financial robustness by enforcing a cost-and-cashconscious mindset and realising global cost benefits
Go global
• Attract and retain global talent, insights and knowledge Defend base
Defend base Sell more at "home", increase productivity/ innovation and attract foreign capital/knowledge
4
Access to customers
Reduce costs
Access to talents
Organisational enablers • Create an agile and responsive leadership and governance model based on empowerment of the middle management level, enabling them to cope with a global footprint and regional differences
Geography
Governance
Leader -ship
Structure
Among companies seeking global opportunities the productivity and margins are significantly higher Exporting firms
Exporting firms are more productive than non-exporting firms (e.g. Central Banking, 2011)
Subsidiaries abroad
Danish companies with subsidiaries abroad have approximately 10% higher productivity compared to similar companies without subsidiaries abroad (e.g. Ministry of Economic and Business Affairs, 2011)
Foreign ownership
Danish companies with foreign ownership have approximately 17% higher productivity compared to similar companies without it (e.g. Ministry of Economic and Business Affairs, 2011)
Offshoring/outsourcing
Foreign experts
5
Danish companies with a high level of offshoring and outsourcing have higher productivity and higher profit margins compared to similar companies that do not offshore or outsource – primarily due to lower wage cost and other costs (e.g. Hummels et al., 2011)
Danish companies that make use of foreign experts have 5-7% higher productivity compared to similar companies that do not (e.g. analysis made by CEBR for the Rockwool Trust, 2009)
Source: Danmark som produktionsland – Muligheder og udfordringer for danske fremstillingserhverv", June 2011, Copenhagen Economics; Quartz+Co analysis
The winners have a clear globalisation strategy based on the right business portfolio, a cost-and-cash-conscious mindset as well as the ability to attract and retain global talent, insights and knowledge Key idea
How?
Ensure access to markets and customers as well as better insight into local requirements for products and solutions
With the new shift towards the east, Danish companies must seek growth outside the EU – and gain a stronghold in BRIC and the Next-11 markets
Carlsberg is focusing intensively on gaining a foothold in Russia, making up 40% of the group's earnings today. The company also aims to capture a fair share of the beer market in Asia, which is expected to account for nearly 40% of all global beer consumption by 2015
Reduce costs
Ensure economies of scale primarily in the supply chain, e.g. production, logistics and R&D
Danish companies must adjust their costs – not only salaries but all relevant cost components – to remain competitive against global competitors
Since 2000, Danish Crown has worked structurally on improving the competiveness by moving activities to locations, such as Sweden, Poland, Germany, the UK, the US, Portugal and China
Access to talent
Ensure access to talent and centres of excellence/clusters with specialised knowledge
With increased global competition, demands for specialised knowledge increases. Consequently, Danish companies must rethink where and how to attract the best people
Novo Nordisk is sourcing the best global talent, e.g. by establishing a research unit in Beijing, locating biopharma and target discovery in Seattle and continuing to convincing the best people to come to Denmark
Access to customers and markets
6
Example
Also, the winners have an agile and responsive leadership and governance model based on empowerment of the middle management level
Geography
Structure
Governance
Key idea
How?
Optimise and align the company's global footprint across the business portfolio and the supply chain
Assess the current baseline of the company's global footprint and decide on the optimal geographical location (benefits/risks) for core functions, processes and activities
Optimise the company's structures, ensuring that business activities and processes are best managed and coordinated
Assess the company's future demands, decide the organisational design criteria and develop realistic organisational structures
Develop the optimal governance structure, ensuring efficient management and followup of business activities
Develop a clear governance structure to deal with the complexity, and thus risk of uncertainty, which may exist in a global organisation. Key elements include forums, decision groups, meeting structures and KPIs as well as follow-up procedures
Create an agile and responsive leadership model based on empowerment of the middle management level
Decide on the global/regional/local leadership model. The leadership challenge connected to increased globalisation is very concrete and can be done in the wrong way – with great and severe implications
Example Local markets
Global markets
Matrix
Customers
Products
Regions
Centralisation
Decentralisation
Nordic
American
Asian
Leadership AngloSaxon
7