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Taking a macro perspective on Europe – Danish companies' approach to European markets Increase the potential– through a more focused and efficient business set-up Structural growth in European regions – access to markets with a GDP of EUR 2,602 billion Market share growth in European regions – access to markets with a GDP of EUR 4,015 billion The new approach – a dedicated regional approach to European marketsdedicated regional approach to Europe

Growth pockets in a Europe struck by crisis

INTRODUCTION

Theme in 2012: "Growth pockets in a Europe struck by crisis" Executive summary

Discussion themes and key “ take-aways”

Purpose of the document The document contains the following • Discussion themes and key “take-aways” from a panel debate among a group of top executives on growth in Europe hosted by Quartz+Co • Background knowledge on Europe as a growth market in a regional perspective

Perspective on Europe

• The key message from a panel of top executives was that there are opportunities in Europe, but each business has to be very specific about where and how to increase its turnover – by “riding the market growth” and/or by taking market share. To do this, it is crucial, based on in-depth market understanding, to be driven by an innovative mindset and extreme focus on execution both in terms of developing products, solutions, altering the supply chain and seeking new partnerships that would increase speed of execution. “We are not crying – we adapt a mindset driven by deeper market/customer understanding and innovation!"

• Europe is much more diversified than the traditional country split; when going a step deeper to look at the +100 European regions instead of countries, attractive growth pockets are revealed • By targeting regions, specific areas with structural growth or market share, growth opportunities can be identified and approached through a much more focused and cost-efficient business model set-up

Danish companies' approach to Europe today

• Introduction to the main results of a growth analysis conducted by Quartz+Co and YouGov with more than 400 respondents The "new approach" to Europe

• Only a few Danish companies have a systematic regional approach to their relevant markets in Europe. The main focus is typically the countries/markets closest to Denmark • Furthermore, most companies consider growth markets from "inside-out" criteria, such as price and product, instead of "macro insights". They generally base their approach on few information sources • Danish companies are potentially surpassing attractive growth opportunities in Europe and put too much effort into accessing low-potential and low-growth areas by targeting entire countries • Increased focus on regions can boost growth/revenue if Danish companies become more "educated" on the regional approach

2

KEY “TAKE-AWAYS”

Key trends and future focus areas for Danish corporations

New approaches to exports

• Companies increasingly discuss industries and customers as opposed to markets in making export and expansion decisions • Companies are mothballing regional operations in crisis-struck economies as opposed to shutting them down. Thus, they are willing to pay for medium-term losses to not lose local expertise and presence. Focus is on minimising those losses • Small- and mid-cap Danish companies need to form more partnerships when they enter new markets. History has proven that partnering to sell knowledge portfolios to new markets is more effective than selling products independently Innovation is key

• Companies are setting increasingly higher requirements for their R&D departments on project volumes and time frames • R&D focus is expanding from a product only focus to innovating business processes in production and supply chains. Innovation focus is on improving business agility • Innovation-driven companies focus on developed markets that can appreciate the economics of new innovations and products Together we can finance

• There is an opportunity for project suppliers to form partnerships and acquire project finance that their customers cannot raise • Large corporations that can sustain projects on their balance sheet need to be engaged through partnerships with smaller suppliers • Pension funds and infrastructure funds are in dire need of good investments. Danish companies should partner to push and structure investment grade projects in- and outside Europe

3

A MACRO PERSPECTIVE ON EUROPE

The challenge going forward is to approach Europe intelligently in a continuously turbulent period GDP growth 2005-09 Per cent

• In 2009, the recent economic crisis had the largest impact on EU GDP, causing it to drop by 4.4%

Nominal GDP, 2009 EUR billions

• Since 2009, growth levels have been more positive but still turbulent, and countries are exposed very differently

11,751

2

EU

21

Poland 2

Sweden

5 3

Norway

4

Belgium

11

Czech Rep.

3.0 1.9

1.8

1.5

0.9

0.2

UK

0

France

1

Denmark -0.1

2013

2012

2011

2010

2009

2008

2007

2006

2005

Greece

10

275

8

270

7

340

6 5

141

5 5

1,889

0

5 3

161 6

3

571

-3

0

1,527 5

Spain Portugal

10

218

Netherlands

-4.4

14

1,564

-2

Ireland

Italy

291

173

Austria

3.4

15

2,375

1

Finland

GDP growth in the Euro area 2005-13 Per cent

310

3

Germany

Expected GDP growth 2009-13 Per cent

1

-2

1,048

-4

169 5

232

-16

Note: Selected countries with GDP over EUR 100 million. Size is nominal GDP and growth is calculated from real GDP 4 Source: OECD; Eurostat; Quartz+Co analysis

Growth can be found in most European countries, but can it be approached more intelligently?

A MACRO PERSPECTIVE ON EUROPE

By looking at regions instead of countries, the quest for growth can presumably be approached with a more focused and efficient business set-up Focusing on selected regions can presumably increase growth potential and results due to a more focused and cost-efficient business set-up

A regional approach seems to increase the likelihood of realising growth in Europe – whether the approach is based on accessing regions of large size or regions with significant growth

A regional approach makes it possible to identify specific regions with the right characteristics and growth possibilities …

EXAMPLE

1 Structural growth – Looking for markets with significant growth

Île-de-France only makes up 2% of France's geographic area but 30% of the economy

In Italy, the Nord-Ovest region GDP per capita is EUR 47,500 compared to EUR 18,700 in the Southern region (DK is EUR 45,900)

… furthermore, possibilities of growth with an improved ROI are increased through higher efficiency and possibility of revenue increase Increased efficiency

Increased revenue

Sales efficiency • Dedicated central sales organisation with no "lone wolfs" or "half-occupied" salespeople in "thin" areas

Higher competence level • Skilled resources are easier to find in growth/high GDP areas

Focus on regions with attractive growth rates Achieving growth in regional European growth pockets

• Growth in a country can vary significantly across regions • Some regions will be first movers in driving country growth and furthermore have a considerable GDP/market size

2 Market share growth – Looking for significant (size) markets

Logistics efficiency • A smaller geographic area means lower logistics costs

5

Increased customer base quality • A smaller geographic focus ensures more insightful and dedicated approach to highest potential clients

Focus on large-sized regions

• GDP size in a country can vary significantly across regions • The majority of GDP is often concentrated in few regions – in many cases regions larger than the entire Danish economy

STRUCTURAL GROWTH IN EUROPEAN REGIONS 1

By focusing on European regions with the highest growth expectations, companies will access markets with a GDP of EUR 2,602 billion

The 10 regions with the highest growth rate among the regions in Europe Baden-Württemberg Stuttgart

Ôstra Sverige

Centralny Warsaw

Nordrhein-Westfalen

Uppsala

Expected total GDP growth 2009-13 Per cent*

GDP growth 2005-09 Per cent

Baden-Württemberg (DE)

15.7%

Centralny (PL)

15.7%

Östra Sverige (SE)

GDP size and per cent of country GDP, 2009 EUR billions (per cent) 338 (14.2%)

-1.4% 23.1%

12.3%

7.3%

Nordrhein-Westfalen (DE)

11.6%

-0.3%

Bayern (DE)

10.5%

-1.2%

87 (28.0%) 132 (45.2%) 518 (21.8%)

Düsseldorf

Etelä-Suomi

Bayern

Etelä-Suomi (FI)

9.4%

2.2%

Hämeenlinna Munich Ostösterreich Vienna

Ostösterreich (AU)

8.1%

Switzerland (CH)

6.4%

420 (17.7%)

N.a.

99 (57.4%) 122 (44.3%) 355 (100.0%)

7.9%

Switzerland Zürich

Vlaams Gewest (BE) London (UK)

7.5%

3.0%

4.9%

195 (57.4%) 336 (21.5%)

7.7%

Vlaams Gewest Antwerp

London

Denmark

4.6% 4.6%

-1.9%

218

Note: Expectations to growth are highest for Turkey and Norway, but no regional data are available. Switzerland is seen as one region due to size and lack of regional data. Size is nominal GDP and growth is calculated from real GDP * Regional GDP growth is calculated using five-year beta on regional growth relative to country growth. GDP growth equals the country's expected growth multiplied by the region's beta 6 Source: OECD; Eurostat; Quartz+Co analysis

MARKET SHARE GROWTH IN EUROPEAN REGIONS 2

By addressing the 10 largest regions measured by GDP in Europe, companies will reach markets with a GDP of EUR 4,015 billion

The 10 largest regions in Europe by GDP Île de France

Nordrhein-Westfalen

Paris

Nord-Ovest Milan

Düsseldorf

GDP size, 2009 EUR billions (per cent of country GDP) Île de France (F)

Expected total GDP growth 2009-13 Per cent* 562 (30%)

Nordrhein-Westfalen (DE)

518 (22%)

Nord-Ovest (I)

487 (32%)

7.1% 11.6% 0.5%

Bayern Bayern (DE)

420 (18%)

10.5%

Munich Nord-Est (I) Nord-Est Firenze

Baden-Wïrttemberg Stuttgart

347 (23%)

Baden-Württemberg (DE)

338 (14%)

London (UK)

336 (21%)

Switzerland

-1.9% 15.7% 4.9%

355 (100%)

6.4%

Switzerland Centro (I) London

331 (22%)

Este (ES) Centro

-0.1%

Zürich 321 (31%)

-1.9%

Este Barcelona Denmark

218

4.6%

Bologna

Note: Expectations to growth are highest for Turkey and Norway, but no regional data are available. Switzerland is seen as one region due to size and lack of regional data. Size is nominal GDP and growth is calculated from real GDP * Regional GDP growth is calculated using five-year beta on regional growth relative to country growth. GDP growth equals the country's expected growth multiplied by the region's beta 7 Source: OECD; Eurostat; Quartz+Co analysis

SELECTED RESULTS FROM ANALYSIS OF DANISH COMPANIES' APPROACH TO EUROPE TODAY

Many Danish companies consider export markets in terms of countries.

As a result differences in national and regional growth may be missed 50% of the 431 respondents evaluate new export markets by country or have no idea how their companies evaluate markets ‌

‌ those who do work with regions do not have a nuanced view of the growth potential in regions vs the growth potential in countries

How Danish companies evaluate new export markets Per cent of respondents

Countries where Danish companies expect economic growth Per cent (only includes the 50% who work with local and regional markets)

As one country

Countries expected to see the biggest growth the next 5 years

Do not know

Countries with new growth pockets in the next 2-3 years

As a few regional markets with individual characteristics As many local markets with individual characteristics

Germany Sweden Great Britain

16%

Norway 31% Netherlands France Italy Poland

34%

Eastern Europe 19%

Do not know

8 Source: YouGov; Quartz+Co analysis

SELECTED RESULTS FROM ANALYSIS OF DANISH COMPANIES' APPROACH TO EUROPE TODAY

69% of respondents do know of regional growth pockets; however, the majority do not think of these as growth pockets within a geographic area 69% of the respondents say they know of active growth pockets in Europe …

… however, only 20% of those respondents consider growth pockets as geographic areas, leaving potential in regional growth pockets untapped

Respondents who know of active growth pockets in Europe Per cent

Respondents consider growth pockets according to different criteria Per cent Geographic areas

Industry Yes

Yes

20% (61)

27% (80) No 31% (133)

73% (218)

80% (237)

No

No Product niche

Price niche 69% (298)

Yes 32% (94)

Yes 68% (204) No

9 Source: YouGov; Quartz+Co analysis

55% No (163)

45% Yes (135)

Danish companies' focus on industry, product and price fit means they miss out on geographic growth pockets

SELECTED RESULTS FROM ANALYSIS OF DANISH COMPANIES' APPROACH TO EUROPE TODAY

Respondents have limited knowledge of when future growth pockets will occur Danish companies' choice of European export markets is primarily based on in-house research …

… thus many respondents expect growth pockets to occur with little idea about when

Information sources for European export decisions Per cent

Time span within which respondents expect future growth pockets to materialise Per cent (includes only respondents with expectations to growth pockets) Within 6 months

2-3 years

6-12 months

Do not know

12-24 months 42%

In-house research

Other similar companies

Germany

2%

35%

Sweden

5%

50%

Great Britain 15%

Consultancies

43%

Norway 5%

Public institutions

57%

Netherlands 10%

Interest groups

62%

France Other

2%

Do not know

10 Source: YouGov; Quartz+Co analysis

Italy 20%

Poland

77%

51%

CONCLUSIONS – THE "NEW APPROACH" TO EUROPE

Danish companies can increase their chance of success through a dedicated regional approach to Europe … but the approach should be regional instead of country-driven and based on deep macro economic insight and an effective regional set-up, eventually acquired at a cheap price!

Growth options can be found in Europe …

1 Structural growth 10 of the largest growth regions constitute 20% of the European economy – and 12 times the Danish economy

Kill the borders

Get educated on macro

Growth can be achieved by adopting a regional approach to Europe



2 Market share growth The 10 largest regions constitute 30% of the European economy – and 18 times the Danish economy

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Build an efficient regional set-up

Go in cheap!

• Europe should be seen as separate regions that constitute their own market potential and dynamics and should be analysed as such • The traditional view neglects the potential growth pockets which become invisible in country averages – both in terms of growth level and size • Companies must improve their information sources and analytical skills to be able to find, understand and approach the right regions in Europe • Assessing the macro market data should be the initial approach to identifying and deciding on (geographic) growth opportunities which then can be assessed against traditional criteria like product and price • Establishing presence only in selected regions with optimal growth conditions can ensure a more agile, cost-efficient and competent set-up with decreased complexity • A strong presence in a regional hotspot can be used as a foundation for further market penetration • A regional approach can also be the way to identify and utilise potential for acquiring cheap assets, especially in depressed economies that despite the current situation hold long-term potential – e.g. Spain and Italy • By choosing the "best" regions in a depressed economy, the risk of failure is decreased and presence is established without having to focus on a nation-wide set-up

CONCLUSIONS – THE "NEW APPROACH" TO EUROPE

Danish companies potentially surpass growth opportunities by putting too much effort into accessing low-potential and low-growth countries Taking the more traditional country and product approach, Danish companies lack insight into the macro development on regional level Exporting to growth pockets • Many Danish companies do not work with regional export markets • Most of the Danish companies do not have a nuanced view of the difference in national vs regional economic growth and export potential

Understanding growth pockets • Too many companies are unaware of current growth pockets and growth pockets altogether • Very few companies consider growth pockets as geographic areas in Europe

Finding growth pockets • The majority of companies are uneducated in terms of forecasting when future growth pockets will occur

12 Source: YouGov; Quartz+Co analysis

What could be the consequences?

Danish companies could be missing out on growth opportunities in a Europe with more than 100 very different regions with VERY different growth potentials