I. Executive Summary
Denmark tends to be seen as a highly attractive target country for foreign firms because of its strong economy, trade, promotion of foreign direct investments, agriculture, manufacturing, energy, and transport. Furthermore, they tend to be seen as highly attractive mainly because of their stable state budget, steady currency, low interest rates, and low inflation. In terms of trade, the Danish economy is tiny, exposed, and extremely geared to trade with other countries. Denmark's top trading partners include Germany, Great Britain, Norway, and Sweden specifically in Europe, along with Japan and the United States outside of Europe. Denmark's dependence on trade permits them to be eager to trade freely in goods and services with other countries.
In terms of promotion of foreign direct investments, Denmark is positioned in Europe's most wealthy area making businesses investing in Denmark gain income from the appealing macroeconomic environment and from competitive circumstances relative to taxation and labor costs. Denmark's workforce seems to be one of the most efficient in Europe because of their competitive labor costs along with their increasing productivity levels joint together. In terms of manufacturing, Denmark produces an abundant number of goods for both export and domestic utilization. They tend to be most successful and dominate in the chemical, mechanical engineering, food and beverage, and tobacco industries. In terms of energy, Denmark is the third largest oil producer in all of Western Europe. They mainly focus their energy production on imported coal, natural gas, oil, and wind energy. Lastly, in terms of transport, it varies in terms of the size of each individual's responsibility.
Looking from an economic standpoint, Denmark has a mixed-economy meaning that they have free market competition with a sizable public division. They also encourage growth development similar to the United States, which also has a mixed-economy. Although Denmark and the United States are somewhat similar, but not very equal, Denmark still has the highest rate of economic flexibility among developed countries which could very well allow for easy integration into the country. Overall, Denmark seems to be unique, powerful and highly attractive over other countries for foreign firms.
II. Overview of Target Country
a. Economic Environment
When assessing the economic environment of a specific country, globalization, the economic system, trade barriers and member in regional trade block come into play. Based on globalization, the amplified interdependence throughout economics has furthermore established that what happens in one countries economy, affects other countries economy as well. According to our International Business textbook, globalization is defined as "the movement toward a more independent and integrated global economic system". The Danish governments usually welcome and embrace globalization with little reservation. Globalization is progressively important to the growth of the Danish economy and society. As mentioned before, Denmark is one of the most prosperous countries in the world, with low employment rates. They also have an excessive amount of balance of payments and public expenditure, along with low inflation which are both positive factors. According to the Time Magazine article, Denmark's quality of life is among the highest in the world. They have an unemployment rate of 3.1%, and their exports far exceed their imports which are both considered a positive economic indicator (Time Magazine, 2007). The Danish economy has been able to encourage globalization and job outsourcing by creating a blend of adaptable labor markets, liberal guidelines for firing and hiring, along with significant social benefits.
A pro in Demark is that the government reimburses employees who lose their jobs with generous unemployment benefits, as well as encouraging them to search for new jobs. They also help the unemployed by providing retraining programs to help them further gain knowledge and skills needed in the workforce. Overall, the Dane's understand the effect of globalization because of the numerous economic and social benefits that it delivers to society. A con to Denmark in terms of globalization is that there is a high standard of living and fairly high taxes. Even though there are a few downfalls to Denmark in terms of globalization, there are many benefits that outweigh the cons such as free healthcare and stability, along with the others mentioned above.
According to our International Business textbook, trade barriers such as tariffs, are used to restrict trade between counties. Denmark has generally maintained a no-barrier policy and the country itself tends to be on top in global competition against non-tariff barriers. Denmark is a member of the European Union, and also has the most outstanding record out of all the European Union countries. They follow a no one-sided trade barrier rule versus the United States. Most of the exterior responsibility tariffs that the European Union has, pertain to all products arriving from the United States and other non-EU countries. A Value-Added-Tax (VAT) in the amount of 25%, is added on a non-discriminatory foundation to all goods and nearly all services sold in Denmark. This pertains whether they are imported or locally-produced. Benefits of having a no-barrier policy can include increased economic growth, direct foreign investment as well as expertise. Cons of having no barrier-policy can include increased job outsourcing and poor working conditions. Overall, Denmark essentially thinks the global economy including the emerging countries stands to benefit from a rise in international trade while following a no-barrier policy. This will allow them to increase globalization within their country.
Participating in free trade has helped Denmark become the thirty-ninth largest economy in the world in terms of nominal GDP and the sixtieth in terms of GDP based on purchasing power parity. This is a very positive factor for how small of a country Denmark is. Denmark has a mixed economy grounded in services and manufacturing. This form of economy combines both government control and private ownership. They rely deeply on human resources as well as a few other important and cherished natural resources that are accessible, such as oil and gas from the North Sea. According to the World Bank, Denmark has one of the bottommost levels of income inequality in the world and their standard of living is amid the uppermost in the world.
b. Political, Cultural and Legal Environment
According to our International Business textbook, the political system of a country is "the system of government in a nation that shapes its economic and legal system". Denmark is a constitutional monarchy and is currently ruled by Queen Margrethe II. She has been the head of state since 1972. The prime minister of Denmark is Lars Løkke Rasmussen and he has been in this role since 2015. The prime minister is elected as part of direct elections for Parliament which is held at a minimum of every four years. The Danish governments are minority governments, meaning that the popular vote for favorable legislation is acquired by one or more accompanying parties.
Similar to the United States, Denmark guarantees a steady democracy in order to avoid mishandling of power. The democracy is divided into three main parts: the legislative, the executive, and the judicial powers. One of the chief features of democracy is that it is open and apparent to the public. The whole political system is controlled by the voters. If citizens do not like something, they have the right to take their complaints to the courts of justice.
Overall, the Danish democracy has been operating well within the framework of the Constitutional Act for over a century. This is a positive factor that they still are operating well even though the population has vastly increased and the political integrity of the population has been supported. On the negative side, this has given intensification to ferocious variations in the political existence and has created a sense of distance between the candidates and the voters/citizens. Aside from this, democracy seems to still have extremely durable origins in Denmark to this day.
According to our International Business textbook, the legal system of a country refers to "the rules, or laws, that regulate behavior along with the processes by which the laws are enforced and through which redress for grievances is obtained". Denmark follows the common law legal system, furthermore the Scandinavian Civil Law. The Danish legal system is composed of three different basic levels: the district courts, the high courts, and the Supreme Court. According to the 2014 Rule of Law Index developed by the World Just Project (WJP), Denmark has the best legal system in the world. One of the main reasons why Denmark was ranked the best, is because of their absence of corruption.
In fact, according to 2016 Transparency International's Annual Corruption Perception Index, Denmark was ranked the least corrupt country in the world for the fifth year in a row. This was due to the country's extraordinary degree of press freedom, admittance to information about public spending, sturdier standards of honesty for public officials, and self-governing judicial systems. There are both positives and negatives about Denmark's legal system. On the positive side, the crime rates and corruption are overall low due to their legal system. However, on the negative side, the legal system is not very effective against corporate crime. Citizens have gotten away with stealing money from tax authorities and have basically gotten away with it. Overall, Denmark has a considerably strong legal system and do not necessarily have to worry about corruption lowering the country's level of attractiveness very much.
In terms of culture, Denmark is more of an individualistic culture rather than a collectivist culture, meaning that in this type of society, people are supposed to look after themselves and their direct family only. Although the Danish have more of an individualistic culture, according to Terri Mapes from TripSavvy, "Culture in Denmark can be described by three different aspects of Danish life including simplicity, politeness, and equalityâ€. A humble life is the principle of culture in Denmark. The language spoken in Demark is Danish, which is spoken by more than 98% of the population of 5.77 million people. In terms of Denmark's educational system, they have been ranked as having the fourth best educational system in the world according to U21 Rankings. The educational system in Denmark is similar to the United States system and encourages students to focus on happiness.
When viewing Denmark from Hofstede's cultural dimensions standpoint, power distance, individualism, masculinity, uncertainty avoidance, and long-term orientation come into play. Denmark ranks low on the power distance dimension compared to many other countries, meaning that the Danes do not lead or take control. Instead, power is decentralized and the Danes coach and practice employee autonomy. Denmark ranks low on the masculinity scale as well, meaning that they are considered a Feminine society. Even though they are considered a Feminine society, women and men are seen as equal and do not overpower each other. This shows that the dominant values in society are caring for others along with the quality of life. In terms of uncertainty avoidance, Denmark ranks low as well, meaning that the Danes do not require much certainty and organization within their work life. Lastly, in terms of long-term orientation, the Danish culture also ranks low meaning that their culture is normative. The Danes respect tradition and concentrate on attaining rapid results. The culture in Denmark has made for joyful and humble people who are eager to pay the world's uppermost taxes in exchange for concrete coverage of health care, unemployment, and numerous other community amenities offered by the Danish government.
c. Competition
When trying to decide where to expand your business, it is important to research successful locations within the country you choose. It is also important to know what specific areas established businesses are already doing well in, so your business can acquire the benefits from the already reputable customer base. The five biggest cities in Denmark include Copenhagen, which is the biggest and capital city of Denmark, along with Aarhus, Odense, Aalborg, and Frederiksberg. The five leading growth business segments in Denmark are R&D, Beverages, Energy electricity, natural gas, and district heating), IT, and Pharmaceuticals. The main cities located above seem to be where many of the successful businesses are located in Denmark. If one was looking to expand their business in Denmark, they would want to consider expanding to one of the five cities mentioned above, since there is already an established customer base.
According to ProDenmark, the top four Danish companies are A.P. Møller -Mærsk which is a shipping company, Danske Bank, ISS- which is a cleaning services company, United Shipping & Trading Company which is a fuel trading company, and Novo Nordisk which is an insulin company. All of these companies range from 115 billion DKK to 66 billion DKK (turnover). The biggest industries in Denmark include agriculture, tourism, energy, and transportation. Over 60 percent of the total area of Denmark is utilized for agricultural purposes. Because of this, the country itself is able to produce two times more food than the total national food requirements.
As mentioned before, A.P. Møller-Mærsk is considered to be in the transportation industry. It is a container shipping company that provides dry, reefer, and special cargo transportation services. They are a private company with an estimated annual revenue of about $31.2 billion. A.P. Møller-Mærsk's strengths include being the largest container ship operator in the world, operating in 130 countries with a workforce of over 100,000 employees, engaging in energy, offshore, retail, and manufacturing businesses apart from shipping, and having a strong global brand name and reputation. Weaknesses of this company include relatively low visibility in the road and air transportation, and fluctuating profit margins. A few major competitors for this company in the transportation industry include Mediterranean Shipping Company, CMA CGM, and China Ocean Shipping Company. When looking at the strengths and weaknesses of a competitor, CMA CGM offers logistics services as well as river and road transport services which is a strength because A.P. Møller-Mærsk does not offer those additional services. On the negative side, as mentioned before, A.P. Møller -Mærsk is the number one shipping company, trumping all.
Overall, according to Forbes, Denmark is one of the best countries for doing business. This is because of innovation, low tax, and little to no corruption. Denmark has something to offer foreign investors and companies looking for an attractive and revolutionized place to begin or expand their undertakings. Because of this, companies in Denmark have a higher degree of attraction over other counties and seem to overpower a majority of their competitors as well which is a positive factor on the business side.
III. Conclusion
If a business is looking to internalize, Denmark would be an extremely suitable country to choose to expand a business in. Denmark's economy has remained stable over the year and has been ranked as having the 12th freest economy in the 2018 Index. Their economy performs remarkably well in regulatory efficiency as well. Denmark's open-market policies maintain competitiveness, sizable investment and trade flows, and flexibility. Their visible and effective regulatory and legal atmospheres also inspire vigorous entrepreneurial movements. On top of this, Denmark's judicial system delivers robust security for property rights. In terms of competitive advantage, Denmark has a large competitive advantage in the worldwide marketplace because of their energy efficiency and more specifically within the development and use of green energy technologies. Denmark's comparatively low energy costs allow the Danish business environment to be sturdier against variations in energy prices compared to other countries abroad. Denmark's transition into a greener environment, allows them to surpass other countries in the area of district heating, bioenergy, wind energy, and bioenergy. Overall, Denmark has a competitive advantage because of their energy efficiency which will save financial resources, help with economic growth through foreign investments, help shield the environment, as well as advanced safety of supply.
I would recommend businesses to enter Denmark by licensing or joint venture with a host country firm. Both of these entry modes are very common in Denmark. I recommend licensing because there is no requirement to register licensing agreements with Danish authorities which is an advantage. Also, there are no Danish government restrictions or fees on remittance of royalties. As mentioned in our International Business textbook, another advantage of licensing is that the firm does not have to bear the development costs and risk associated with opening a foreign market. I also recommend joint venture because they may be founded as corporations, general partnerships, or as any other permitted arrangement. Also, many current Danish local government authorities along with non-profit organizations have created programs as well as offices to try to entice foreign investment along with joint ventures. Having a host country firm is a great way entry mode because they are able to provide the necessary experience, expertise, and knowledge needed about the Denmark culture, business world, and legal system. Overall, there are many advantages to both of these entry modes that would benefit businesses planning to enter Denmark.
When deciding to internationalize your business, it is important to make sure you have demand for your business's products before following through in the creation of your business. If there is not a demand for your business's products in that specific country, it will be a waste of money and time to internationalize there. Porter's framework is helpful in the analysis because it looks at factor endowments, demand conditions, relating and supporting industries, and firm strategy, structure, and rivalry. All of these attributes promote competitive advantage, which is important to have when entering foreign markets. As mentioned above, Denmark has a huge competitive advantage. I also was able to find a wide variety of great information on the country of Denmark, causing my research and findings to be easy and smooth. I did not face any difficulties identifying important questions throughout this analysis. Overall, Denmark is an ideal country for businesses to expand into to earn a profit due to their stable economy, low corruption rates, strong legal system and eliminated trade barriers. Starting or having a business in one of the happiest countries in the world according to the 2018 World Happiness Report allows firms to have a huge advantage as well.