Denmark: Market Entry Strategy

3188 words (13 pages) Essay in International Business

23/09/19 International Business Reference this

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Denmark: Market Entry Strategy

Denmark and its People

Denmark is a constitutional monarchy located in Northern Europe on the Jutland Peninsula, separating the North Sea and the Baltic Sea. A large part of the territory is also formed by 443 named islands that fall under Denmark. These islands are often connected by bridges that lead all the way to Sweden. The south borders are then shared with Germany. Apart from the mainland, Denmark includes the Faroe Islands and Greenland that are fully autonomous. The capital city of Denmark is Copenhagen and the total land area accounts for 16,382 sq. miles (Worldometers).

The current population of Denmark is 5,763,361 that equals 0.08% of the total world population. This number applies only to Denmark itself. There are 49, 577 inhabitants in the Faroe Islands and 56,612 in Greenland. When it comes to population density, we will find 351 people per mi2 in Denmark. Population distribution by gender is 49.75% for men and 50.25% for women (Central Intelligence Agency).

Ethnically, Danish society is relatively homogeneous. Immigrants and their offspring account for only 8.8%. In 2017 alone, 89,382 people immigrated to Denmark (Statista). 51.0% of immigrants come from Europe (including Turkey), 33.7% from Asia (predominantly from Iraq, Iran, Pakistan, and Lebanon) and 9.7% from Africa (mainly from Somalia and Morocco). According to the Human Development Reports, most of the population (87.8%) live in urban areas (Human Development Indices and Indicators).

I chose Denmark for this research paper as I consider this country to be one of the most developed nations in the world and that gives many good examples for the rest. It is also one of the best countries for starting own business and education. Moreover, because the education system is often compared to the one in the US, I was considering studying in Denmark before applying to DePaul.

 

Political System

Denmark, officially the Kingdom of Denmark, is a monarchy of the constitutional type. The power of the sovereign is therefore limited by the constitution. In such cases, the monarch is either the head of the executive power or s/he has only a representative function of the state. In Denmark, “the monarchy is hereditary; following legislative elections, the leader of the majority party or majority coalition usually appointed prime minister by the monarch” (Central Intelligence Agency).

At present, Queen Margrethe II is a Danish chief o state since January 14, 1972. It was the so-called “Act of Succession”, adopted in 1953 by a referendum that altered the existing rules and allowed the female heir to inherit the throne in the absence of a male heir (HM The Queen). In Denmark, the queen is extremely popular, despite some opinions that she is old-fashioned. According to a survey by Royal Central, about 77% of the population supports her (How Popular Are Europe’s Monarchies?). The elder son of the monarch, Prince Frederick, is the heirs apparent to the throne.

According to Ramallah, Ministry of Foreign Affairs of Denmark, “Denmark is known for its social-liberal welfare system, often referred to as the Scandinavian welfare model, which is based on equal rights to social security for all citizens. This means that a number of services such as health and education are available to all citizens, free of charge. The Danish welfare model is subsidized by the state, and as a result, Denmark has one of the highest taxation levels in the world” (Danish Government and Politics).

 

Religion and Language

The Head of the Church is also the head of state, which is Queen Margrethe II. The vast majority of the population (76%) are registered members of the Evangelical Lutheran Church, which is the official religion of Denmark. However, many do not consider themselves to be very religious and go to the church only once a year (Religion and Identity). Most go to church only on special occasions like baptism, confession, wedding, and funeral. Such a high percentage of “believers” is then partly due to the fact that after the birth the individual automatically becomes a member of the church.

The second most widespread religion is, mainly due to immigration, Islam; about 4% of the population (approx. 180,000 people) are Muslims. Other but less represented religions are Roman Catholics (approx. 35,000 adherents), Buddhists (approx. 20,000 adherents), and even Jehovah’s Witnesses (approximately 15,000) (Central Intelligence Agency).

The official language is, of course, Danish, followed by Greenlandic and Faroese. In some places (especially south) it is also common to speak German. Many people, however, are able and willing to speak English as it is the predominant second language.

 

Human Development Index (HDI)

Denmark’s economy is one of the best in the world. According to Human Development Report Office (HDRO), “Denmark’s HDI value for 2017 is 0.929— which put the country in the very high human development category—positioning it at 11 out of 189 countries and territories. Between 1990 and 2017, Denmark’s HDI value increased from 0.799 to 0.929, an increase of 16.3 percent” (Human Development Indices and Indicators).

More detailed progress in each of the HDI indicators ranging from 1990 to 2017 is showen in a table below:

Table 1: Denmark’s HDI trends based on consistent time series data and new goalposts

Life expectancy at birth

Expected years of schooling

Mean years of schooling

GNI per capita (2011 PPP$)

HDI value

1990

74.9

14.1

9.0

32,969

0.799

1995

75.6

15.1

9.9

36,879

0.831

2000

76.7

16.2

10.7

41,508

0.863

2005

77.9

16.9

12.8

44,929

0.903

2010

79.4

16.9

12.7

44,726

0.910

2015

80.6

19.2

12.5

47,000

0.926

2016

80.7

19.1

12.6

47,209

0.928

2017

80.9

19.1

12.6

47,918

0.929

*Source: HDRO (http://hdr.undp.org/sites/all/themes/hdr_theme/country-notes/DNK.pdf)

 

 

Table 1 reveals that Denmark’s life expectancy at birth increased by 6.0 years, mean years of schooling increased by 3.6 years, and expected years of schooling increased by 5.0 years. Denmark’s GNI per capita increased by about 45.3 percent between 1990 and 2017 (Human Development Report Office).

 

Economic Growth of Denmark

In the 1980s, the business sphere in Denmark was largely enforced. The government of that time set to remove the budget deficit by 1990, in particular by cutting the public budget or by reducing support for the unemployed. However, the balance of payments was still not positive. Public spending had continued to grow while debts had been repaid abroad. The government has decided to respond by limiting consumption, resulting in the bankruptcy of some businesses due to further unemployment and falling demand. The balance of payments started to improve but at the expense of the domestic market (Linton & Hans). In 1990, however, Denmark was finally left with a surplus and after 27 years got out of the crisis.

According to the Central Intelligence Agency, “Denmark maintained a healthy budget surplus for many years up to 2008, but the global financial crisis swung the budget balance into deficit. Since 2014 the balance has shifted between surplus and deficit” (Central Intelligence Agency). Currently, Denmark is experiencing a modest economic expansion. The economy grew by 2.0% in 2016 and 2.1% in 2017. Moreover, unemployment accounted for 5.5% in 2017. Because of the difficulty of finding appropriately-skilled workers, Danish Government now offers extensive programs to train unemployed persons to work in sectors that need qualified workers (Central Intelligence Agency).

All in all, Denmark is an economically stable country that could be an example to others. The public services, including education and health care, are very advanced. In the field of competitiveness, Denmark is ranked 10th in the world (Competitiveness Rankings). Denmark also has a large share of GDP per capita, accounting for $50,100 in 2017. As for total GDP, its value is about $287.8 billion (Central Intelligence Agency). In addition to that, Denmark’s economic freedom score is 76.6, making its economy the 12th freest in the 2018 Index of Economic Freedom website. “Its overall score has increased by 1.5 points, led by improvements in the judicial effectiveness, tax burden, and government spending indicators (The Heritage Foundation).

Another important element of the current Danish economy is foreign trade. The exports amounted to $113.6 billion and made 54.5% of the total GDP in 2017. As for imports, the situation is similar; revenues amounted to roughly $94.93 billion, which again accounts for less than a third of the contributions to GDP (Central Intelligence Agency).

Challenges Foreign investors face in starting business in Denmark

 

As described by the Export.gov, “A small country with an open economy, Denmark is highly dependent on foreign trade, with exports comprising the largest component of GDP. Danish trade and investment policies are liberal and encourage foreign investment” (Denmark – 1-Openness to, and Restrictions Upon, Foreign Investment, Export.gov). As a result, conditions for the foreign investors are then more than favorable. It is also important to note that “Denmark welcomes foreign investment and does not distinguish between EU and other investors. There are no additional permits required by foreign investors, nor bias against foreign companies from municipal or national authorities” (Export.gov). There are, however, certain complications and challenges a foreign company may face; these challenges are discussed in more details below:

  • Hi-tech Conservativeness: even though Danish consumers are early adopters of certain products, primarily hi-tech products, a majority is also relatively conservative.  They prefer to buy products that have already proven their technology and value. 
  • Long-term relations: Danish companies believe in long-term relations. Companies that are in the market chiefly to “make a fast buck” may find better opportunities in markets other than Denmark.
  • Taxes: Danish wages are high and personal taxes are among the highest in the world, but corporate taxation is among the lowest in the EU (22% in 2017).
  • Currency: Denmark has decided not to participate in the Euro, but the Danish Krone is pegged to the Euro with a very narrow band (2.25%) of Central Bank intervention rates.  However, the government’s monetary and exchange rate policies aim at price stability and building international confidence in a strong Danish economy. There is strong international confidence in the Danish economy and the Krone.

*Resource: Export.gov (https://www.export.gov/article?id=Denmark-Market-Challenges)

International relations and Globalization

During World War I, Denmark was rather neutral. Scandinavian countries traded with both Britain and Germany, and after the war, they all became members of the League of Nations. After the war, Denmark belonged to NATO co-founders but did not allow the deployment of nuclear weapons or military bases on its territory.

Denmark also saw a contribution to the development of cooperation among Scandinavian countries. In 1952, the Nordic Council, which has 87 members and is based in Copenhagen, was founded. The role of the Nordic Council is primarily to mediate dialogue and exchange of experience between Scandinavian countries. According to the Ministry of Foreign Affairs of Denmark, “The Nordic Council’s task is to take initiatives and advise the Nordic ministers as well as to supervise the Nordic governments’ implementation of decisions on Nordic cooperation” (Foreign Policy). The Council as such does not accept binding decisions, but its conclusions are presented as a recommendation to individual parliaments and national governments. Among other things, the council established a Nordic space with free movement of labor. The Nordic Council of Ministers was added in 1971.

Since 1961, “The United States and Denmark have shared a Friendship, Commerce, and Navigation Treaty that, among other things, ensures National Treatment, Most-Favored Nation status, transparency of the regulatory process, and competitive equality with state-owned enterprises” (Denmark -2-Bilateral Investment Agreements and Taxation Treaties). The same agreement is held with other 45 countries around the world.

In 1973, Denmark, Great Britain, and Ireland joined the European Union. Denmark has held 8 European Union referenda and has held a presidency 7 times since becoming a member. The basis for European politics is the national compromise, which gives Denmark four exceptions to classical integration. The Danes thus retain full control over monetary policy (Danish krone instead of Euro), banking, defense, and some civil-law issues.

Denmark is fundamentally dependent on foreign trade, and the government strongly supports trade liberalization. Denmark is a net exporter of food, oil, and gas, and enjoys a comfortable balance of payments surplus, but depends on imports of raw materials for the manufacturing sector. Some of the main export partners for 2017 included Germany (15.5%), Sweden (11.6%), UK (8.2%), and US (7.5%). In cases of import, the partners are very similar and included Germany (21.3%), Sweden (11.9%), Netherlands (7.8%), and China (7.1%) (Central Intelligence Agency).

 

Conclusion

As I found out from the research, underlying macroeconomic conditions in Denmark are sound and the investment climate is favorable. The strategic location of Denmark, linking continental Europe with the Nordic and Baltic countries, is more than ideal for business, transport, and overall globalization. Thanks to the country’s efficiency, access to skilled labor, and openness to foreign investment, Denmark is recognized as a world leader in industries such as information technology, life sciences, clean energy technologies, and shipping (Denmark – Market Overview).

Besides its efficiency and convenience, Denmark is one of the most stable countries. Economically, Denmark is relatively good at present, there are no shocks or big fluctuations. Since 2008, debt, unemployment, and GDP has improved and is now in desirable levels. Foreign trade is also positive as we can see an increase in both exports and imports in recent years. However, the state budget deficit, as well as the competitiveness are rather on the weak side. Nevertheless, Denmark is regarded by many independent observers as one of the world’s most attractive business environments and is characterized by political, economic and regulatory stability. Denmark also regularly ranks first as the world’s least corrupt nation.

If I were to start a business in Denmark, I would look for an opportunity in technology, science, or tourism. Tourism is closely tied to the economy of the country, and it can be said that it helps to shape it a bit. These two entities are dependent on each other and together they form an idea of ​​the state’s position on the international tourism market. After all, the total contribution of tourism to world GDP exceeds $8,300 billion, which accounts for almost 10.4% of the total global GDP (Travel & Tourism Economic Impact 2018). Notable is also the fact that each tenth job is in some way linked to tourism. Overall, it is an incredible number of 313 million jobs. Tourism is also the fastest growing sector. It takes into account various aspects that help define it, such as the aspect of consumption or mutual understanding. Besides, Denmark is a country with rich history and beautiful nature, and can definitely offer something to its visitors.

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