Danish companies are more productive when they have subsidiaries outside Denmark

According to a new analysis by the Ministry of Foreign Affairs, Denmark enjoys significant economic benefits from Danish companies investing in the US. Danish subsidiaries in the US are positively contributing to the earnings of their mother company, thereby, increasing future investments and ensuring increased growth for the overall company.

In 2012, Danish companies operated 11,990 subsidiaries and employed 1,280,000 people in countries outside Denmark. Three-quarters of these subsidiaries were located in Europe, 12% in Asia and 7% in North America. The motivation for Danish companies to make investments outside Denmark may be seen as an attempt to reduce costs: for example, by offshoring some of their operational processes to low-cost countries. The growth of Danish foreign subsidiaries, however, also leads to positive spillover effects. That is, when the subsidiaries grow in revenue, the profits will be transferred back to the headquarters in Denmark. From a macro economics perspective, this will increase consumption and the incentives for new investments. This will then lead to lower interest rates, which will result in enhanced growth and employment and reduce public interest payments. Furthermore, foreign direct investments can act as an important competitive advantage for Danish companies since it is likely to increase productivity and efficiency of the overall company. In 2011, the Danish Ministry of Business and Growth proved that Danish companies with subsidiaries outside Denmark were 10% more productive than Danish companies without foreign subsidiaries. Moreover, foreign subsidiaries can take advantage of local market knowledge regarding market conditions, production, distribution, etc. This local market knowledge can then be transferred back to headquarters and assist executives in improving strategic decision-making.

One thought on “Danish companies are more productive when they have subsidiaries outside Denmark”

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.