Danish industry is increasingly present in developing countries through direct investment. An important partner in the investments is the Industrialisation Fund for Developing Countries (IFU) who has asked three researchers from Copenhagen Business School to undertake a study, focused on two issues:
- What role does direct investments in developing countries play in the strategies of Danish companies?
- How do investments of Danish companies affect developing countries in terms of job creation, technology transfer, skills level and market access
The study included 72 of IFU’s partner companies with 92 investments.
The strategy of Danish Companies
The study suggests that Danish companies are in a process of reconfiguring their value chains towards a more global orientation and a deeper integration of developing countries. Their motives behind investments in developing countries are market access and low cost potentials.
The growth of Danish investments in developing countries in recent years has largely been driven by SMEs and/or service companies investing in Eastern Europe and Asia.
The study also suggests that a clear division of labour is maintained. While production of goods increasingly is located in developing countries, activities demanding higher skills and capabilities remain located in Denmark.
Investments’ Effects on Developing Countries
On average the Danish investment projects have around 300 employees but the number conceals great variation. In some instances the direct investment effects are multiplied because the Danish investor foster close linkages to local companies. As an average the companies create 1.3 jobs in the local partner companies additional for each new job in the Danish affiliate.
Often the Danish companies invest substantial resources in developing capabilities to ensure quality and timely delivery. The majority of the investing companies formulate internal quality standards – and frequently also environmental and social standards for affiliates.
The Danish companies often take lead in integrated global production or distribution chains and their investment may constitute vital links between local industries and global markets. In the collaboration with local partners Danish investors typically focus on quality and technical aspects, but surprisingly often the collaboration involves working conditions and environmental protection issues as well.
The study “Danish Investments in Developing Countries – a Global Value Chain Perspective” is made by Michael W. Hansen, Torben Pedersen and Bent Petersen. It is published by Copenhagen Business School Press, August 2006 and is sold from the webpage of the publisher,www.cbspress.dk.
See Danish investments in developing countries: executive summary