International growth changes the rules of the game

1 December 2014 by Nanna Marie Gyrup

The numbers speak for themselves. The Danish economy has lost momentum, growth rates are declining, and throughout the last 20 years we have lost ground compared with other eurozone countries, OECD countries and emerging economies. This is the clear message from Philipp Schröder, professor in international economics and trade at BSS at Aarhus University, who is also lecturer on the school’s MBA programme:

“The bottom line is that our productivity lags behind the countries that we normally compare ourselves to. We are not generating enough value per working hour,” explains the professor, who was member of the Danish government’s productivity commission from 2012 to 2014.

According to Philipp Schröder, one of the areas in which we can increase our productivity is through our companies’ ability to expand to emerging markets with significant earning potential. And, adds Schröder, research evidence suggests that the internationalisation of Danish companies benefit the Danish economy twofold:

“First of all, global economic growth has shifted away from Europe, which means that Danish companies that master the art of internationalisation will be able to bring Denmark back on track in terms of global growth. Second of all, we are seeing that the level of productivity is much higher in companies that internationalise, and they thereby contribute to helping Denmark catch up with the rest of the world,” says Philipp Schröder.

Must consider foreign regulations and cultures

Associate professor and MBA lecturer Ingo Kleindienst from the Department of Business Administration at BSS has recently concluded a study about 91 multinational German-owned companies’ ability to make money in foreign markets. In broad strokes, the results show that companies lose profit due to what Kleindienst describes as geographical, cultural or administrative challenges, which the companies encounter in these markets. The results of the study are extremely relevant to Danish companies with ambitions to find new growth opportunities in the international markets.

The German companies cope with geographical challenges relatively well – challenges which are often related to the transportation of goods to and from the international market. It is, however, the cultural and administrative challenges within these international markets, such as national rules for doing business that hit the profits hardest.

“The foreign culture and unfamiliar regulations are much more difficult to relate to or gain insight into than the very real challenges related to transportation,” explains Ingo Kleindienst, who has collaborated on the project with Thomas Hutzschenreuter and Sandra Lange from the WHU - Otto Bisheim School of Management in Germany.

He emphasises that it is very important for internationally oriented companies to acknowledge the fact that there are still major local differences between countries.

“Despite all the talk about globalisation and the trend towards the expansion of the international trade space, the world is still far from frictionless or flat. The countries are still very different, and local differences may greatly affect the companies’ earnings when they expand,” says Ingo Kleindienst.

Affect the various industries differently

Ingo Kleindienst proceeds to explain that there may be great differences in how the challenges influence the various industries. For instance, the cultural challenges may be especially hard for companies where language aspects play a large part. Or for businesses that are especially connected with the international markets culture or what the market is especially known for. This often applies to the media or food industries.

The administrative challenges are particularly in focus in highly regulated and high-tech industries such as aviation and telecommunications. And the geographical challenges are especially significant to companies, whose products are of low value compared to their weight or size given that transport costs are high.

“We are not likely to find a ‘one size fits all’ strategy in this area. Generally, we recommend that companies proceed slowly. That they gather and exchange knowledge and don’t move on to the more challenging markets, before they have obtained a large amount of international knowledge within the company. It is also possible to spread the risk and still obtain more knowledge about the market by collaborating with a partner, participating in joint ventures or hiring local employees, who possess the knowledge that you need,” concludes Ingo Kleindienst.

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