To see what European business could become, look to the Nordics

Nordic countries have long been considered exemplars of good public policy. Politicians around the world admire Denmark’s social safety-net, Finland’s hospitals, Sweden’s system of parental leave and Norway’s prisons. What gets less attention is that these countries also excel at nurturing world-beating businesses. They have only 0.3% of the world’s population and generate about 1% of global GDP, but produce plenty of corporate giants, from IKEA, the world’s biggest furniture-seller, to Lego, its largest toymaker, and Novo Nordisk, Europe’s most valuable company.

The rest of Europe could learn from them. Politicians in Brussels are perpetually searching for ways to invigorate the economy and nurture more corporate giants. The Nordics offer a tantalising glimpse of what European business could be.

Their corporate success is impressive. Our analysis shows that, when compared with international rivals in the same sector, big Nordic firms tend to be much more profitable while maintaining similar levels of revenue growth. They are also less indebted and invest more in research and development. Small wonder that over the past decade firms from all four big Nordic countries have generated, on average, higher shareholder returns than those from European companies as a whole.

One lesson from all this is to stay open. Nordic firms have thrived thanks to their international outlook. Company bosses in Denmark and Sweden proudly note how little of their total sales comes from their home markets. Among the ten most valuable Nordic companies, the figure is just 2%, compared with 12% for big firms in the rest of Europe and 46% for those in America. This is partly explained by small domestic markets. But it is also because of their openness to trade. Nordic companies tend to venture abroad when still young. International competition helps sharpen business models and perfect products. All the more reason for European politicians to make the case for ratifying an agreement struck in December with Mercosur, a big Latin American trade bloc.

Another lesson lies in finance. For decades the EU has been chasing a capital-markets union, in the hope that deeper pools of money can boost business. The aim is reasonable (even if, by itself, plentiful capital does not ensure well-run businesses). Yet the experience of Denmark and Sweden, which have some of the deepest capital markets in Europe, shows that there is much that countries can do by themselves.

Clever reforms in those countries have helped put household savings to work. Thanks to the pair’s well-designed pension systems, they account for about a third of the EU’s total pension assets, some of which are invested in local listed firms. In Sweden investment savings accounts (which are easy to use and lightly taxed) have produced a booming retail-investing scene. As a result, the country has become a hotspot for initial public offerings. In the past decade it enjoyed more listings than France, Germany, Spain and the Netherlands combined.

An openness to new technology matters, too. Nordic businesses routinely top rankings of tech adoption in Europe, whether it is for enterprise software, cloud computing or artificial intelligence. Public investment in basic infrastructure, such as 5G networks, helps. So does a focus on digital literacy in education. Nordic governments themselves are highly digitised, too, which cuts bureaucracy for businesses. For years Denmark has come first in the UN’s e-government index. Obtaining a value-added-tax number there can take a day; in France it can take months.

Nobody’s perfect

The Nordic business landscape has its blemishes. Northvolt, a hyped Swedish battery-maker, went bust because it stretched itself too thin. Nokia was once the king of mobile, until it was usurped by the iPhone. And more companies may disappoint as life in Northern Europe starts to look less idyllic. Gang violence is a problem in Sweden; across the region, far-right politicians are gaining ground. What is more, the world-spanning model of Nordic companies will have to grapple with the dismal new economic reality of rising trade barriers.

Despite all this, the Nordics show that countries can balance a business-friendly environment with strong safety-nets. Many politicians in Europe are fixated on trying to replicate the wonders of corporate America. But in some ways they have a better model to emulate right on their doorstep. 

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