Globalisation: Time to go network

If Denmark were a car, it would have been a really advanced model years ago. Admittedly, smaller than most but versatile and easy to manoeuvre in traffic. Filled with modern technology and often riding in the fast lane.

But now some of the cars that we used to see as loud and clunky are starting to pass us by. They have transformed into electric cars fitted with new equipment without us noticing because we failed to check the rearview mirror. And we are not alone; other European countries are also facing the same challenges.

This comparison is a metaphor for the situation that Denmark and Europe are facing in terms of world trade. Or as Associate Professor Stine Haakonsson, who researches emerging economies and globalisation at CBS, asserts:

“Globalisation has entered a new stage in which Denmark and Europe are being overtaken in some areas by China, and India is breathing down our necks. Originally, we were the ones who were ahead in building a knowledge economy. We have been a bit complacent, however, and mistakenly seen the two countries merely as manufacturers and ourselves as innovators. That’s no longer the case”.

CHINA IS LEADING THE GREEN TRANSITION

China currently has the world’s second largest economy and India, with its young population, is expected to take third place before the end of the decade. Moreover, China is the global leader in various areas of green energy, while India is strong in the computer sciences. Not only that, the days when the world’s two most populous nations served as a factory floor for the West are coming to an end, points out Haakonsson.

China has more scientific publications than Europe and the US

Associate Professor Stine Haakonsson

“We need to stop considering the two countries as purely manufacturers. China has more scientific publications than Europe and the US. India has more engineers per capita than almost anyone else. Both countries want to be knowledge economies, where there are greater opportunities for growth, and China in particular is far ahead,” she explains, continuing:

“We need to admit that we are up against a challenge. To put it bluntly, the question is, for example, should we primarily manufacture wind turbines for the outside world? Or should we also be able to deliver knowledge that aids the green transition? Should Denmark and the rest of Europe simply supply components or also know-how?”

The green transition is expected to generate numerous jobs in the future, and China has already outperformed the European automotive industry in the electric car market. Chinese players are also leaders in the development of solar cells and batteries, just as they have secured access to many of the critical minerals required for the green transition.

DANMARK SHOULD CHANGE STRATEGY

According to Haakonsson the new reality requires Danish companies to change their strategy. They need to build new and stronger global networks and seek alliances with partners who are highly knowledgeable in some of the areas where China and India are strong. At the same time, it makes sense to stay in close contact with players from China and India and remain in those markets.

“Two years ago, we conducted interviews with the ten largest Danish companies operating in China and all of them said they foresaw investing more in China. They see the importance of having a presence to maintain the relationships they have, and it makes sense,” she states.

Haakonsson also points out how both China and India boast strong innovation and industrial clusters, where many companies are located in the same place, which provides various benefits because they learn from one another.

“We are familiar with this approach in Denmark, for example in the case of a robot cluster that shot up in the city of Odense in Southern Denmark. The cluster is also successful on a global scale,” she remarks, adding that another possible area to exploit is the know-how and experience Denmark has with energy islands. Traditionally, Denmark is also strong in areas such as urban development, food production, pharmaceuticals, biotechnology, digitalisation and shipping.

MORE CHALLENGES AHEAD

The balance of power in global trade, however, is being challenged by more than just developments in Asia. Geopolitical conflicts and the increasing use of trade restrictions have changed the approach to supply chains. Bringing production closer to the markets that companies sell to is essential to minimising the risk of something going wrong along the way.

Another challenge is due diligence. A future EU directive will require companies to maintain better control of their value chain. The directive’s aim is to ensure that companies do not indirectly contribute to human rights violations or hurt the environment.

In addition, companies must also report on how they contribute to a more sustainable world throughout their value chain in accordance with the Corporate Sustainability Reporting Directive.

This means that companies must take an interest in whether contractors use, for example diesel forklifts or tools that are not energy efficient. Or in the food industry, whether farmers use animal feed that negatively impacts the climate. Then there is the whole issue of human rights.

INNOVATION

“These directives are positive in many ways. They change globalisation from being about markets to being about responsibility. At the same time, however, they put EU companies in a situation that their competitors in Asia get to dodge,” maintains Haakonsson, who believes that the new requirements are yet another reason why Danish companies need to build strong networks.

Now is the time for companies to develop new business models and production and supply networks.

Associate Professor Stine Haakonsson

“If companies are able to deliver reliable reporting, they need to know what is happening throughout their value chain,” she says, stating:

“Competition on the global market is changing and Denmark needs to keep up. Now is the time for companies to develop new business models and production and supply networks. This takes time and costs money. But this also represents the path to a green transition and a more circular economy in value chains.”

Contact:

Associate Professor Stine Haakonsson: stha.ioa@cbs.dk

Journalist Kent Kristensen: kk.slk@cbs.dk