Foreign direct investment into Denmark before 1939: Patterns and Scandinavian contrasts

Abstract

Drawing on a new database, this article presents the first systematic description and assessment of inward FDI into Denmark before World War II. A total of 168 cases were identified, with British, American and German firms dominating the overall picture as might be expected. The composition varies, however, over time and industries. The material shows that FDIs arrived in five distinct ‘waves’ each characterised by a lead nation and industry. The period under observation saw the transformation of an agricultural Denmark into an industrialised nation, which is reflected in the five waves, which were primarily directed towards ‘new’ industries. The article thus offers a link to Danish economic history in general. The material also enables a comparison with FDI into Norway and Sweden over the same period. For the purposes of allowing a discussion of the comparative aspect, FDI-related attitudes, legislation and policies are outlined. While Norway was an anti-FDI hardliner, Sweden took a softer stand and Denmark never abandoned its liberal attitudes. This new material allows us to conclude that, from an FDI perspective, the three nations were not one unit: Denmark broke the ‘Scandinavian pattern’.

Keywords:

• foreign direct investments
• Scandinavia
• Denmark
• FDI policy
• industrialisation

Notes

 1. For example studies of FDI into Britain are numerous, including Bostock and Jones (1994), Jones and Bostock (1996), Hagen (1999), Fletcher and Godley (2000). Other studies include Mason (1992), focusing on Japanese foreign investment in Europe, and Wilkins (1988, 2004) on inward FDI into the US.

 2. In turn, four published works should be mentioned in particular: Johansen (1986), Schröter (1988), Boje (2000), Strandskov and Pedersen (2000). The four sources differ widely in aim, scope and presentation. While Johansen gives a provisional survey of both inward and outward FDI before 1914, Boje's work covers both flows of FDIs up to 1950, but also represents a broader scope with comments on individual observations and cases. On the other hand, the publication of Schröter looks specifically on a few German company cases in the inter-war years, while the work of Strandskov and Pedersen is a sector study with an attempt to identify the investment motive by foreign pioneers. Besides these sources, the present survey has identified several more individual FDI cases, including material from Steen Thomsen: Noter vedrørende udenlandske investeringer i Danmark. Oversigtsform [Note on foreign investments in Denmark – a survey].

 3. The periodisation is to some extent arbitrary. Even if some disagreement exists between Danish historians as to the starting point of industrialisation, everybody would agree that it did not begin earlier than 1840. Hyldtoft (1984, 1999) argues that 1840 marked the beginning of a period of technology deepening, while Willerslev (1952) argued that it started 30 years later and Hansen (1974) dated the industrial breakthrough to the 1890s, based on a Rostowian frame of reference. World War II marks a natural upper limit of the period, since FDIs were interrupted for an extended period.

 4. E.g. Ronen and Shenkar (1995) use the term ‘Nordic cluster’.

 5. Respectively, Denmark, Norway and Sweden experienced the following GDP annual growth rates (measured in fixed prices) in the observed period:

Table

 6. For example, during the period 1870 to the end of the 1930s, the Danish food and drinking industry created 35–40% of total industry value added, while mining and metal manufacturing rose from around 25% to 40% in the case of Sweden (Hjerppe, 1995).

 7. The description of the Danish business climate for FDIs is built on Thomsen (1991) and Hyltoft (1999). The Swedish and Norwegian described are founded on Nordlund (1989) and Stonehill (1965), respectively.

 8. The 1863 law on tariffs was a major revision of the quite liberal tariffs going back to 1767.

 9. Tariffs in these areas allowed Danish firms to produce at around 15% higher costs than their international competitors. In 1891, the sugar tariff was changed dramatically, but otherwise changes were moderate increases in tariffs on coffee, tea, tobacco and beverages. Imported agricultural products were hardly taxed, and the revenues mainly originated from industrial goods and raw materials for the manufacturing industry. Revenues from tariffs made up around one-third of the governmental budget.

10. One change in the opposite direction was the tariff level for tobacco which was increased by 30–40%. This had the unintended side effect that a local Danish tobacco industry was established. In a few years time, it produced around half the consumption of tobacco. Needless to say, due to this change the state lost a significant amount of revenue.

11. Especially the Norwegian exports were severely affected by the Swedish protectionist-policy which created a crisis in several Norwegian branches before World War I.

12. A revised law from 1889 introduced increased transparency and made it easier to identify the specific persons and interests behind individual companies.

13. Out of 22 mining companies only one small firm was fully owned by Norwegians. In 1909 foreign investors held about 80% of the total capital stock in the mining industry (Norwegian Census of Industrial Establishments, 1909).

14. In 1917, the first meeting on Scandinavian Trade was held in Stockholm, and the meetings became a biannual event in the following years. The meeting in Copenhagen, 28–29 September 1925 was addressed by key speaker Eli Heckscher, the world famous Swedish economist, and the other speakers were the stock exchange commissionaires of Norway, Denmark and Sweden (‘Beretning’, 1926).

15. The Danish representative, Julius Schovelin, was member of the Danish Parliament and commissioner of the Copenhagen Stock Exchange.

16. ‘Beretning’, 1926, p. 72.

17. Bolidens gruvbolag (Bolidens mining company) was one of the firms controlled by Kreuger and Toll. Thus the name of the act.

18. The figures below show a Danish devaluation vis-à-vis the other Scandinavian nations. As will appear from FDI figures, this isolated fact was not able to prevent a radical decline in inwards FDI into Denmark during the 1930s.

Average exchange rates, kroner/British pound:

The difference between the development in exchange rates can be seen as an expression of a distribution policy to the benefit of Danish farmers that were dependent on the English market for butter, bacon and eggs.

19. While the earlier works of John Dunning focused on international production, later works define any value creating business activity as an international direct investment.

20. Actually, the Central Bank of Denmark published an aggregated statistics of foreign investments in 1957.

21. Establishing the population of foreign company entrants involves several methodological problems (for a further discussion, see Fletcher & Godley, 2000).

22. There are examples of German MNEs that carefully camouflaged their control of Scandinavia FDI through dummy companies (see Nordlund, 1989).

23. This reflects the authors' interest in the internationalisation process, including the sequence of investment types and entry modes. Passive capital participation in Danish companies has been excluded from this research. Similarly, firms established by foreign individuals who resided in Denmark for a shorter or longer period have been excluded.

24. See note 2.

25. In consequence it is quite likely that a number of smaller FDIs have escaped identification, but is most unlikely that larger FDIs have been missed. Unfortunately, the database is incomplete, with unknown figures on indicators such as capital, ownership structure, number of employees, etc. In a similar large number of cases, the type of investment is unknown, and so is the motive(s) of investment. Also, it has not been possible to identify the country of origin in a number of cases.

26. This has been documented in several studies (see for example Wilkins, 1988).

27. In the case of the Scandinavian countries, Schröter (1988) found that German MNEs were more reluctant to make FDI and often used other entry modes (contracts, cartel, etc.) in the inter-war years. Stonehill (1965) illustrates the dramatic decline of German presence in Norway in the inter-war period.

28. This is a company that began with its headquarters in one country (for example, the US), invested in another country (i.e. the UK), and then over time became a British-headquartered MNE (see Jones, 1986, p. 7).

29. Prior to the investment, the company was engaged in bottle-cork factories in Finland (1871), Germany (1883) and Russia (1885).

30. In the terminology of Alfred Chandler (1990) carrier industries are characterised not only by a substantial and growing contribution to a nation's GDP, but also by widespread applications in other industries.

31. In 1919, three major German electrical firms, Siemens and Halske, AEG and Auer, merged the incandescent lamp sectors of their business to found Osram, which became the biggest light bulb supplier in Europe.

32. For a detailed description of the Ford history in Denmark, see Sørensen, Strandskov, Pedersen, and Boje (2003).

33. At the time, Wagon Lits offered luxury railway journeys through a number of Danish town branches, while the American Express Co. originally had specialised in financial services (i.e. travel cheques). Its Danish branch, however, offered a broader range of services, including tour and travel services.

34. For example, the newly established Baltic nations, Poland and Germany were all engaged in territorial conflicts. In contrast, there were hardly any social or political tensions in Denmark.

35. Peto, Brassey & Betts also invested in manufacturing of railway carriages by acquiring the Danish company ‘Hvide Mølle’ (Randers).

36. The management of the company was located in London.

37. Strandskov and Pedersen (2000) give a more detailed picture of these investments.

38. The electrification of Denmark that was touched upon in the first wave technologically and commercially belongs to the third wave.

39. As mentioned, BAT was a migrating MNE. In 1902 it was an American business abroad. In time, American stock ownership was reduced as the Americans cut back and the company became a British multinational.

40. Some German companies, however, made resource-seeking investments with regard to clay (on the Island Fur) and stone (on the Island of Bornholm).

41. Compared with other European nations, all three Scandinavian countries experienced a rather late industrialisation.

42. Stonehill (1965) estimated that foreign-owned establishments employed about 14% of all industrial workers and took up about 38% of the industrial capital stock in 1909. However, these figures have to be treated with care. The number of industrial workers employed by completely or partly foreign-owned establishments only represented about 3% of the economically active population of Norway. Furthermore, the industrial capital stock was not representative of foreign capital influence on economic activity, since approximately one-fifth of company activities were not organised in corporate form.

43. For example, the British Kellner-Partington Paper Pulp Company Ltd was the largest industrial employer in Norway in 1909 with about 2000 employees, followed by the Swedish-owned Sulitjelma Aktiegrupper with approximately 1700 employees.

44. At that time, Copenhagen's status as a free port attracted several foreign companies.

45. The concept of extra-regional expansion has often been used in the international business literature (Johanson & Vahlne, 1990).

46. In Census of Industrial Establishments of December 1909 the total number of establishments in Norway was 1159 of which 32 were completely foreign corporations and 112 partly Norwegian and partly foreign companies (Statistisk Sentralbyrå, 1911).

47. J.A. Schumpeter interpreted business cycles as a complex phenomenon (Schumpeter,1939). He adopted a three-cycle scheme of 4-, 10- and 60-year cycles, and emphasised the latter, the so-called Kondratieff cycles. These were interpreted as the consequence of clusters of innovations in related industries. In Business Cycles (1939, p. 169ff) he connects the second Kondratieff cycle to steam and steel (1842–1897), and the third one to electricity, chemistry and motors (1898 and onwards). Even if the authors do not subscribe to the concept of Kondratieff cycles, it is obvious that FDI wave one, three and four are related to the Schumpeterian schedule. It must be noted that Denmark was in the periphery of the innovation clusters and appears as a receiver of international cycles.