IT is the region that gave us Björk, Spotify, Skype, Carlsberg, Ikea, Lego, Borgen, Wallander and The Killing. The Nordic countries – Denmark, Finland, Iceland, Norway and Sweden – have developed a reputation for being some of the most creative and dynamic economies in the world, with groundbreaking artists, dominant global companies and paradigm-changing start-ups.
Indeed, foreign trade departments are eager to extol the virtues of the Nordic markets. The US government tells its homegrown businesses: “The Nordic region is a dynamic, highly sophisticated marketplace with a stable political and economic climate.”
Three of the Nordic countries are rated among the top ten economies on the World Bank’s ease of doing business rankings, and UK Trade and Investment lauds the openness of the region. Barring the one big disaster that brought the Icelandic banks (and very nearly the nation) to their knees, the Nordics are invariably described as nations brimming with creativity and opportunity, with populations that have some of the highest per capita incomes in the world. And they are keen to spend those incomes.
And what’s not to like? When the Happiness Research Institute released its Happiness Equality Index in July, all five Nordic countries appeared in the top ten (even Iceland), with Finland topping the chart (the UK was 14th, just below the average calculated for the study). In short, the survey concludes that Nordic countries are among the most equal in Europe.
Marie-Chantal Schilken, a Swedish export consultant based in Paris, says: “They are very attractive countries because of their high quality of life and high living standards. They are informed consumers.”
But not all is rosy among the Nordics. Each of the five nations in the region has suffered as a result of the financial crisis. For some this has meant big economic adjustments; for others the recovery has been easier. And despite their proximity to, and cooperation with, the European Union, the Nordics are also subject to other major geopolitical movements. Oil pricing, the activities of a resurgent Russia and crises in the eurozone are all significant in determining the risk of exporting to the Nordics. And while going north may ease the way for doing business, there are legal peculiarities to look out for too.
In Denmark, UK companies have been invited to bid for contracts to supply rail rolling stock for the Odense Tramway while elsewhere there are opportunities to work on the construction of storage facilities for natural gas. In Norway chain stores are keen to distribute British craft beers and cider. Swedish importers are looking for premium food products and medical imaging equipment as well as other healthcare materials. In Finland buyers take, among other goods, vehicles, pharmaceutical goods and scientific equipment while Iceland is working on a £5bn high-voltage energy transmission project.
The list of goods and opportunities is not exhaustive but it helps illustrate just how diverse the market is for the UK. According to UKTI figures, the five Nordic countries account for roughly £13bn worth of British exports. The largest portion of that goes to Sweden, £5.6bn in 2014, while Iceland is the smallest, accounting for goods worth just £144m.
Before booking your ice hotel rooms to prepare for a Nordic sales pitch, it’s worth bearing in mind that the Nordics have experienced a chilly economic environment over the past few years.
While some are willing to boast that the region has stable economies, the figures (see tables) suggest that since the financial crisis the five countries have seen far from happy times. The Nordics suffered dramatic ups and downs in their economic fortunes. Finnish GDP shrank by 8% in 2009. Denmark, Sweden and Iceland all dipped 5%. Norway’s economy saw the smallest fall in GDP but flatlined nevertheless. Only now do locals consider growth is returning to a stable condition. 2015 figures are in positive territory all round, with Iceland expecting the highest growth at 3.7% and Copenhagen relieved that Denmark is at last returning to health after three years of being in the doldrums. Finland, meanwhile, is looking the weakest.
Despite the relative optimism, there are those that see storm clouds gathering over the pine forests. In a report at the end of 2014, Boston Consulting Group said that Nordic competitiveness was increasingly an “illusion”. BCG sees four big challenges. A deterioration in the diversity and uniqueness of exports; a productivity challenge caused by a shift from manufacturing to services; large-scale public sector employment contributing to productivity challenges; and, in common with many advanced economies, an ageing population.
“If nothing is done, the Nordics’ loss of competitiveness will accelerate in the future, as the world spins even faster,” the report concludes.
Others see the Nordics much less as a group and more as individual economies with distinctly different problems. According to Steen Bocian, chief economist at Danske Bank: “The Nordic countries have developed very differently since the financial crisis.”
Bocian zips through a summary of the Nordics, their recent economic travails and likely prospects: Norway has been the most stable but its dependency on hydrocarbons now makes the country prey to plummeting oil prices, and its economy is more vulnerable than it has been for a long time. However, as interest rates stand at 1%, Norway’s central bank has more room to manoeuvre on monetary policy than other Nordics.
Denmark is “finally” recovering after a long economic crisis, with GDP on the rise since the middle of 2013. But it is the country most dependent on EU trade, especially with Germany, making it sensitive to woes caused by Greece.
Sweden is perhaps now going strongest but with interest rates at -0.35%, Bocian stresses the country’s vulnerability to asset bubbles.
Finland, as already noted, is the weakest economy with perhaps the least inspiring prospects. Economists fret about its structural inflexibility. With trade mostly aimed at its nearest neighbour, Russia, Finland has suffered due to EU sanctions over the conflict in Ukraine.
Bocian says Sweden and Denmark are the best prospects for UK export, with Norway looking good if oil prices recover. But he adds: “In Finland, stay away from anything related to Russia. Russia is a weak economy and the sanctions are not being removed.”
No discussion of the region can take place without reference to their diverse relationships with the EU. Sweden and Denmark are members but are not in the eurozone. Finland is a member using the euro. Iceland and Norway remain outside the EU (Iceland decided this year to halt efforts to join) but are members of the European Economic Area. The result is that all Nordic countries are steeped in EU law and trade measures.
“They apply all the regulations and trade policy of the EU,” observes Marie-Chantal Schilken, who points out that Nordic businesses – as canny traders – look for transparency and openness in their business partners.
This comes from the Nordic countries’ cultural preference for being organised, well prepared and straight-talking. Diplomacy is discarded in favour of frank discussion, meaning efforts to finesse bad news can be viewed as an inability to be entirely honest.
“If they feel there is something loose, sneaky or not clear, there may be a problem,” says Schilken. Nick Rines of the Institute of Diplomacy and Business warns of other cultural issues. People work hard but the business environment is relaxed – senior people rarely indulge in power dressing and manage consensually, consulting more junior employees, which can come as a surprise to outsiders. “This should make people aware they aren’t going to get snap decisions,” says Rines.
There is another part of Nordic business culture that can be a rude awakening to outsiders: the warranty. Innocuous as this simple business guarantee may sound, it has a special place in Nordic business culture.
Under most legal systems, offering a warranty is a fairly mundane process which reassures clients about the services a supplier will provide. There can be some wrangling over specific clauses but business people tend to take them in their stride. Failure to live up to the promises made in a warranty usually means the client can claim damages – considered an effective piece of leverage to keep a supplier focused on the job.
Not so under Nordic law. A hundred years, or more, of cooperation between the Nordic countries before the arrival of the EU means they have a Sale of Goods Act that says warranties also give clients the right to terminate a contract and demand a return of all the fees they’ve already paid – a costly jolt for foreigners unfamiliar with Nordic business.
Peter Lind Nielsen, a partner with law firm Bird & Bird in Copenhagen, says the warranty culture means that small breaches in contract can have significant repercussions for a working relationship. He cites one example where a Danish company terminated a contract and reclaimed €15m when software from a foreign supplier was not completed on time.
Nielsen says warranties can contribute to poor business relationships when they are exploited as an escape route for a client jaded with a supplier.
“They are sometimes used that way – if you entered into a contract and there are second thoughts. The contract can’t be changed without cost, so people look for any kind of warranty breaches,” he says. “Sometimes it creates a very bad business climate because people are looking for some kind of warranty breach – even the smallest breach – because they know they can terminate the contract. So if you are going to do business in the [Nordic] region then warranties are something you should really be careful about.” ?