From Lego to Novo Nordisk, many of Europe’s top firms come from the region
The Economist
Nordic
Dec 30, 2024 | 1689 words | ★★★★☆
What is true of Denmark is true of Finland, Norway and Sweden. The four largest Nordic countries account for about 1% of the world’s GDP and 0.3% of its population. Yet they have produced an impressive list of corporate giants. Lego is the planet’s biggest toymaker by revenue; IKEA is its biggest maker of furniture (and, thanks to Swedish meatballs, its sixth-largest restaurant chain). The Nordics are home to leading manufacturers of everything from machinery (Atlas Copco) and telecoms equipment (Nokia and Ericsson) to seatbelts (Autoliv) and lifts (KONE). The region has also produced the world’s biggest music-streaming company (Spotify) and its largest buy-now-pay-later service (Klarna). Novo Nordisk, a Danish pioneer in weight-loss drugs, is Europe’s most valuable firm, even after its shares slumped in December in response to disappointing trial results for a new drug.
Nordic firms have outperformed those from the rest of Europe over the past decade. In all four countries, listed non-financial firms have generated greater shareholder returns than the European average over the past ten years (see chart 1). Today Nordic firms make up about 13% of the MSCI Europe, an index of the continent’s most valuable companies, up from 10% five years ago. That is now about the same share as German firms.
Nordic companies also stack up well against their global peers in the same sectors. We compared the region’s 20 most valuable listed companies with their main overseas rivals on a number of measures. On average the Nordic firms generated operating margins that were seven percentage points higher than the median of their peer set in 2023, with returns on invested capital five percentage points higher. Debt relative to operating profits (before depreciation and amortisation) was lower for 14 of the 20 companies we examined when compared against their rivals. Annual sales growth was about on par with the competition.
Of course, not every Nordic business has been a success. Northvolt, a battery-maker, recently collapsed into bankruptcy. Nokia’s handset business was crushed by the iPhone. There is also an element of luck to the Nordics’ success. The region is blessed with access to vast natural resources, including timber, iron ore and—particularly in Norway—oil and gas. Even so, the outperformance of Nordic companies is striking. What explains it?
One factor is that Nordic businessmen, like their Viking ancestors, are foreign adventurers. “Our smallness is a blessing in the sense that it makes the international outlook obligatory,” says Mr Aarup-Andersen. Among the Nordics’ ten most valuable companies for which data are available, the median share of revenues generated at home is just 2%, compared with 12% for their counterparts in the rest of Europe and 46% for those in America. Anders Boyer, chief financial officer of Pandora, the world’s largest jewellery-maker by volume, says that his firm went from a single store in Copenhagen to a global operation in seven or eight years. Today Denmark accounts for 1% of its sales.
A second factor is that Nordic firms have long been enthusiastic adopters of technology. Shortly after the second world war Lego’s founder changed the toymaker’s material of choice from wood after playing with a new-fangled plastic-moulding machine (it cost a year’s worth of sales). Today that spirit persists. Data from Eurostat, a statistics agency, show that 45% of firms in the European Union that employ more than ten people pay for cloud-computing services. The average across the four Nordic countries, which top the ranking, is 73% (see chart 2).
The Nordic fervour for technology is also visible in the region’s thriving startup scene. Among European cities, only London, Paris and Berlin attract more venture-capital funding than Stockholm, which has far fewer people. Helsinki is awash with games developers, including Rovio, maker of “Angry Birds”, and Supercell, creator of “Clash of the Clans”. Nordic entrepreneurs these days may find it less daunting to take risks knowing that, should they fail, they will have access to generous unemployment benefits and well-functioning public health-care and education systems.
Government policy more broadly is a third factor underpinning the success of Nordic firms. Although lofty personal-tax rates fund generous welfare systems across the Nordics, the rate on company profits is about the same as in America. Each year the Heritage Foundation, a conservative think-tank in Washington, compiles an index of the economic freedom of countries, which captures things like how open markets are, using measures such as tariff rates, and how freely businesses can operate, by assessing regulations. Denmark, Norway and Sweden all make the top ten. In Denmark in particular hiring and firing workers is easier than elsewhere in Europe. The Danish government’s embrace of digitisation has also made it easier to do business there. As Vincent Clerc, the boss of Maersk, a Danish shipping giant, points out, “You can get a VAT number within a day.” In France that can take months.
A fourth factor in Nordic outperformance is patient shareholders. According to McKinsey, a consultancy, four-fifths of large Nordic companies have long-term ownership, compared with three-fifths in Europe and only a fifth in America. Business dynasties play a prominent role in the region. Maersk and Lego are still controlled, respectively, by the founding Moller and Kristiansen families, though both firms are run day-to-day by outsiders. In Sweden the Wallenbergs, whose fortune originated in banking, own large stakes in various companies, including Atlas Copco and Ericsson. Other big Nordic firms, including Carlsberg and Novo Nordisk, are controlled by non-profit foundations.
Such arrangements have prevented foreign firms from snapping up Nordic companies, giving them more time to grow. They have also made it easier for companies to invest in their long-term success. McKinsey reckons that four-fifths of listed Nordic companies spend more on research and development than their rivals do elsewhere in the West. Lars Fruergaard Jorgensen, Novo Nordisk’s boss, has said that his main focus is how the company will look in ten to 20 years.
That is just as well, because the Nordic business model may come under strain in the years ahead. Given their reliance on operations abroad, Nordic firms are particularly exposed to choppier geopolitical waters. Some have already been affected. In 2023 Carlsberg’s business in Russia was seized by the country’s government and placed under “temporary management”. In December the brewer agreed to sell the operation to two local employees at a steep discount. Maersk has had boats and container terminals hit by Houthi missiles in the Red Sea, forcing its ships to avoid the Suez Canal, adding time and expense.
Doing business abroad is set to become harder still during Donald Trump’s second term. On the campaign trail the president-elect vowed to slap a 10% tariff on imports from all countries. The threat may not materialise—since the election Mr Trump has focused his ire on Mexico, Canada and China—but a more sceptical view of trade is certain to permeate American policymaking in the years ahead. That could be a problem; a third of the sales of the ten most valuable Nordic companies are generated in America.
Handling all this will require one last characteristic of Nordic companies. Niels Christiansen, chief executive of Lego, invokes Charles Darwin in his assessment of why the region’s firms do so well. “It’s not necessarily the strongest that survives,” but “the one that will adapt to changes.” As global businesses prepare for Mr Trump to return to the White House, those words are wiser than ever. ■
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