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Strategic transformations in Danish and Swedish big business in an era of globalisation, 1973-2008

The Danish and Swedish context

In the difficult inter-war period, a state-supported, protected home market orientation had helped stabilise both Denmark’s and Sweden’s economies, but after WorldWar II priorities changed. Gradually and in accordance with the international economic development, restrictions on foreign trade were removed, and Danish and Swedish industry was exposed to international competition. As a consequence, several home market oriented industries –such as the textile and the shoe industry –were more or less outperformed, while in Sweden the engineering industry soon became the dominant leader of Swedish industry, with companies such as V olvo, Ericsson, Electrolux, ASEA and SKF. In the Danish case, the SMEs continued to be dominant but in combination with expanding export oriented industrial manufacturers such as Lego, Danfoss, Carlsberg and the shipping conglomerates ok and A.P. moller-Marsk.

In Sweden and Denmark stable economic growth continued into the 1970s, but due to the problems during the oil crises, the economies came into fundamental structural troubles for the first time since World War II. In the beginning this was counteracted by traditional Keynesian policy measures. However, because of large budget deficits, inflation and increasing wages, both the Danish economy from 1974 and the Swedish economy from 1976 encountered severe problems. Towards the late 1970s Denmark’s and Sweden’s economic policies were thus increasingly questioned. It was clear that Keynesian policy could not solve all economic problems. Expansive fiscal policies in terms of continued deficits on the state budget could not compensate for the loss of both national and international markets and step by step the Keynesian economic policy was abandoned.

The increased budget deficit also made it difficult for the state to support employment and regional development. These kinds of heavy governmental activities were also hardly acceptable under the more market oriented policy that developed first in Great Britain and the USA, but in the 1980s also in Denmark and Sweden (Iversen & Andersen, 2008, pp. 313–315; Sjo¨ gren, 2008, pp. 46–54).

These changes in political priorities were especially noticeable in the financial market. After being the most state regulated and coordinated sector of the economy since the 1950s, then between 1980 and 1985 the Danish and Swedish financial markets underwent an extensive deregulation resulting in increased competition. Lending from banks and other credit institutes was no longer regulated, and neither were interest rates. The bond market was also opened as the issuance of new bond loans was deregulated in Sweden in 1983. When the control of foreign capital flows was liberalised in the late 1980s the last extraordinary restriction was now gone. Together with the establishment of the new money market with options and derivates, this opened up to a much larger credit market and the possibility for companies to finance investments and increase business domestically as well as abroad (Larsson, 1998, pp. 205–207).

Another important part of the regulatory changes in the early 1980s were new rules for the Copenhagen and Stockholm stock exchanges. Introduction on the stock exchange was made much

easier, which enabled small and medium sized companies as well as newly established companies to enter the stock exchange. This resulted in a sharp increase in turnover at the stock exchange, encompassing both newly established companies and the traditional big enterprises. This helped undermine the bank oriented financial system that had been established in the late nineteenth century. However, the strong connections between the largest industrial companies and the dominating domestic commercial banks prevailed in the 1980s and 1990s.

The change in political priorities was also seen in the handling of state-owned companies. In Sweden, the general economic crisis of the 1970s resulted in the takeover of several large companies by the state. Even the liberal and conservative parties – who were in cabinet towards the end of the 1970s –supported this policy.But with the return of the social democrats to government, this part of state ownership was questioned and a slow privatisation began. The introduction of Sweden’s new economic market oriented regime was certain in 1995, when the country became a member of the European Union.

In contrast to Sweden, the economic crisis of the 1970s had not led to any increase in Danish state ownership. The separation between private industrial ownership and public state functions was deeply rooted in Danish capitalism. Denmark became a member of the European Community on 1 January 1973 even though the membership had few political–economic consequences until the early 1980s when a new dynamic phase in European integration began.

With a growing international market and less restrictive national regulation – especially on the financial market – it became possible for the largest Danish and Swedish companies to increase their investments in foreign markets. In the Swedish case several were members of the two dominating banking groups. As a consequence, the share of these groups in total industrial employment increased to over 50% in the late 1980s (Lindgren, 2011). In Denmark the ratio between the revenue of the 10 largest corporations and GDP was 0.47 in 2006, while the ratio was only 0.23 in 1994 and 0.11 in 1982. These statistics illustrate the importance of large companies in the industrial sector in both countries. In Denmark, the growth of these largest internationalised corporations took place simultaneously with a continued importance of small and medium sized enterprises. The Swedish industrial structure was, on the other hand, marked by comparatively few medium sized companies and a bulk of small-scale companies with one or only a few employees. In the 2008 FT Global 500 ranking, Denmark had two companies while Sweden had six. This can be compared with 10 in Italy and 26 in the United Kingdom. Both these countries are more than six times larger –in population –than Sweden, which highlights the role of big business in Sweden.

A new category of Danish and Swedish companies managed to establish themselves as global enterprises in the 1980s and 1990s. For example, the Swedish giants IKEA and H&M increased their positions with the help of comparatively cheap products and new ways of organising distribution, while the global Danish Business History 123 Downloaded By: [2011 DRAA SSH Free Trial Consortium] At: 13:29 16 June 2011 brewing company Carlsberg and the leading North European dairy ARLA Foods grew primarily through cross-border mergers and acquisitions. Since these companies were established in non-traditional areas for Danish and Swedish big business and also based on international production networks, they stand out as representatives for the new type of enterprise that could benefit from Denmark’s and Sweden’s new economic policy and integration in the global economy. This article concerns the strategic development and growth of

this new type of enterprise, considered in the light of economic integration and the new political regime.

Analysis of changing growth strategies and ownership regimes, 1973–2008 Sample selection, sources and definitions

The following analysis is focused on the changing growth strategies of the 25 largest Swedish and Danish non-financial corporations measured by revenue. The analysis provides for an inclusive approach. The original Harvard Program and Whittington and Mayer’s (2000) study concerned manufacturing enterprises, and this approach made sense in the 1960s and 1970s when the relative importance of the service sector was less significant.5 We define Danish and Swedish corporations in a similarly inclusive way as any corporation registered in the country at the given time. This approach also contrasts the samples of Whittington and Mayer and the Dutch chapter in this special issue.We have decided to include foreign-owned corporations, as the increasing economic integration process also encompasses new non-national ownership regimes, which is very much the case of large foreign subsidiaries and in later years also ownership by foreign private equity funds. The assumption is that by registering large corporations in the national context of Denmark and Sweden, these corporations mirror the specific structure of a corporate landscape. That landscape might be dominated by international subsidiaries – see for instance Binda and I versen’s (2007) similar study of the Spanish development.

The analysis covers the period from 1973 to 2008 and we have chosen five benchmark years: 1973, 1983, 1993, 2003 and 2008. This selection makes it possible to compare our results with the findings of Whittington andMayer (2000) and Binda and Iversen (2007). The data consists of a combination of annual reports, the database ‘Mapping Corporate Denmark’ and various written overviews of the corporate annual accounts.

The selection of the 25 largest companies has been made from published secondary compilations based on annual reports. The majority of the information concerning specific companies is based on annual reports, which in general are both extensive and reliable. Thus, they contain information about the turnover in national markets as well as different international markets. This information is essential for the analysis of the geographical market structure of the different companies. The companies have been divided into four internationalisation categories defined as follows: home market orientation implies less than 10% activities abroad; partly home market orientation, foreign sales 10–50%; partly internationally oriented, 50–90%; while the foreign revenues of an internationally oriented company exceed 90%.

The annual reports are also quite extensive in describing the turnover of the companies for different business activities. From this information calculations have been made to evaluate the size of diversification for each company. Four strategic categories of diversification have been used. The first category contains companies where the core business accounts for at least 95% of the firm’s turnover. We have124 M.J. Iversen and M. Larsson Downloaded By: [2011 DRAA SSH Free Trial Consortium] At: 13:29 16 June 2011 defined the critical term ‘single type of business activity’ in accordance with the twodigit ISIC Rev. 3.1 code.7 Dominant business strategy implies a core business accounting for 70–95% of total turnover. Firms with a related or unrelated business have no single business larger than 70% of total turnover. Unrelated implies that there is no relation to the original business area which we have defined as an activity within a

different ISIC Rev. one-digit code which separates sectors such as manufacturing, transport and construction.

In the cases of company ownership, information in annual reports is fragmented and calculations have been done by using other sources. For the Swedish companies, information has been gathered from annual compilations made by Sundqvist, while the Danish information is based upon the Copenhagen Business School database ‘Mapping Corporate Denmark, 1970–2003’.8

The analysis of ownership is broadly divided into two categories: dispersed and concentrated. Dispersed ownership is defined as no shareholder controlling more than 10% of the voting stocks.9 The concentrated ownership group (companies with single owners above 10% of the voting stocks) is divided into seven sub-categories in which the corporation is catalogued in accordance to the single largest shareholder: Personal, Bank-Financial, State, Firm, Foreign, Cooperative and Foundation.

Changing ownership structures

Changing ownership structure in Sweden, 1973–2008

Ownership in Swedish industry has previously been analysed basically from a company perspective, but among those few overarching studies which scrutinize different owners from a macro perspective, the studies by Glete (1987, 1994) are probably the most important. In his study from 1994 he defines three major owner groups in the Swedish economy: the banking groups, the large financial families and big private companies engaged in the establishment of large conglomerates. Among these different owners, the Wallenberg family held a special role in the Swedish private economy and their situation has been and is unique. As the controlling owner of the SEB bank, and several investment companies of which Investor is currently the most important, the Wallenberg family has played a decisive role for Swedish big business since the early twentieth century.10

Family groups have been the most important owners among the largest companies, seen over the whole period (Figure 1). The Wallenberg group also holds the strongest position among the family-owned companies. Between four and six of the 25 largest companies each year were controlled by the Wallenberg family, with a voting share of 28–36% on average in the controlled companies. Among these companies we especially find companies from the engineering industry, such as ASEA/ABB, Atlas Copco, Electrolux and Saab-Scania. This gave the family a comparatively strong position in the Swedish economy. However, with the deregulation of the financial market and altered rules on the Stockholm Stock Exchange, it became financially possible for new capitalists to challenge the position of the Wallenbergs.

Despite new regulations and a global economy, family ownership has managed to survive. Strong holdings, not only by the Wallenberg’s but also other large family groups, made it possible to maintain family ownership as a foundation for the Swedish economy. The important role of strong owners in Swedish big business is also shown in the relatively few companies with dispersed ownership.

Another important trend in the development among Swedish large corporations has been the increasing role of the state as a major owner. Part of the reason for this was the increased nationalisation activity due to the crisis in the 1970s where several private companies encountered economic problems. The problems especially hit the iron and steel industry and the large shipyards, and to avoid liquidations and high regional unemployment rates, the government decided to take

over these activities. Thus, two new large state-owned companies were created to run these businesses –Svenska Varv (shipyards) and SSAB (steel) –and they were both among the 25 largest companies in 1983. However, the state-owned sector did not only expand as an effect of the crises. During the first half of the 1980s, state-owned activities were gradually removed from the state budget and instead formed as separate corporations. This was the first step towards a privatisation of the public sector, and thus a part of the general regime change in the 1980s.

Another fundamental change in the ownership structure of large Swedish companies is the growing importance of foreign owners. Sweden went from predominantly being a net capital exporter, to becoming an increasingly attractive country for foreign direct investments in the latter half of the 1990s. Several mergers took place which resulted in the dominance of foreign ownership in previously Swedish-owned companies, and global companies were established on the Swedish market. Among these companies we find.