FDI in Denmark: Political Stability and Growth Rate

The assignment analyzes foreign direct investment (FDI) in Denmark, highlighting the importance of political stability and growth rate in attracting FDI. The main sector for FDI is identified as manufacturing, with several companies entering this market through FDI. References to books, journals, and online sources provide additional context.

PROJECT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
Overview of company.................................................................................................................1
Establishment of company in Denmark through foreign direct investment ..............................1
PESTLE Analysis.......................................................................................................................5
Porter fiver forces analysis .........................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Foreign direct investment is the form of investment in which the company invest in the
firm of company located in another country. With the help of foreign direct investment
companies are able to expand their business in another country to grow their business. FDI take
place when the investor or firm establishes foreign business operation to acquire foreign
ownership or controlling interest in a foreign company. The benefit of foreign direct investment
is that it assist in entering a foreign market. In this assignment the company Tesla is going to
expand it business in Denmark and for that it is required to identify the foreign direct investment
of Denmark in order to identify the decision which is made by Tesla is correct or not. Tesla is an
American based car manufacturing company. Moreover, this study will include Pestle and porter
five forces analysis of Denmark to identify the environment and industry analysis of Denmark to
support the decision.
MAIN BODY
Overview of company
Tesla is an American based Automotive and energy company. It is specialised in electric
car manufacturing. The company is having headquarter in Palo Alto, California , US. The
company is involved in car manufacturing and have different models for car. It is ranked as
world's best selling plug- in passenger car in 2017. The company provides different products
such as electric vehicles and energy sources. The primary goals of this company is to provide
electric car. The company focus on creating innovative products to change the automotive
industry. With the use of technology the company is growing its sales and now it wants to
expand its business through investing in companies located in Denmark through use of Foreign
direct investment which assist in entering the company to enter the foreign market through
investing in companies located in that country.
Establishment of company in Denmark through foreign direct investment
The company in order to establish it business must complete the registration process to
the company in the allocated country by its name and all the formalities regarding establishments
are required to be completed by the Tesla according to the procedure followed in Denmark
(Spence, 2016). Tesla in order to establish its business operations in Denmark must understand
the foreign direct investment of that country in order to identify if the decision made by them is
supportive or not by understanding the foreign direct investment of that country Tesla will be
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able to make an effective decision regarding its foreign direct investment in Denmark
manufacturing. There are various organisation of different countries investing in the companies
of Denmark through foreign direct investment to enter those market to increase their profitability
and maintain the day to day operations in that country (Denmark, 2017). Tesla decision to invest
in the Denmark through foreign direct investment is beneficial for the company as country have
m ore foreign direct investment and there are more scope for growth.
Also, the county have skilled and multilingual workforce which help the companies
entering in Denmark to have better workforce. Tesla by foreign direct investment in Denmark
will have advantage of political stability as the country have political stability due to which many
companies are attracting towards this country to expand their business. The foreign direct
investment is the best way to enter the market as it provide easy entry mode. Tesla is involved in
manufacturing industry and it is going to expand its business to Denmark and for that it is
required to understand the market of Denmark and the main invested sectors of Denmark that
will helps the company to make the decision regarding foreign direct investment in that country.
Tesla by foreign direct investment in Denmark will be able to have relatively low
company taxation rate of about 25%. Moreover, the Tesla is involved in energy industry and the
country provide varieties of energy resources which will be beneficial for the company to invest
in foreign direct investment of Denmark to acquire the energy resources of that country. The
people of this country also have high purchasing power which will be beneficial for the firm and
will support to the foreign direct investment made by Tesla in Denmark. But on the country
there are various disadvantages which are against the foreign direct investment of Tesla because
the county 's economic system in more dependent on the international fluctuations. Also, the
country have small domestic market. The level of FSI in Denmark is still far below the potential
of country.
The following shows the FDI Stock by Country
Main Investing Countries 2017, in %
Netherlands 14.6
Sweden 16.6
Luxembourg 10.1
France 11.6
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United states 4.8
Norway 8.1
United Kingdom 8.8
Germany 4.8
Switzerland 2.4
From the above table and graph it can be interpreted about the countries which are
investing in Denmark through foreign direct investment. It is interpreted that the United stated is
contributed of about 4.8 % in the year 2017 which means the company can invest in the foreign
direct investment in that country to enter the market of Denmark (DENMARK: FOREIGN
INVESTMENT, 2018).
Tesla by investing in the country to expand its business can be supported by this table as
the country have made investment in the country which is not a small percentage and thus it is
beneficial for the company to enter the market with the foreign direct investment in that country.
The country have invested in Denmark its provide various advantages to the companies which
are entering through foreign direct investment.
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Sweden
Netherlands
France
Luxembourg
United Kingdom
Norway
United states
Germany
Switzerland
0
2
4
6
8
10
12
14
16
18
2017, in %

Tesla in order to make the decision regarding the foreign direct investment in Denmark can
identity the percentage of the industry which has invested in Denmark. The following table
shows the main invested sectors of Denmark in which the companies from different countries
have invested will help Tesla to make it foreign direct investment decision.
Main invested sectors 2017, in %
Manufacturing 7.9
Financial and insurance activities 55.7
Information and communication 3.9
Real estate 2.4
Administrative and support service activities 4.6
Professional, scientific and technical activities 4.4
Wholesale, retail trade and maintenance 8.5
From the table and graph it is identified that the share of manufacturing sector is 7.9 in
that country which means the companies involved in manufacturing sectors have entered through
foreign direct investment are made that the other sectors and thus is in support of the Tesla
company to support their decision regarding foreign direct investment in that company. The
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0
10
20
30
40
50
60
2017, in %

company by making foreign direct investment in that country will increase the share of
manufacturing sector which will be beneficial for the sector as well as the company.
According to information provided above it is identified the foreign direct investment of Tesla is
beneficial for the company as well as the allocated country as it will increase the share of
manufacturing sector in Denmark and company will be able to expand its business in Denmark.
PESTLE Analysis
Pestle analysis used to identify the external market factors which have their influence on
the company. Tesla by identifying the factors of external environment Denmark will be able to
understand the factors of external environment which may their impact on the operations on
company after expansion. The following are the factors of pestle analysis :
 Political factor : It consists of factors such as changes in the government policy, taxation
policy etc. which have their impact on the manufacturing sector of the company due to
which company may face various challenges and thus the profitability of the firm s
reduced. Tesla is involved in manufacturing sector an in order to understand the political
environment Denmark it needs to consider this factor to make its foreign direct
investment decision (Stolze, Zanoli and Meredith, 2016). The country have political
stability which means the industry will have positive impact on its business which will be
beneficial for the Tesla.
 Economic factors : These are factors which takes into consideration about the interest
rate, exchange rate etc. The country is dependent on the international fluctuation due to
which the industries operating in Denmark are affected. The investors in Denmark are
offered with tax benefits. The Denmark have prosperous economy. In 2018, the country a
GDP growth of 2%. Moreover, the unemployment rate of the country is reducing over the
years which shows the 5.4 in 2018 which was 5.7 in 2017 (The economic context of
Denmark, 2016).
 Social factors : This are factors which are related to the country's contribution towards
the society and includes the government social welfare policies, income distribution,
health, eduction system etc (Buckley and Ghauri, 2015). The Denmark is having increase
in the employment opportunities which assist in improving the social status of the
country. The social factors have the impact on the manufacturing industry as the lifestyle
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and incomes of the people of the Denmark are changing due to which their taste and
preference are also changing which have their impact on business.
 Technological factors : this refers to the changes in the technology due to which the
company may have their impact which hampers their day to day operations. The
companies operating in manufacturing industry of Denmark enjoy the benefit of
availability of various technology as the country have achieved a lot by their
technological advancement (McCarthy and Muthuri, 2018.). Tesla is involved in
manufacturing electric cars which will boost its sales in Denmark.
 Legal factors : In this context, The factors which includes the laws and legislation and
changes in those laws and legislation which may have their influence on the business
operations. The countries laws and legislation have their impact on the business operating
in that country (Jardine, 2017). If Tesla is expanding its business in Denmark it will have
to face the impact of various changes in the laws and regulation of that country. The
company in order to attract foreign investment require no authorization. The companies
operating in Denmark have to follow the rules and regulation as per the act existing in
that country. There are various laws which relate to discrimination, employment etc.
which are existing in Denmark companies have to follow these laws and legislation in
order to perform their operations effectively and efficiently.
 Environmental factors : This refers to factors which have their impact on business for
not following the rules and laws relating to the environmental polices. Denmark is having
a good environmental policies which assist in reducing the waste disposal to increase the
health awareness among the people of Denmark (Jardine, 2017). Tesla in order to
establish in Denmark have to follow the rules and regulation in order to protect the
environment from various harmful effect.
From the above analysis it is identified that the external environment of the Denmark is
stable and have various growth opportunities for the manufacturing sector in that country which
will be beneficial for Tesla. So, Tesla on the basis of the pestle analysis of Denmark and can the
effective foreign direct investment as expanding their business to this country will be profitable
for the business.
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Porter fiver forces analysis
This forces analysis used in order to identify the factor's industry which have their impact
on the operations of firm. The porter fiver forces analysis include the factors which are in
relation to the industry and have their potential impact on the activities performed by firm.
 Bargaining power of buyer : The manufacturing industry of Denmark is having larger
number of buyers. Moreover, it has low switching cost. In this industry the limited
information about the customer is available (Lee and et.al., 2017). The buyers are in large
numbers but as Tesla products are more expensive and to enter the new market the
company can reduce its prices to gain their customers in the manufacture industry of
Denmark. The bargaining power of buyers is dependent on the quality and price of
products. Tesla is providing electric car which are of high quality.
 Bargaining power of supplier : It refers to the bargaining power of suppliers for
providing the raw materials to the manufacturers. In Denmark, there are diverse
distribution channel which means the companies have large number of suppliers due to
which the bargaining power of suppliers in this industry is low. Also, the switching cost
of supplier is also low which means the firm in this industry can switch to different
suppliers for the availability of raw material (Hohenthal, Johanson and Johanson, 2015).
The bargaining power of suppliers is moderate as the volume is critical to supplier. The
firms operating in this industry have less threat of bargaining power of supplier, The
Tesla in order to expand their business in Denmark should maintain close relation with
suppliers in order to get the material at the right price.
 Threat of substitute product : The manufacturing industry of Denmark have low
substitute available in those market which assist in increasing the growth rate of this
industry as the product and services offered by this industry can not be substituted with
other products and services (Beck and et.al., 2017). Tesla is providing electric car which
means there are fewer substitutes available in the market for products provided by Tesla
provide benefit to the company in retaining the customers for longer period.
 Threat of new entrants : The manufacturing industry of Denmark is growing increasing
which means there are larger number of firms increasing in this industry that means there
is high threat of new entrants in this market. Tesla is going to expand its business in
Denmark which will be threat for the other firm operating in that country in the
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manufacturing industry (Lueg, Pedersen and Clemmensen, 2015). The new entrants in
this industry required to have strong brand image. Moreover, there are problems in
acquiring the strong distribution channel for the new entrants. Also, the new firms face
problems as the customers have high switching cost
 Existing rivalry : The manufacturing industry have to face competition from the existing
firms available in the industry (Burritt And et.al., 2017). Thus, it can be said the
manufacturing industry of Denmark is highly competitive as there are small number of
firms competing with each other to increase their profitability and share of market in the
industry.
From the above analysis it is identified that in Denmark the competitors are less and there
are small firms and Tesla is a strong brand which will provide tough competition to the other
firms operating in this industry in Denmark which will increase the market share of firm and thus
it is said that the company through foreign direct investment will be able to increase its
profitability and share of manufacturing industry in and expand its business in Denmark.
CONCLUSION
From the above study it has concluded that Tesla is a car manufacturing company is
going to expand it business in Denmark through foreign direct investment to enter the market of
Denmark and from the information it is identified that the main sector in which the various
companies have invested is equal to 7.9 % which means many companies through use of FDI are
entering the manufacturing industry of Denmark. The company through use of foreign direct
investment is able to enter the market of Denmark as there various advantages of entering into
Denmark market for Tesla as it has political stability and the growth rate of the country is also
high.
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REFERENCES
Books and Journals
Beck, R. and et.al., 2017. Blockchain technology in business and information systems research.
Borum, F. and et.al., 2018. Social dynamics of the IT field: The case of Denmark (Vol. 39).
Walter de Gruyter GmbH & Co KG.
Buckley, P. J. and Ghauri, P. eds., 2015. International business strategy: theory and practice.
Routledge.
Burritt, R. O. G. E. R. And et.al., 2017. Expanding collaboration between industry and business
faculties in Australia. Improving collaboration and innovation between industry and
business schools in Australia.
Denmark, L. L., 2017. Confederate Sharpshooter Major William E. Simmons: Through the War
with the 16th Georgia Infantry and 3rd Battalion Georgia Sharpshooters by Joseph P. Byrd
IV. Journal of Southern History. 83(2). pp.430-431.
Hohenthal, J., Johanson, J. and Johanson, M., 2015. Network knowledge and business-
relationship value in the foreign market. In Knowledge, Networks and Power (pp. 187-
224). Palgrave Macmillan, London.
Jardine, E., 2017. ‘Something is rotten in the state of Denmark:’Why the Internet’s advertising
business model is broken. First Monday. 22(7).
Lee, S. and et.al., 2017. Risky business? Welfare state reforms and government support in
Britain and Denmark. British Journal of Political Science. pp.1-20.
Lueg, R., Pedersen, M. M. and Clemmensen, S. N., 2015. The role of corporate sustainability in
a low‐cost business model–A case study in the Scandinavian fashion industry. Business
Strategy and the Environment. 24(5). pp.344-359.
McCarthy, L. and Muthuri, J. N., 2018. Engaging fringe stakeholders in business and society
research: Applying visual participatory research methods. Business & Society. 57(1).
pp.131-173.
Spence, L. J., 2016. Small business social responsibility: Expanding core CSR theory. Business
& Society. 55(1). pp.23-55.
Stolze, M., Zanoli, R. and Meredith, S., 2016. Organic in Europe: expanding beyond a niche.
In Organic in Europe. Prospects and Developments 2016 (pp. 12-19). IFOAM EU Group.
Online
DENMARK: FOREIGN INVESTMENT. 2018. [Online]. Available through
:<https://en.portal.santandertrade.com/establish-overseas/denmark/foreign-investment>.
The economic context of Denmark. 2016. [Online]. Available through
:<https://www.nordeatrade.com/no/explore-new-market/denmark/economical-context>.
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