competitiveness With this white paper, we aim to place a national talent strategy at the top of the agenda for the new Danish Government.

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1 D e nmar k The Talent to Compete November 2011

2 Denmark needs a national talent strategy to increase productivity and regain competitiveness With the decline in the European workforce over the coming years, forecasting the skills needed and doing what it takes to ensure an adequate future supply of talent should be an absolute priority for governments. The winning countries in the global competition will be those that address the talent issue proactively to strengthen their economies. A major key to economic growth is increased labor productivity and the best way to increase labor productivity is to be better at matching individual skills to current and future jobs. Therefore an efficient national economic strategy, aiming for growth, demands a national talent strategy to support it. With this white paper, we aim to place a national talent strategy at the top of the agenda for the new Danish Government.

3 Executive summary 03 With the January 2010 white paper Denmark - The Talent to Succeed, AmCham Denmark highlighted the pressing need to improve Denmark s ability to attract and retain talent. Since then, we have seen an increased awareness of the importance of talent issues as well as improvements in several key areas regarding companies access to a highly qualified workforce in Denmark. While we are pleased with these recent improvements and recommend a continued focus on solving remaining short term challenges, we believe that a long term vision is equally important in order to get Denmark back on the growth track. To meet the significant challenges facing the Danish economy, including the long-term demographic changes and low growth in productivity, Denmark has several options to consider. One important measure is to strengthen Danish and Danish-based companies ability to attract and retain talent. Successful talent management is essential if Denmark is to compete for its share of future foreign investments and drive the innovation process and productivity required to ensure the competitiveness of Danish companies in the global market. The aim of this white paper is to inspire the Danish government to take immediate action and to provide handson recommendations for a national talent strategy, enabling Denmark to strengthen its productivity and regain its competitiveness. A national talent strategy requires: Long term commitment Cooperation between private and public stakeholders Inter-ministry collaboration It aims at aligning policy with business needs by: Forecasting the skills needed Defining FDI incentives Channeling investments in education And it focuses equally on: Developing domestic talent Attracting and retaining international talent High performance as a business is only possible if you have high performing individuals. This applies to a company as well as to a country. In order for Denmark to regain its lost competitiveness, the Danish government should look closer on how to use human resources strategically on a national level and provide the best possible conditions for aligning talent with business needs. William S. Allen, Senior Vice resident Global HR, A.. Møller-Mærsk

4 04 a national talent strategy Since the publication of our previous paper, several of our proposals have materialized and a range of initiatives have been taken in order to make Denmark more attractive to domestic and global talent. However, we still have much to do. Since 2007 there has been an increasing imbalance between investments in and out of Denmark. AmCham Denmark s 2011 Business Barometer revealed that 53% of survey respondents up from 44 percent in last year s survey have considered or are considering moving investments and jobs out of Denmark. The main reasons for moving jobs out of Denmark remain the high cost of doing business and the inability of companies to attract and retain the needed skills 1. Moreover, while 35% point towards access to talent as an advantage of doing business in Denmark, a majority of respondents agree that the shortage of highly qualified labor in Denmark will be a problem with 55% ranking Denmark s ability to attract and retain employees as below average to poor. Regardless of the present economic situation it is generally accepted that long term demographic changes will lead to a significant shortage of labor and talent in the coming years, threatening Denmark s economic growth. This threat is confirmed by the Confederation of Danish Industries that predicts a shortage of at least people with higher education in 2030, corresponding to nine percent of the highly educated Danish workforce 2. Other forecasts are even gloomier. The Economic Council of the Labor Movement (ECLM) projects that the demand for unskilled workers will drop by more than in the next ten years whereas the need for skilled and highly educated labor will reach by Accounting for 75 percent of the increase in labor demand, the private sector will be by far the hardest hit 3. The shortage of talent is far from a Danish particularity. In fact, globally companies are challenged to find the right skills where these skills are in demand. To put this into perspective, there is an 11% unemployment rate in the Euro zone, yet there are 2.8 million jobs that remain unfilled in the EU. It is clear that there is a talent mismatch an issue synchronizing supply and demand. This situation will not likely improve in the future, with an estimated 50 million decline in the EU workforce due to demographic changes over the next 16 years 4. This poses a severe threat to all countries, including Denmark, who will have to position themselves as attractive destinations in the global war for talent. These are alarming forecasts that call for immediate action. On behalf of our member companies, AmCham Denmark urges the Danish Government to bring to a national and strategic level, how Denmark can reinforce its ability to foster, attract and retain talent. Isolated initiatives to solve short term challenges are no longer enough. Denmark needs a long term national talent strategy to deal with the demographic challenges and to increase productivity and regain competitiveness. 1 Other main reasons mentioned are downsizing and the personal tax burden on employees 2 The Future is calling are we educating enough? DI, December rivate sector the hardest hit by shortage of educated labor, ECLM, November EU must remain open to migration, Cecilia Malmström and Cázló Andor, December 2010

5 05 Significant results achieved. Additional improvements needed Below is a listing of some of the recent improvements which have been made within the area of talent attraction and retention as well as some suggestions for further improvements: Expert Taxation: Improvements to the expert taxation scheme were implemented. As of January 2011, highly skilled foreign experts and researchers will be subject to a flat income tax rate of 26% for five years. reviously, international experts would pay 25% in income tax for the first three years. However, should they wish to stay beyond this period, they would be taxed 33% for the next two years as well as retroactively for the initial three years. Improvement options: Danish income tax remains one of the highest in the world and is a constant challenge for both Danish and Danish based international companies in their efforts to attract highly qualified labor. In order to compete, Denmark must have a competitive income tax system. International School Capacity: A change to the Free School law was achieved enabling the expansion of international schools in Denmark, opening an additional 100 seats this year already and another 150+ seats in the greater Copenhagen area within the next couple of years. Improvement options: Additional international school capacity is still needed. We recommend supplementary measures such as pre-paid and pro-rata subsidies as well as expansion of the IB program into more public schools to help alleviate capacity constraints in the upper grades. There is also a need for a broader range of price offerings in order to ensure that international schools are broadly available and affordable. Information and Services in English: Information and services for non- Danish speaking expats were vitally enhanced via the introduction of International Citizen Service Centers in four cities in Denmark. roviding access to key authorities and essential information in English has enhanced the experience for foreign workers and reduced the time necessary to become situated in Denmark. Improvement options: More is needed. Continued expansion of English communication from key Danish authorities and agencies is necessary. Additionally, more initiatives from the municipalities to engage with expats are needed to help them integrate effectively into the local community. Non-EU Driver s License Exchange: The time in which non-eu expats must exchange their driver s license has been increased from 14 days to three months. While a seemingly small issue, the difficulty of exchanging driver s license has a big effect on the on-boarding experience for foreign workers. Improvement options: There is still a long way to go and additional measures should be taken to offer the theoretical test in English, allow driving tests to be taken in private vehicles. However, long term, Denmark must work proactively with the various foreign authorities to establish reciprocity agreements for the benefit of both non-eu citizens and Danes.

6 06 In today s increasingly competitive global market, companies make decisions every day on where to place future jobs and investments. It is therefore deeply concerning when AmCham s Business Barometer consistently shows that more than 50% of our members are considering moving jobs and investments out of Denmark. To reverse this trend Denmark must act swiftly and decisively to improve its global competitiveness and thereby its ability to attract and retain future jobs, investments and talent. Stephen Brugger, Executive Director, AmCham Denmark

7 07 roductivity growth and foreign direct investment through talent Nobel rize winning economist aul Krugman asserts that if competitiveness has any meaning, then it is simply another way of saying productivity and that growth in national living standards is essentially determined by the growth rate of productivity. 5 If one agrees with this definition, then Denmark will face some significant challenges in maintaining a competitive position in the coming years. In fact, in the period , Denmark realized an average of just 0.58% labor productivity growth, well behind the OECD 30 average of 1.35% over the same period. 6 One important measure to increase productivity 7 and growth is to strengthen Danish and international Danish-based companies access to highly qualified talent. Additionally, Manpower resident David Arkless, who has worked with governments across the world to assist them in aligning policy with business needs, states that the key to future growth is attracting much higher levels of foreign direct investment (FDI). In Denmark, this is backed by a recent analysis from Copenhagen Business School that has drawn attention to the positive impact of foreign owned companies to the Danish economy. In fact, while only 1.2 percent of companies in Denmark are foreign-owned, they employ 18.3 percent of the private sector workforce, and produce 21.5 percent of the value added. From this, it can be established that the labor productivity (measured in value added per employee) is 23 percent higher in foreign companies versus domestic owned companies. There are several possible explanations for this, one of them being that foreign companies tend to use more highly educated labor than domestic firms 8. However, as pointed out by David Arkless, it s no longer enough to simply offer a variety of investment incentives to compete for FDI. If Denmark raises the proportion of employees with a higher education by one percent point the Danish GD will increase by one percent. 9 5 aul Krugman, Competitiveness A Dangerous Obsession, Foreign Affairs, March/April 1994 (volume 73, number 2) 6 OECD StatExtracts, February roductivity is defined in terms of total factor productivity (TF). TF reflects how effective companies exploit the resources used in the form of manpower, machinery, IT and buildings. Definition used by Junge and Skaksen, roduktivitet og videregående uddannelse, March roduktivitet og videregående uddannelse, Junge and Skaksen, March roduktivitet og videregående uddannelse, Junge and Skaksen, March 2010.

8 08 Every country that s increasing its FDI by more than 5% has a talent strategy aimed at attracting FDI. David Arkless, resident of Corporate and Government Affairs, Manpower Inc.

9 09 Overall recommendations for developing a long term national talent strategy In the long term, countries who must overcome a structural talent mismatch will be constantly focusing on short term solutions to fill in the holes and thereby unable to increase their productivity and competitiveness. For a small economy like Denmark with an aging population, even with the government investing massively in educating the right people locally to match business needs, it is unlikely that this alone can answer the increasing demand for talent in the future. We therefore urge the Danish government to take immediate action to create a national talent strategy and hope that our recommendations will be helpful.

10 10 1 Requirements Developing a national talent strategy requires a long term commitment, cooperation between private and public stakeholders, and inter-ministry cooperation. a. Long term commitment A talent strategy requires consistent and efficient implementation in order to be successful. This calls for a long term commitment including evaluation and ongoing adaptations, to cope with challenges that arise. b. ublic-private cooperation Business, government and public sector administration need to work together to forecast the supply and demand of the labor market, and identify the right solutions. In order to identify future needs it is important that all relevant stakeholders are represented - including foreign and Danish multinational companies. c. Inter-ministry cooperation In order to ensure a successful articulation and implementation, it is essential for key ministries to work together, setting aside traditional inter-ministry red tape, for the benefit of the overall goal. One possible model could be tasking a single ministry as the lead ministry in coordination with other relevant ministries. The key to economic growth is increased labor productivity and the best way to increase labor productivity is to be better at balancing supply and demand in the workforce. Denmark has a relatively successful economy. However, complacency now is a formula for the disaster of the economy of this country. The systems you have are inadequate for the next years. Denmark needs to change them now and there is no better time for change than with a new administration. David Arkless, resident of Corporate and Government Affairs, Manpower Inc AmCham Denmark seminar regarding The Global Talent mismatch, May 2011

11 11 2 Method A national talent strategy must be built on reality. Therefore, we need to analyze the current situation in Denmark to determine the future potential. This is not about picking the winning industries, but about examining the needs of each and every industry and ensure alignment between policy and business needs. a. Forecasting the skills needed The Danish government must work with key stakeholders to achieve a better balance between supply and demand of the workforce by forecasting the future needs for specific skills as accurately as possible. This forecast should be completed for all industries - by company, city and region, both short and long term. This would help map skill levels to jobs more accurately, ensuring a closer fit between supply and demand. Here, Denmark might consider making it mandatory to produce a forecast of the labor supply and demand every second year. b. Defining FDI incentivize It s also important for the Danish government to replicate the strategy for foreign direct investment. To do this it is essential to consult with the top foreign investors in Denmark to determine what would incentiveze international companies to increase their investment and value added here? What do they need from government and education? c. Channeling investments in education Based on these mappings and forecasts, the talent strategy should propose ways to channel investments into the right educations, use incentives to encourage young people to build the needed skills and develop an active immigration policy to attract and retain foreign talent.

12 12 3 Focus To be successful, a national talent strategy should focus equally on developing domestic talent and on attracting and retaining international talent. a. Developing domestic talent Long term competitiveness requires strong local talent clusters. A national talent strategy should therefore examine ways to encourage more young people to complete a higher education in a timely manner and in areas that meet Denmark s current and future talent needs. With this in mind, several key issues must be examined: Financial incentives for individuals completing a higher education should be considered. Denmark does not perform well in this area 11, due primarily to its high marginal tax rates. For many, when considering lifetime net earnings, there is no significant economic benefit to increasing one s educational level. Timely completion of secondary education is important. Denmark ranks very low in the number of students completing a secondary education by the age of Additionally, the Danish government should consider ways to address the issue of social mobility due to the social bias of education patterns. b. Attracting and retaining international talent Though strengthening our focus on and investments in domestic talent, demographic trends and continuously changing business needs will lead to a structural demand for foreign talent. In fact, in today s economies, competencies know no borders. In addition, with more and more Danish-based companies operating in the global marketplace, it is a fact that companies need to also look for foreign talent that can help them gain knowledge of the international markets where they are doing business. Therefore, Denmark needs to position itself as an attractive destination for highly skilled people from all over the world. As outlined in this paper, significant achievements have already been made in order to make Denmark more appealing to foreign talent. However, there is also a need for a more strategic and long term focus. riority should be given to: Defining a value proposition: what does Denmark have to offer and what are we ready to change to become the preferred choice for foreign talent? The Danish value proposition will be critical in positioning Denmark in the global competition for talent and foreign investments. Establish and communicate openness towards foreigners: In order for the value proposition to be successful, it needs to be owned by government and industry and backed by the general public. In fact, politicians should communicate clearly about the need for foreign talent in order to raise awareness about the positive impact of expats to the Danish society. This work, and the accompanying communication effort, would equally contribute to a more balanced immigration debate which is the key to making highly qualified workers feel wanted and welcome in Denmark. 11 OECD, Education at a Glance OECD, Education at a Glance 2010

13 13 Although we have seen improvements in conditions for developing, attracting and retaining highly qualified labor in Denmark, further improvements are required. A national talent strategy will ensure a more strategic perspective and secure the best value of future investments in education and FDI incentives, help companies succeed and grow, and ultimately lead to a more competitive Denmark. Charlotte Mark, Managing Director, Microsoft Development Center Copenhagen

14 14 Important issues and questions to be addressed in a national talent strategy Fostering and developing domestic talent How do we: Gain insight into the competency areas that are strategically important for Denmark in the future? make sure that investments are channeled to the educations that match business needs? strengthen universities and research environments so that they can attract talent to these prioritized areas? make it financially attractive for Danish students to complete a higher education in a timely manner? Ensure that Danish students with valuable international experiences apply these in Denmark? reinforce the link between students and companies and make a smooth transition between studies and job?

15 15 Attracting and retaining global talent How do we: Ensure world class education and top universities able to attract students from all over the world? Encourage international students to enter the Danish labor market after completing their studies? Ensure support from larger experienced companies to SME s in their work to attract international employees? Eliminate remaining barriers and make it easy for foreign talent to settle and integrate in Denmark? make it financially attractive for foreign talent to stay in Denmark for a longer period? position Denmark in the international war for talent as an attractive country to work and live in? raise awareness among the Danes of the positive impact of an international labor force on the Danish society?

16 About AMCHAM DENMARK The American Chamber of Commerce in Denmark (AmCham Denmark) is a non-profit, non-governmental business association representing an array of companies actively investing in Denmark and the United States. As the voice for international business in Denmark AmCham is committed to building a competitive business environment in Denmark, and to doing its part to minimize barriers to international trade. Thank you to Copenhagen Capacity for support and cooperation. Nørregade 7 B DK-1165 Copenhagen K Layout: Woer+Gregorius / rint: Team Rapo Christians Brygge 26 DK-1559 Copenhagen V