The Road to Productivity: Hire a Foreigner!

At Danish companies the presence of foreign staff is often associated with higher productivity and profitability, growing internationalisation and exports, as well as improved innovative capabilities. That is according to Philipp Schröder, a professor of economics at Aarhus BSS, Aarhus University’s business school, who has co-arranged a major conference on the role of human resources in modern business.

Photo: Colourbox

Schröder, who will elaborate on his research in a presentation at the start of the conference on Friday, points out a significant and only partially utilised potential for Danish enterprises in foreign markets. However, it is important not to underestimate the barriers to success as an exporter, and this is where foreign staff becomes relevant.

”The most surprising result of our research is the fact that so few Danish enterprises  are capable of exporting, while a huge number are confined to domestic trade. And it’s immediately clear that this is the effect of some rather staggering barriers to exports,” he said.

”We’re talking about everything from tariffs to transportation costs and unfamiliar regulatory frameworks. But it can also be cultural barriers or barriers that emerge when you fail to understand other markets, or legal barriers. So where can the Polish co-worker make a difference? Well, it could be in terms of language or cultural understanding, or she might have special legal training.”

Improved chance of exports

These insights are backed by a number of results from recent research. As a case in point, an analysis showed that a company increasing the number of foreigners among its top five employees from one to two will see its chances of commencing exports within the coming year rise by approximately one percentage point.

”That may not sound like much, but you have to take into account that an enterprise that remains confined to the domestic market may have a, say, 10 percent chance of starting exports within the next year. If it adds another foreigner, that probability will rise to 11 percent,” Schröder said.

The importance of foreign exposure is more than just marginal and can actually be surprisingly large. The mere fact of having a foreign rather than a Danish owner can make a huge difference and is associated with productivity gains of up to 30 percent.

”An employee at a company with foreign ownership will create as much during the period from January to September as a comparable employee at a company owned by a Dane will accomplish in the course of an entire year,” he said.

Much research remaining

Schröder can only guess why foreign ownership is so important. Perhaps foreign owners are better at picking the star performers among Danish enterprises. Alternatively, they may be adding value themselves by contributing know-how and technology. According to Schröder, much research remains to be done before anything more definite can be said about causalities.

”In a way, we’re groping in the dark as researchers. We don’t have a seat at the table when management makes decisions. What we are able to observe is, for example, a Danish company underperforming in terms of exports to the US markets until an American turns up among the employees, after which the company suddenly does much better. We don’t know if this was a conscious decision made by management, or if the American simply turned up accidentally and was to have worked on something else, but ended up creating a link to the American market more or less by coincidence,” he said.

Potential among medium-sized enterprises

The largest Danish enterprises are fully aware of the benefits they can derive from employing foreigners. For instance, a company like toy maker Lego has introduced fixed procedures for attracting and keeping foreign talent. By contrast, companies with fewer than 100 employees rarely view foreign staff as a strategic tool, and for these medium-sized enterprises there may be a large, partly unused prize to be had. At the same time, however, it is crucial to be aware of the costs involved.

”It’s a major trade-off if you want to introduce a corporate culture where, for example, Danish and Asian employees are fully integrated. It’s expensive, and you have to ask yourself if it’s really worth the extra effort it you don’t have a special focus on the Asian markets. On the other hand, it can be beneficial to employ a German or an Austrian if you’re trying to enter the south German market.”

- Is there some lower limit in terms of company size below which it no longer makes sense to employ foreigners?

”I can’t say anything about that based on existing research, but personally I’d expect that the smaller and the more homogenous your team is, the bigger the cost will be in terms of more cumbersome team dynamics  if, say, you have to start using English. Of course, that’s more important if you are five friends who have started a company together than if you are a company with more than 50 employees."