Business and industry in Norway - Industrial-policy challenges

We are undergoing a period characterised by rapid changes in the international economy and industrial structure. Increasing competition and efficiency requirements mean that products are being manufactured to an ever greater extent in integrated value chains whose different parts are located in various countries. This not only makes countries more dependent on each other but also makes them more vulnerable. The deregulation and increasing integration of the markets in Europe and other regions will probably lead to a greater geographical concentration of industries (industrial clusters). Where companies establish themselves and develop will to an increasing extent depend on transport costs, access to competent labour and the stability of the financial framework conditions. This provides especially great challenges for Norway, since it is located on the outskirts of the major markets.

Challenges

One of Norway’s major, important, long-term challenges is the expected fall in its oil and gas revenues. The value creation from industries other than oil that are exposed to competition will probably have to more than double over the next 10-20 years if Norway wants to maintain its welfare developments. It will become increasingly important for labour to be employed in the most profitable, competitive companies. With a shortage of labour, the efficient use of resources in the private and public sectors will be crucial to the country’s future welfare levels.

Forecasts of population trends show that the increase in the labour force will gradually slow down, and that the proportion of elderly in the population will increase. In order to avoid a further shortage of labour, there is a need for an efficient, mobile labour market to ensure that unemployed people can quickly cover existing and new industrial needs. At the same time, increased international competition, rapid changes in consumers’ needs and swift technological developments are placing great demands on education and the improvement of expertise.

Knowledge, research and innovation are of crucial importance to Norwegian companies’ competitive ability, in both established industries and new companies and sectors. In this field, Norway is facing the important challenges of developing a fruitful collaboration between education, research and industry, and making conditions suitable for new companies to be formed. These necessitate, among other things, a good utilisation of the individual’s knowledge, creativity and ideas.

As a small country with an open economy, developments in the international framework conditions for trade across national boundaries are important for Norway’s industry. An orientation towards international markets and the development of competitive ability will be of great importance to future value creation in Norway. The EU is the dominant market for Norwegian exports and the establishment of companies abroad. Through the EEA Agreement, Norway and Norwegian industry are integrated into the common European internal market. This has contributed to good, stable developments in the Norwegian economy over the past few years. It is important for Norway that the new WTO round of negotiations places emphasis on the fact that the framework conditions must allow room for growth and value creation in Norwegian industry.

The introduction of a common European currency will lead to great cost reductions for industries in both the EU and Norway. These cost reductions are, among other things, related to the disappearance of the foreign-exchange risk and currency-exchange costs and to lower prices for imported intermediate goods. More predictable prices will also result in increased competition and be to the benefit of consumers and manufacturers in Norway.

Environmental and energy-policy regulations have long comprised an important part of the framework conditions for much of Norway’s industry. One of the challenges for industry will be to develop businesses that operate in a more environment-friendly fashion. This means, among other things, that they must increase their output using fewer resources. An increased focus on what nature can sustain has also formed the basis of a number of new business areas.

Political implications

The industrial-policy instruments are designed to encourage profitable, adaptable companies. Increased value creation is the primary goal of Norway’s industrial policy. In order for this industrial policy to be effective, it is important for all the policy areas that affect companies’ value-creation abilities to mutually support each other. Business development and value creation are affected by all the policy areas that together comprise the companies’ framework conditions, cf the figure below.