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What do people actually live on in Norway? The question often seems relevant to visitors scanning a majestic, but rocky and seemingly barren, landscape. The fact is that it is this selfsame natural setting which has formed the basis for all economic activity in Norway -- including industry.
By Jon-Åge Øyslebø
Since the first industrial processing of raw materials, Norwegians have concentrated production in areas where nature provided an advantage. Major branches of Norwegian industry have sprung out of the vast tracts of forest, the discoveries of ores and minerals, rich fisheries along the coast, and the nearly unlimited hydroelectric resources providing relatively cheap energy. On this basis, competence and technology have developed enabling Norwegian suppliers to compete against countries with lower costs.
The first "industrial" production in Norway was iron extraction and the milling of lumber and barrel staves, both of which gained considerable momentum as early as in the 17th century. In the latter half of the 1800s, capabilities for processing wood were increased and a "modern" paper industry sprang up. Other traditional industries are glass production from the beginning of the 18th century, and the tobacco industry which started up somewhat earlier, albeit with imported raw materials. Boats have always been built in Norway, and shipbuilding became an important commercial field, inspired by Norway's proximity to the sea and a thousand years of seafaring traditions. Furniture production is another industry with long traditions in certain parts of the country.
The industrial revolution did not really take hold in Norway until the 1870s, and twenty years later, one out of five jobs was in some form of industry. The share rose quickly to 30 per cent, where it remained until the end of the 1970s. Industry, the petroleum sector, and construction now employ about 23 per cent work of the work force. By comparison, the service sector employs 33 per cent, the public sector 38 per cent, and agriculture five per cent.
The country's rich natural resources have certainly been a boon to the nation. But there is another side to the story. A common and well-known factor uniting processed raw materials such as paper, chemical pulp, iron alloys, and aluminium is the unpredictability of the prices these bring abroad. The economic cycle is in constant flux as are currency rates. Exports of oil and gas - priced in U.S. dollars - are particularly vulnerable. The consequences for the Norwegian economy are thus even more dramatic when the prices of key exports and the currency in question fall simultaneously.
To reduce the country's dependence on oil, the source of more than 40 per cent of Norwegian export income, various Norwegian governments in turn have attempted to stimulate the increase in production and profitability in the other areas of hard-challenged industry. The goal has been the same ever since the first exploitable fields of oil were found on the Norwegian continental shelf more than 25 years ago -- the lure of oil money mustn't be allowed to prevent the funnelling of vital investments to the mainland industries. More means of support are needed to limit the oil-price vulnerability of Norway's income. It would be incorrect to claim that this objective has been attained, but a certain balance has been reached. In relation to the country's Gross Domestic Product, oil activities equal the aggregate value of industry and mining, each at about 14 per cent of the GDP.
Today, a major trait of Norwegian industry is that it largely produces for export. The nation's 4.35 million inhabitants represent a small home market. So around 45 per cent of the commodities and services produced in Norway - calculated according to value - are sold abroad, primarily to the EU. Over half of Norway's exports of traditional goods are sold to three countries: Germany, Sweden, and Great Britain. In 1994, commodities exports increased by over 14 per cent, the biggest growth in 30 years. Total industrial production increased at the same time by five per cent. An indication of optimism about further development can be seen in a clear willingness to invest in the exporting industries. Following three years of decreasing investments, the rate of investments rose by 9 per cent in 1994.
Not surprisingly, the biggest contribution to Norwegian export of goods is the oil and natural gas pumped from the seabed on the continental shelf. In the traditional realm of industry, the metals and engineering industries are the biggest exporters. The latter produces industrial machines, electric hardware, ships and maritime equipment. But the list of major exports also includes processed fish products, chemicals, paper, cardboard, and refined oil products.
Norwegian ships are based, as mentioned, on long traditions, and in recent years, shipyards have specialised in the export of small and medium sized vessels, such as supply ships, fishing boats, and speedy catamarans for passenger traffic along the coast. Norway does not produce cars, but the manufacturing of parts for the automotive industry has become an expanding export industry. A number of Norwegian firms are currently supplying the European automotive industry with light metal wheel rims, aluminium bumpers, axles, hydraulic devices and brakes, exhaust systems and safety equipment.
However, Norwegian industry's international activities are not restricted to export sales. Over 40,000 people are employed by Norwegian-owned subsidiaries abroad. To get closer to foreign markets, companies are establishing an increasing number of subsidiaries abroad, or starting joint ventures with foreign partners. The EU's political and economic development is spurring increased internationalization of Norwegian industry, and the biggest investments are being made in the EU countries.
But far from all industry in Norway is based on raw materials. The country provides itself as well as foreign markets with a broad spectrum of manufactured products, from canned goods and toothbrushes to advanced computer controlled steering systems. The technological level is generally high, and a sizable share of enterprises' profits are invested in further research and development.
In addition to their roots in the country's natural resources, a conspicuous number of businesses have been founded on - and still rely upon - the country's special topography. Throughout the ages, fjords, mountains and the sea have posed considerable challenges which technology has had to master. Resultantly, for decades Norwegian engineering firms have turned out equipment of top international standard. Obvious examples are the construction of power stations, dams, tunnels and bridges.
The existence of oil and natural gas under the seabed of the continental shelf has also fuelled the development of exceptional competence and advanced technology in Norwegian industry. A drop in demand for Norwegian-built ships after the fall in oil prices in the 1970s, led shipyards to turn away from pure shipbuilding and venture into offshore technology: building rigs, permanent installations and a variety of equipment for oil activities that have created thousands of vital jobs. Now Norwegian firms can also sell their specialised expertise in petroleum exploitation, both in technology and in project steering.
In recent years, the consumer goods sector has placed increasing emphasis on design and user-friendliness. Uniquely national features have been fused with modern international design standards, forming a characteristic Norwegian design. This is particularly apparent in the styling of furniture, glassware, silverware and other products with roots in Norwegian handicrafts. Such industry has combined tradition with modern techniques and rational production to compete in world markets.
Norway has few industrial giants: only about five per cent of Norwegian firms have more than 100 employees. The others can be characterized as small and medium-sized companies (SMCs). About 79% of Norwegian companies have less than 20 employees. Still, nearly half the work force is employed in SMCs, producing more than 40 per cent of the total output value in industry.
SMCs are the hearthstone of the entrepreneurial spirit. Norway has many people who are capable of combining knowledge and creative ideas with the ability to put their initiative to work. Inventiveness and constant product development are perhaps the hallmark of the small and medium sized companies. In other respects, they are a heterogeneous group whose differences are more apparent than their similarities. Some have found an opening in an international market for a highly specialised product. Other SMCs focus on nearby local markets. While some have hopes of growing large, others deliberately control their growth in order to maintain the smaller firm's advantage of buoyancy and flexibility.
In addition to the combined economic clout of smaller companies, they are essential building blocks of national region-supporting policies. With Norway's sparse population, it is a national policy to assist local communities in maintaining a diversified economy to prevent too many jobs from gravitating to the cities. Because small firms glide easily into local communities without causing overspecialisation, they help make it possible for regional populations to survive. Another important function is that they can operate as cheap sub-suppliers to other companies -- especially in the engineering industry -- because of low administration expenses and stable costs.
Studies have indicated that the profitability of small and medium-sized companies is often higher than that of larger firms, which are more vulnerable to the ups-and-downs of international business cycles.
Industrial companies the world over face environmental challenges -- obstacles which Norwegian firms are taking seriously. During the last 10-15 years, industrial emissions in air and water from energy use and industrial processes have been dramatically reduced by means of reorganisation and conversions in production. According to the Confederation of Norwegian Business and Industry (NHO), Norwegian industrials invested a total of 26 billion (1991) NOK (in the range of USD 4 billion) on cleanup measures from 1973 to 1991. This amounts to 7.2 per cent of the total industrial investments. In the past 20 years, Norwegian industry has reduced most toxic discharges into air and water - such as SO2, Phosphorus, nitrogen and CFC - from 50 to 90 per cent. Many seem to have found out that perpetual improvements pay off. Companies that remain a step ahead of the demands and injunctions of the authorities increase their credibility and sharpen their competitiveness.
Norway, according to the expressed goal of the Norwegian Government, will be in the vanguard and actively encourage work to reduce emissions harmful to the ozone layer, or which cause global warming, acid rain, or pollution of the sea. Therefore, regulations on the cleaning of emissions and the effective utilisation of resources are stringent and will become even tougher:
- Carbon dioxide (CO2) emissions will be stabilised at the 1989 level by the year 2000, and later the Government expects further reductions. Industry - the metallurgical industry and cement producers in particular- cause about 20 per cent of the CO2 emissions. Most of the rest is discharged from automobiles and ship traffic.
-- The release of chlorofluorocarbons (CFCs) which deplete the ozone layer will, in accordance with the Montreal protocol, be fazed out from 1996. If the use of CFCs is considered absolutely necessary, a temporary respite allows for emissions up to 10 per cent of the 1989 level. For the other ozone-depleting gasses (halogens), the industry will have to adhere to the Montreal protocol.
-- Acid precipitation is caused by discharges of sulphur dioxide (SO2) and nitrogen oxides (NOx). Regarding SO2, the ECE convention's international goal for reducing trans-border air pollution has already been surpassed by Norway. The goal was a 30 per cent reduction from the 1980 level by 1993. Norway managed to halve its SO2 emissions in the period. The convention demanded a stabilization of NOx emissions at the 1987 level by 1994. The Norwegian Government seeks to reduce the country's emissions by 30 per cent by 1998 with 1986 as a basis year. Obviously, considerable contributions from industry are needed if these goals are to be met.
The challenges awaiting Norwegian industry as the year 2000 approaches are numerous. Environmental protection is only one of them. Another is, as mentioned, the country's dependence on its hydrocarbons. This has shown to lead to the neglecting of traditional industry. But possibly the greatest challenge is posed by the internationalization of trade and production - strong new competitors have joined the fray. Technological growth keeps accelerating. The exchange value of Norway's traditional goods will not necessarily remain stable in the times to come. Profit demands increase in pace with a steadily freer movement of capital and investments. In a small country with lots of foreign trade, these are factors which put heavy demands on the individual industrial enterprises.
Two sets of international agreements are essential for Norwegian companies that wish to exploit the prospects provided by export markets.
The WTO regulations provide predictability for access to individual export markets, and their scope is becoming almost global. Among other things, they provide protection against illegal subsidising of foreign competitors, while ensuring rights on patents, brand names and industrial design. In return, companies face new demands, and some might feel threatened by a shift to more open competition.
The second cornerstone for Norway's exporting industry is the EEA agreement, which despite the Norwegian rejection of EU membership in a general referendum in November 1994, places Norway on the inside of the EU's Single Market on an equal footing with member countries. For better or worse, the agreement incorporates all the challenges and duties of the "four freedoms" (the free movement of goods, services, capital and labour power).
It also opens opportunities for cooperation in a number of areas, such as research and development, the environment, education and employees' rights. Since more than 80 per cent of Norway's foreign trade is with EU countries, there can be no doubt about its special importance. The agreement will make stiffer demands on competitiveness for firms that compete abroad as well as for those that operate in the domestic market. It will be up to the individual company and branch of business to make use of these new opportunities.
Business is undoubtedly conscious of the challenges and companies have come far in their adjustments. The same applies to the Norwegian authorities. Therefore, there is good reason to believe that Norwegian industry, despite its traditional raw-material emphasis, will continue to assert itself in hi-tech and international era.
The author of this article -- Jon-Åge Øyslebø -- is employed by the Ministry of Foreign Affairs and is currently serving with Norway's permanent delegation to the WTO in Geneva. He was previously a journalist in the daily business newspaper Dagens Næringsliv and was editor in chief at the Confederation of Norwegian Business and Industry's weekly journal, Apropos.