What’s driving the Nordic countries’ software export surge?

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The Nordic countries have long taken pride in their distinctive ways, from their social welfare systems to their world-leading levels of happiness, and their recent tech boom is no exception.1 While technology adoption and digital transformations have surged across the globe in the wake of the COVID-19 pandemic, software companies in Sweden, Norway, Denmark, and Finland have enjoyed unprecedented levels of rapid growth, to the point that the region has become a significant net exporter of software in just a few short years.

As recently as 2017, the Nordic software industry was already on the rise, producing 55 percent more software than its economies consumed. But today, the region’s software output is more than double that of domestic software consumption, with much of that growth coming from rising software exports. The Nordic region now plays a more prominent role in defining the global software landscape in education technology, core business software, industrial software, music streaming, and payments. While Nordic software demand increased by 9 percent annually, from $14 billion in 2017 to $21 billion in 2022—roughly below global software demand growth of 11 percent annually—the revenues generated by the region’s software companies grew at a rate of 16 percent annually, reaching $44 billion in 2022.2 Interim financial reports and market developments indicate that these trends continued in 2023. At its current trajectory, the Nordic software industry could triple current revenues by 2030, reaching an output of three to four times its local consumption, up from twice its local consumption today (Exhibits 1 and 2). These trends have driven investor interest in the region, which is now Europe’s fastest-growing software funding hub.

The Nordic countries' software sectors punch above their weight.
Software is becoming a growing export for the Nordic countries.

What is driving this export-driven software boom? How have these countries, which represent just 2.7 percent of global software demand (and 1.3 percent of global GDP), become significant players in this sector? The success of the Nordics is particularly interesting in the European context, as Europe has relatively few big software and software-enabled companies compared with other major regions in the world.3“Reversal of fortune: How European software can play to its strengths,” McKinsey, February 17, 2022. Several factors account for the sudden growth of the Nordic region and may provide valuable guidance to software companies, founders, investors, and policy makers across the globe. To better understand this development, we analyzed the performance of more than 1,000 Nordic software companies from 2017 to 2022, focusing primarily on changes in revenue for different archetypes, as discussed further below, of software growth strategies.

The following are among our key findings:

  • The Nordic countries are still early in their export S-curve, and there is room to grow.
  • Sweden is on track to produce 7.4 times more, and Norway 4.7 times more, than local demand by 2030, up from 4.1 times and about 2.2 times, respectively, in 2022.
  • Denmark and Finland trail but still show strong growth.
  • Nordic software companies pursue four main scale archetypes.
  • Key drivers of growth include high digital adoption rates, a growing base of founders and available funding, local industry, and social policies.

Our research also indicates that there is ample opportunity for new entrants and scale-ups to participate in this newly heated market alongside the incumbents. We found that more than 70 percent of software output is generated by the top ten companies in each of the Nordic countries. And the Nordic countries already rank high on software company growth-stage lists. For example, Norway is the third-largest country by revenues in a mapping of fastest-growing companies in Europe, and Sweden has one of the highest levels of unicorns per capita globally.4FT 1000: Europe’s fastest growing companies, Financial Times, March 1, 2023; Charles Daly, “From Spotify to Minecraft, Sweden proves fertile ground for unicorns,” Bloomberg, April 26, 2021.

Different paths to scale

Software companies take varied paths to success, but there are certain commonalities among them, especially those serving specific types of customers. Based on our analysis of Nordic software companies’ distinct strategies to scale, we identified the following four archetypes.

Global firsts. These companies create global solutions by identifying pockets of opportunity with homogeneous demand. They typically target a global customer base from day one, focusing on niche markets, segments where there are few large and established players globally, or segments where the global incumbents follow a largely traditional approach. The Nordic companies in this archetype generated approximately $4 billion in revenue in 2022 and grew at 20 percent per annum over the past five years as a group.

Sectors with notable global Nordic players include edtech, enterprise resource planning (ERP) software, martech, adtech, and cybersecurity. For example, the edtech platform Kahoot! has deployed a product-led approach to reach $175 million in annual billings after only four years of commercial history. Today it claims ten billion nonunique participants and was ranked, according to one market researcher, the “second coolest” brand by young Western Europeans (and “seventh coolest” in North America)—ahead of brands like TikTok and Apple.5 Meanwhile, the global ERP player IFS has more than 5,500 employees in more than 80 countries and has grown at three times the market average. Cint, a market research software player, was founded some 25 years ago in Sweden and has now engaged more than 306 million respondents globally, generating $315 million in revenues per annum.

The Nordic region is also home to core innovators in internet browser history. Opera has more than 350 million monthly active users and was founded in 1995 in Oslo by entrepreneurs who previously worked at Telenor, the Norwegian telecommunications operator. Developing code in the same building as Opera at the time, Qt Group (formerly Trolltech) spearheaded the development of the KHTML engine, on which both Apple and Google built their own browsers,6 and is now trusted by more than 1.5 million developers worldwide.

Regional champions. These companies succeed in their own domestic and geographically adjacent markets by adapting to local regulations and customer preferences, and then tailoring their solutions to meet the specific needs of their customers. They tend to offer the types of software products that companies everywhere need, but which are strongly affected by regional differences such as regulation or customer maturity level. The Nordic companies in this archetype performed in line with the global firsts as a group, with revenue generation at approximately $3 billion in 2022 and annual growth at 14 percent since 2017, according to our research.

Sectors in this category include core business software, HR tech, and CRM software. One example is Visma, a core business software company, which generated $2.2 billion in revenues in 2022 and grew at 19 percent over 2021 through a local approach focused on the Nordics and Benelux, in contrast with the largest players in this sector, which tend to take a more global approach.

In Sweden, two companies operating in a similar space are Fortnox and Unit4. While Fortnox is a versatile and user-friendly fintech platform within the accounting, payments, and digital-business solution space, Unit4 has a broader offering that includes human-capital management. Fortnox generated $122 million in revenues in 2022, having grown about 3.5 times since 2017, while Unit4 generated about $90 million. Similarly, Denmark-based EG provides vertical (or sector-specific) software solutions to more than 29,000 Nordic customers, typically with a leading position in each segment. The company has grown through organic and inorganic levers to $294 million revenues in 2022. Another example is Spir Group, one of the largest software suppliers for case management and filing within the Norwegian public sector. The company increased revenues sixfold from 2020 through 2022 through extensive consolidation and organic development, building market shares in public, private, and consumer segments.

Industrial specialists. These companies specialize in vertical B2B software, a particularly promising area for European software players, developing the best solutions for a specific industry, such as construction and energy, or theme, such as the green transition and renewable energy. They often focus on sectors that have low digital maturity and stand to gain value through substantial productivity gains, product innovations, or competitive shifts. Revenues of companies in this archetype amounted to approximately $11 billion in 2022, with a growth rate of 11 percent, which is lowest among the archetypes and more linked to the growth rates of the underlying sectors these companies target.

Sectors in this archetype include sustainability, energy, logistics, healthtech, fintech, regtech (regulatory tech), construction tech, and proptech (property tech). One example is Infobric, which provides a suite of mission-critical software products in the construction build phase. Construction is one of the largest but also the least digitized and productive sectors, with the bulk of productivity loss in the build phase. However, digital adoption has been surging in construction markets across the globe in recent years, including in the Nordics, as evidenced by bold digital transformations, regulations, investor activity, and hundreds of new start-ups. Globally, an estimated $50 billion was invested in architecture, engineering, and construction tech between 2020 and 2022, 85 percent higher than in the previous three years, according to McKinsey research.7From start-up to scale-up: Accelerating growth in construction technology,” McKinsey, May 3, 2023.

Working closely with investment and asset managers, Denmark-based SimCorp has built one of the world’s leading integrated investment management solutions since its founding in 1971, now generating more than $600 million in revenues globally. Cognite, an AI-powered industrial data operations platform, grew 48 percent per annum from 2018 to 2022 with funding from strategic customers and financial investors. Another example is Hexagon, a Swedish multinational technology company that uses sensors, analytics, software, and autonomous solutions to help clients in a wide range of sectors harness the power of data and industrial IoT. Founded about 25 years ago, the company now generates more than $5.7 billion revenues annually.

Bundlers. These companies seek out traditionally nondigital, commodity-like sectors and package the underlying products and services with differentiated software solutions to accelerate sales. They tend to target established sectors, both B2C and B2B, often introducing subscription models or reinventing existing subscription models in which software is key to the new-customer experience. Due to the bundled nature and global standing of certain companies in this archetype, revenue generation and growth exceeded all other archetypes, with $18 billion and 25 percent per year, respectively, according to our research. For example, Spotify essentially created the music streaming market by building on what Napster and Pandora started and devising a music leasing model and packaging that with an intuitive software solution. Another example is Sinch, the communications platform-as-a-service player that serves more than 150,000 businesses globally, including eight of the ten biggest US tech companies. Other sectors include payments, electricity retailing, and print solutions, all differentiated through software.

Performance across these four archetypes is uneven. Bundlers account for the largest share of revenue growth over the period analyzed, at 58 percent. However, industrial specialists, which generally have higher profitability than the bundlers owing to their complex, sector-specific software solutions, claim the biggest amount of the four archetypes’ total valuation, at 45 percent.

Factors driving success

Numerous supply-side conditions make building locally attractive. However, the Nordics region offers limited local demand, which compels many companies to take a broader lens earlier on to enable access to markets with greater demand. At a gathering of more than 50 Nordic software company CEOs arranged by McKinsey and Microsoft last year, the level of digitization in the region was voted as being the clear, number-one competitive advantage (Exhibit 3). Our research, which included interviews with senior leaders and decision makers at Nordic software companies, identified five pillars that contribute to the Nordics’ attractive conditions: digital adoption, demographics, funding, industry, and policies. Certain aspects of these five pillars interact with one another to create a virtuous cycle.

Nordic software CEOs view high digital adoption and transformation as their region's most valuable differentiator.

Digital adoption. The four Nordic countries all have high digital adoption, as demonstrated by their rankings at or near the top of both the European Commission’s 2021 Digital Economy and Society Index (DESI) and IMD’s 2022 global Digital Competitiveness Ranking (Exhibit 4). The region’s high level of digital maturity helps to create a culture where the population expects high-quality digital-user experiences. At the same time, there is wide adoption of automation technologies because of the generally high labor costs associated with maintaining the Nordic countries’ strong social safety nets. This helps to create a savvy talent pool of workers who have a strong understanding of user experiences and automation work. This knowledge enables software companies to more easily address other markets with products that reach a higher quality at an earlier stage and lower cost of development.

Nordic countries rank at or near the top on digital adoption in Europe.

Demographics. A growing base of founders and high-net-worth individuals contributes actively to the tech ecosystem as mentors, investors, role models, serial founders, and community builders. Well-educated populations provide critical product development inputs at an early stage, while strong engineering and other STEM-related institutions offer pools of talent and ideation. The cost of software engineering talent in the Nordics has become highly competitive compared with more established markets, especially in Sweden and Norway, where the foreign currency has deteriorated 20 to 30 percent against the US dollar and the euro in recent years. Compared with the United States, where the average annual rate for a software engineer is about $110,000, the average in Norway is nearly half that at $57,000. This is lower than in Denmark, where the average annual rate is $64,000, but slightly higher than Sweden’s average of $50,000 and Finland’s average of $48,000. The region offers employers more economical engineering rates than Israel ($72,000), a recognized global tech hub, while performing roughly in line with other European peers, such as the United Kingdom ($55,000) and Germany ($52,000). Several of the experts we interviewed highlighted that the region is attracting international talent, who come to the region to join in on the entrepreneurial wave.8

Funding. The Nordic countries are increasingly attracting interest from a variety of venture and private investors; when taking into account their population sizes, they rank near the top for funding in Europe (Exhibit 5). The region is also the fastest-growing software hub in Europe, as measured by investment. Private equity investments in Nordic software companies grew annually at 8 percent between 2017 and 2022, compared with 1 percent for Europe, while venture capital investments in Nordic software companies grew at 30 percent per year over the same period, compared with 16 percent for Europe. Further, the Nordic region has built up its own sizeable funding ecosystem over the past ten to 15 years, with investors based in the region now holding more than $100 billion dollars of dry powder. Although global capital markets are still unsettled, the knowledge that the Nordics have this funding at the ready may buoy confidence in the software sector and make the region’s software start-ups more attractive as potential acquisition targets.

Nordic countries enjoy some of the highest software funding levels per capita.

Industry. The fact that the Nordic countries are already home to a number of global industrial players creates a hub atmosphere for talent, sector-specific funding, and routes to market. For example, Ericsson and Nokia, leaders in the telecommunications equipment industry, generated a combined $51 billion in adjusted revenues in the past year. The region is also home to large industrial players that have invested substantially in technology over the past decades, such as Equinor ($149 billion in adjusted revenues), A.P. Moller–Maersk ($82 billion), and Volvo ($47 billion). This class of companies, and their accumulated technology investments, serve as platforms for innovation in several ways. First, they provide a broad factory and testing ground for skilled employees who often end up joining the local talent market for tech ventures or creating spin-offs and new ventures themselves. Second, M&A, growth investments, and venture building add highly specialized, sector-specific funding, networks, and capabilities that can be highly advantageous in early company growth stages. Finally, these industrial powers often become early customers, recognizing the value of the solutions to the international market. The technology investments by these large industrial companies in recent decades are paying off in the form of an ecosystem of technology entrepreneurs and financial partners.

A lone climber ascending a snowy ridge in the Alps

Nordic champions: The value creation formula at the cusp of a new era

Policies. The Nordic countries’ policies on education and social welfare appear to lend critical support to the region’s software ecosystem. Education, including higher education, is completely free and offers strong engineering and other STEM-related programs, helping to provide a highly skilled and diverse workforce that is well-suited for the software industry. The social security systems help mitigate the risks associated with start-ups, as do various government programs that support entrepreneurial ecosystems (such as Innovation Norway) and advanced employee and employer rights (such as the “flexicurity” model in Denmark), as compared with other developed countries.9 In particular, many Nordic business leaders believe these safety nets allow domestic entrepreneurs and early-stage employees from a wider range of social backgrounds to try their hand in the more cutting-edge software sector, including start-ups.

What further growth will take

Software companies, founders, and investors eager to ride this Nordic wave may look to the learnings of the archetypes their predecessors have developed, including how they used the Nordic advantage to differentiate at scale. Across archetypes, our research indicates that this may require the following actions:

  • innovating by deploying competitive, high-quality talent
  • building a digitally savvy yet broad initial customer group
  • nurturing the local funding and talent ecosystem to unlock and derisk efficient growth
  • increasing the share of women in Nordic tech
  • refining go-to-market models and pursuing new value creation levers

Our learnings also differ by archetype. For global-first companies that offer innovative and homogeneous solutions in sectors where there are few, if any, other established global players, thinking globally from day one to preempt future competitors is an option. That may entail going directly to the US market before growing further in Europe and the rest of the world. Companies seeking to become regional champions by taking a more localized counterapproach to global alternatives can consolidate their positions and build stronger group knowledge of the parent company to fend off competitors. Industrial specialists can double down on strategically selected large industrial players, using design thinking to build robust user and customer experiences. And prospective bundlers can focus their thinking on how certain legacy subscription streams or products can be redelivered and differentiated through software.

While there are distinct factors creating a competitive advantage and flywheel for Nordic software companies today, there are a number of factors that hold the Nordic software industry back from reaching its full potential. Despite being a trailblazer on diversity and gender equality in society overall, Nordic countries still have a way to go when it comes to increasing the share of women in Nordic tech. Among CEOs of the largest 100 Nordic software companies by revenues, fewer than five are women. Even in junior roles, gender diversity remains low. While Sweden scores highest on share of females enrolled in undergraduate STEM programs among the member countries of the European Union plus Norway, the score is only 43 percent (2021), with Denmark, Norway, and Finland ranking lower at 14, 16, and 23 percent, respectively.10 This could be a major missed opportunity. McKinsey research suggests that increasing the share of women in tech in Europe to 45 percent by 2027 has the potential to fuel a significant increase in regional GDP.11Women in tech: The best bet to solve Europe’s talent shortage,” McKinsey, January 24, 2023.

Industry experts and management teams we interviewed concurred that the Nordic software product innovation and tech development engine is strong, and that it has been so for decades. For example, the world’s first object-oriented programming language was developed in Norway in the 1960s, and the C++ programming language, which is now used by 22 percent of developers worldwide,12 was developed by a Dane in the 1980s.13 Historically, the region has not been able to transfer product engine success into commercial success of the same scale, although the recent export data indicates that is now changing. At the same time, the experts and management teams we interviewed suggested that Nordic software companies have a way to go compared with their US peers on pushing the frontier of software business models to go-to-market excellence. For example, US peers are more known to pioneer new value creation levers, such as discount variance reduction through dynamic deal scoring, generative AI–powered campaigns to mitigate churn, and product management excellence practices.

Software executives in the region highlighted the need to further institutionalize talent development and attraction. For example, one software CEO said they felt their country’s government should create an academic institution to teach innovation and entrepreneurship. Another said they would like to see launching and running start-ups become part of engineering and business education curricula. In addition, executives see a need to educate and train more talent in technology and entrepreneurship domains, addressing a shortage that is amplified by new technologies, such as generative AI and the metaverse. While executives highlight the fact that the region is importing international tech talent, they also believe the Nordic countries need to step up talent attraction from other markets to succeed at the next level of scale. To that end, the executives we interviewed pointed to a need for more efficient policies on areas such as taxation that have a greater effect on start-ups than they do on other entities.

Despite ongoing global economic concerns, there is ample reason to be optimistic about the Nordic countries’ software sector, not least because of the region’s advantages, such as deep talent pools and a strong entrepreneurial appetite fueled by solid social safety nets and funding access. As with all innovation, a crucial key to success is ambition. In the current market environment, we see several Nordic software companies, both large and small, pursuing bold ambitions while using the opportunity to adopt modernized operating and business models and increase resilience.14Resilience for sustainable, inclusive growth,” McKinsey, June 7, 2022 If that becomes more widespread, the current successes offer the potential to be a rising tide for many more boats.

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