The coordinate system for the microstation file test.DGN has no geographic coordinate system assigned.To add a geographic coordinate system to this drawing in Microstation do the following:1. Click on the Tool menu2. Select the Geographic tool bar3. Choose Select a Coordinate System4. You will notice that currently None is selected5. Navigate to the Coordinate System library and choose the appropriate coordinate system6. Once the proper coordinate system is assigned close Microstation and add the DGN file to ArcMap 7. Add the above shapefile8. Notice that the drawings now align