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Why do some MNCs relocate their headquarters overseas?
Julian Birkinshaw, LBS
Pontus Braunerhjelm, SNS
Ulf Holm, Uppsala
Siri Terjesen, LBS
Motivation for paper
• Increasing number of cases of MNCs moving HQs activities overseas – Ericsson, BHP-Billiton, Massey-Ferguson
• No prior studies of corporate HQ moving overseas
• Important implications for practice, and for the theory of the MNC
• Guiding question: How can we explain the internationalization of corporate HQs?
Background
• Literature on the role of the corporate HQ in the multi-business corporation– Corporate HQ often viewed as “middleman” between
business units and capital markets
• Definition of corporate HQ: consists of three elements– Legal entity– Top management team– Corporate functions (treasury, investor relations etc)
– Increasingly these three elements are not co-located
Traditional arguments for relocating corporate HQ overseas• Evolutionary process - corporate HQ
follows other activities overseas
• Location-specific factors – corporate HQ location depends on relative attractiveness of potential host countries
• Situation-specific reasons – merger, tax reasons etc.
Our argument for relocating corporate HQ overseas
• Corporate HQ sits between business units and external stakeholders (shareholders, customers, competitors)
• Historically, HQ co-located with business units
• Increasing globalization – corporate HQs more influenced by relative importance of internal and external stakeholders
Corp. HQ
Business Units
External stakeholders
Organization theory perspectives
• Resource dependency theory: Corporate HQ may move closer to major commercial centres to reduce their dependency on specific actors
• Institutional theory: Corporate HQ may move to signal its membership of a global industry group
• These theories provide complementary perspectives on underlying reasons why corporate HQ may move overseas
Hypotheses
H1. The greater the percentage of business unit activities overseas (sales, mfg, R&D), the more international the corporate HQ will be
H2. The less attractive Sweden is perceived as a location for corporate HQ, the more international corporate HQ will be
H3. The greater the international influence from shareholders (stock listings, % foreign) the more international corporate HQ will be
H4. The greater the international influence from customers (% outside Sweden, % outside Europe), the more international corporate HQ will be
H5. The greater the international influence from competitors (% outside Sweden, % outside Europe), the more international corporate HQ will be
Research Methods & Data
• Focused on largest 40 “Swedish” MNCs, 35 participated in the study
• Detailed questionnaire filled in, plus secondary data on shareholders, customers etc.
• HQ internationalization measured using– Categorical measure of legal domicile (6 of 35
overseas)– Continuous measure – combination of % functional
activities outside Sweden, % HQ employees outside Sweden, % top management and board non-Swedish
Results – correlates of HQ internationalization
• Some support for H1 – Percent R&D units abroad significant (r=.45), but percent sales and
manufacturing not significant
• No support for H2– Quality of Swedish government, Swedish cluster, taxation all non-
significant
• Strong support for H3– Overseas listing, number of exchanges, % foreign shareholders all
significant (r=.38, r=.41, r=.42)
• Strong support for H4– Sales outside Sweden, outside Europe both significant (r= .52, r=.46)
• Some support for H5– Percentage competitors outside Sweden significant (r=.41)
Results – multivariate analysisPredictors of HQ internationalization
Sales volume (control)
-.192
Percent foreign shareholders
.465**
Primary exchange abroad
.394*
Sales outside Sweden
.309†
Competitors outside Sweden
-.155
R-squared / Adjusted
.57 / .48
F 6.63***
Discussion / Conclusions
• Good support for argument that corporate HQ moves overseas in response to external influences
• Little support for traditional logic that HQ follows business activities overseas, or for purely locational reasons
• Need to extend this research to consider the relatedness of the corporation