why do some mncs relocate their headquarters overseas? julian birkinshaw, lbs pontus braunerhjelm,...

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