But, as Marc Baaij, Douglas van den Berghe, Frans van den Bosch and Henk Volberda point out, there are many cases where the case for relocating headquarters is excellent. So why doesn’t it happen? Is it inertia, operational difficulty – or just that the companies haven’t thought of it?
The paradox of the global corporation is that while most value adding activities relocate when the environment is right for change, the activities of the headquarters remain at their original location. A glance at the Fortune Global 500 corporations reveals that only one cross-border relocation took place in the decade from 1994 to 2003: the Chrysler headquarters, relocated from the US to Germany in 1998 after the cross-border acquisition by the German firm Daimler.
This is the exception that proves the rule. Most companies appear to believe that the activities taking place at the headquarters are exempt from the forces of internationalisation. But this is strange when one considers that otherwise, internationalisation forces are so all-pervasive. The first element of the corporation to internationalise was sales, then manufacturing. Currently, we are in the midst of the internationalisation of activities of higher added value – research and development and corporate services, to take two examples.
The lowering, or even elimination, of trade and investment barriers combined with the increasing sophistication of ICT and transportation technologies enables corporations to slice up their value chain of activities more finely. They can then optimise the geographical location of each individual value adding activity.
With the ability to make activities mobile and cross-country wholesale moves so necessary, and so effective, why have corporate headquarters remained untouched by the forces of internationalisation? Changing the location of the other activities isn’t without consequences for the chain of command and control of the corporation – i.e., the corporate headquarters. Having optimised the locations of their value adding activities, corporations now need to reconsider the location of their command and control activities.
The fact is, central HQ may not be in the right place. And although this is can be an earth- shattering concept for employees, it is one that should be considered like any other rational business decision.
We are therefore on the brink of a next stage of corporate internationalisation. The relocation of the untouchable headquarters can be regarded as the ultimate act of global strategy. The question now is – how do we decide where the headquarters should be?
From here to eternity
The starting point is to consider the traditional check list of HQ site selection criteria:
- Corporate tax advantages
- Investment incentives
- Investment climate
- Company law
- Operational costs
- Quality, availability and costs of the workforce
- Quality of living (major hotels and restaurants, proximity of quality housing, cultural life and recreation, quality of schools, cultural diversity, safety, crime and health factors, personal taxes, cost of living etc.)
- Level of infrastructure (in particular transportation, communication and IT)
- Level of high-level business services (e.g. accounting, legal and management consulting)
- Sufficient representative office space
- The presence of other major corporations.
The main benefit of this list is not to find suitable sites, but to eliminate unsuitable ones. Once these factors have been assessed, more strategic criteria for the right headquarters location can be considered.
All I want is a place somewhere
To analyse the strategic motives for relocating headquarters, we need to consider HQ in a radically new light. What we currently call the headquarters is actually three different entities:
- The minimum headquarters
- The value-adding function
- The shared services headquarters
The three have different location criteria. So if we reconsider HQ in this way, we can more effectively consider relocation.
The minimum headquarters consists of the statutory seat of the corporation and includes activities such as legal compliance, tax and financial reporting, financial control and internal audit and investor relations. It is the core and non- discretionary part of the headquarters.
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