Transnational corporations (TNCs) are increasingly restructuring and relocating their headquarters, creating a niche market for countries that host foreign direct investment (FDI) and can offer the right locational assets, including a skilled workforce, good quality of life and international accessibility. Some 829 HQ operations were established or relocated worldwide between January 2002 and March 2003 alone, UNCTAD reports - nearly a quarter of them in developing countries. International recognition as investment locations, and new opportunities for local employment, are among the pay-offs for host countries.
In the past, firms tended to restructure and relocate individual subsidiaries while leaving their global headquarters intact. Today a new trend is emerging, which may represent the next stage in the globalization of TNC activity. In their search for competitiveness, TNCs are increasingly reconfiguring their HQs - setting up regional headquarters, relocating HQ functions or relocating entire global HQs:
- Regional HQs. TNCs´ most common new HQ strategy is to set up regional headquarters, in locations that can boast a strategic position in international production systems. IBM, for example, is based in the US but has opened a regional head office in Singapore, employing 1,000 people. Similarly, UK-based GSK has established a regional head office in the US, with 575 employees.
- Relocating HQ functions. Less common is relocating specific corporate HQ functions. For example, Philips moved its component headquarters division from Eindhoven, the traditional base in the Netherlands, to California in the early 1990s. SKF, the Swedish ball-bearing company, moved its specialty bearing division HQ to the US in the early 1990s, while Australia´s BHP-Billiton established managerial HQ operations in London in the late 1990s.
- Relocating global HQs. The headquarters of UNCTAD´s largest 100 TNCs are virtually all located in developed countries (see figure). But moving the parent firm´s headquarters from one country to another is still rare, often resulting from a large restructuring or a cross-border merger or acquisition involving TNCs of different nationalities. Upjohn (US) and Pharmacia (Sweden), for example, merged in 1995 and established their headquarters in London. Ikea moved its main HQ functions from Sweden to Copenhagen in the late 1990s but remained domiciled in the Netherlands. Viatron (US) this year announced it would establish its worldwide HQ in the Netherlands, employing 250 people.
From January 2002 to March 2003, 829 HQ operations were established or relocated worldwide, involving 52 countries, 31 of them developing and transition economies (see table).
Most of these 829 projects involved the establishment of regional HQs, which are often set up in the context of expanding TNC operations requiring regional coordination of activities. Regional HQs may enhance the overall competitive position of TNCs and boost performance. Indeed, in a survey of 35 Swedish TNCs, companies that had moved their HQs outside Sweden were found to perform better than those that did not.
Establishing regional HQs is often subject to a lengthy decision-making process, and only after careful assessment of the advantages of alternative locations do TNCs make these steps. Location factors for HQ operations typically include:
- Excellent international accessibility;
- A skilled workforce, especially with multilingual skills;
- High quality of life to attract international staff;
- Low corporate and personal taxes;
- Excellent information and communication technology infrastructure;
- Well-developed business support services (legal, accounting, public relations);
- Low risk; and
- Proximity of customers, especially for smaller companies.
For host countries, a number of tangible and intangible advantages emanate from the establishment of regional HQs: It puts them among internationally recognized investment locations and can provide opportunities for local employment in higher-level managerial positions and potential transfers to the host economy of managerial expertise and other knowledge associated with high-level decision-making functions. To the extent that R&D functions are located in regional HQs, local R&D may also receive a boost.
The world market for regional HQs opens new opportunities for host countries with the right locational assets. As competition for attracting FDI becomes more intense, countries with the necessary attributes may expand their promotional efforts to focus on the establishment of regional HQs, particularly those countries without natural resources or other location-bound advantages. The scope for benefiting from such efforts may be considerable, as successful strategies of Singapore and Hong Kong, China, have shown.
This press release was prepared in the context of the World Investment Report 2003. FDI Policies for Development: National and International Perspectives, to be released 4 September 2003 at 17:00 GMT. For more information: see the WIR 2003 index (www.unctad.org/wir).