Mobility of headquarters in multinational corporations ...

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European J. International Management, Vol. 1, No. 3, 2007

Mobility of headquarters in multinational corporations Wilhelm Barner-Rasmussen Management and Organisation, Hanken – Swedish School of Economics and Business Administration, P.O. Box 479, FI-00101 Helsinki, Finland Fax: +358-9-43133275 E-mail: [email protected]

Rebecca Piekkari* International Business, Helsinki School of Economics, P.O. Box 1210, FI-00101 Helsinki, Finland Fax: +358-9-4313 8880 E-mail: [email protected] *Corresponding author

Ingmar Björkman Management and Organisation, Hanken – Swedish School of Economics and Business Administration, P.O. Box 479, FI-00101 Helsinki, Finland Fax: +358-9-43133275 E-mail: [email protected] Abstract: In the present paper, we aim to explain the dynamic phenomenon of Headquarters (HQ) relocation. The relocation of sales, marketing and production activities has been widely studied, but the strategic decision to relocate a HQ unit across borders has attracted far less attention. Drawing on a multiple case study of Finnish multinationals we conceptualise HQ relocation as an outcome of six key drivers each involving pragmatic and symbolic dimensions. Moreover, we identify a diversity of relocation patterns such as direct, hidden, full, partial and virtual. Based on evidence of extreme mobility in terms of repeated relocations and virtual HQ, we argue that under particular circumstances HQ may be highly mobile. Keywords: headquarters; HQ; corporate headquarters; divisional headquarters; location; relocation; mobility; multinational corporations; MNC; case study; internationalisation of management. Reference to this paper should be made as follows: Barner-Rasmussen, W., Piekkari, R. and Björkman, I. (2007) ‘Mobility of headquarters in multinational corporations’, European J. International Management, Vol. 1, No. 3, pp.260–274.

Copyright © 2007 Inderscience Enterprises Ltd.

Mobility of headquarters in multinational corporations

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Biographical notes: Wilhelm Barner-Rasmussen holds an Assistant Professorship in Management and Organisation at the Swedish School of Economics in Helsinki, Finland. His research focuses on knowledge sharing in MNCs, with a specific interest in issues related to language, identity and the role of physical space. He has published in e.g., International Business Review, International Studies in Management and Organisation, Management and Organization Review, Journal of International Business Studies, and Nordic Organisation Studies. Rebecca Piekkari is a Professor of International Business at the Helsinki School of Economics, Finland. Her area of expertise is international management, with a specific focus on management of global corporations. She has also written about the use of qualitative research methods in international business. Her papers have appeared in the Journal of Management Studies, European Management Journal, International Journal of Cross-cultural Management, International Business Review, Management International Review, Corporate Communications and Business Communication Quarterly. Her most recent book is the Handbook of Qualitative Research Methods for International Business (with Catherine Welch), published in 2004 by Edward Elgar. Ingmar Björkman is a Professor of Management and Organisation at the Swedish School of Economics in Helsinki, Finland. He is also affiliated with the INSEAD Euro-Asia and Comparative Research Centre. His research interests focus on international human resource management, knowledge creation and transfer in MNCs, and integration of international mergers and acquisitions. His latest book is Handbook of Research in International Resource Management (Edward Elgar Publishing, 2006), co-edited with Günter Stahl. His research has been published in journals like Management and Organization Review, Journal of International Business Studies, Organisation Studies, International Business Review, and Journal of World Business.

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Introduction

The decision to relocate a HQ unit of a MNC is a strategic one. It may involve reorganising critical activities and moving key decision makers of the firm to a new location. These relocations are also becoming more common (Birkinshaw et al., 2006; Schwier, 2005). It is therefore surprising that the issue has received relatively scant attention until present. With a few notable exceptions (Birkinshaw et al., 2006; Euro, 2001; Forsgren et al., 1995), scholars seem to have overlooked the issue of HQ relocation. In this paper, we help redress some of this imbalance. The purpose of our study is to examine HQ relocation and explain why HQ units may under particular circumstances be highly mobile, motivating us to use the term ‘HQ mobility’ in this context. We conceptualise HQ relocation as an outcome of certain key drivers – both internal and external – that have both a pragmatic and a symbolic dimension. It has been argued that the overall importance of HQ, and even of organisational hierarchy more generally, is devalued by the possible development toward less-hierarchical structures in MNCs (e.g., Doz et al., 2001, 2003; Hedlund, 1986). A shift towards less-hierarchical structures and an increased emphasis on intrafirm networks is undoubtedly occurring in some multinationals, as described by Doz et al.

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W. Barner-Rasmussen, R. Piekkari and I. Björkman

(2001, 2003). However, there is little empirical evidence to indicate that the great majority of MNCs would be taking this path. Indeed, the HQ continues to be the apex of the MNC. As a starting point, we follow Birkinshaw et al. (2006) in conceptualising HQ relocation on a continuum, in which the degree of relocation varies from entirely based in the home country through to entirely relocated overseas. We also adopt their definition of HQ units in MNCs as having “two essential elements: a top management group that typically has an official location at which it meets, and a number of HQ functions (such as treasury, investor relations, corporate communications etc.) each of which has an identifiable physical location.” (Birkinshaw et al., 2006, p.684).

These elements have traditionally been co-located, but there are now indications of an increasing separation between them (Birkinshaw et al., 2006, p.684). The paper is organised as follows. After a review of previous research on the relocation of HQ units, we explain the use of case studies as a research strategy. We then present the diversity of relocation patterns identified in the case companies and conceptualise HQ relocation as an outcome of six key drivers and two dimensions – pragmatic and symbolic. Based on this analysis, we draw our conclusions and suggest directions for future research. All our four cases have a strong European aspect. All the MNCs under study are of Northern European origin and our first two cases treat repeated relocation of HQ units from Finland to Continental Europe, within Continental Europe and from Continental Europe back to Finland. In case number three, we report on the ‘virtualisation’ of HQ in a firm created through cross-border mergers involving parties in four Northern European countries. In our fourth and final case, we discuss the reasons for relocating HQ functions outside Europe, from the Finland to the USA.

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Previous research on HQ relocation

Previous research on why some MNCs relocate their HQ abroad has taken an internationalisation process perspective (e.g., Forsgren et al., 1995). This approach frames HQ relocation as yet another step in firm internationalisation, and consequently introduces questions such as “When does the relocation of HQ functions take place in the overall internationalisation process of the firm?”. Over the years, a considerable amount of knowledge has accumulated about the internationalisation process of the firm and the early stages of the process have been particularly well documented (Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977; Luostarinen, 1979). Internationalisation has tended to start from the transfer of functions such as sales and marketing overseas. As the process unfolds, also production and R&D have been moved outside the boundaries of the home country. Forsgren et al. (1992) label this the first degree of internationalisation. In more advanced stages of internationalisation, subsidiaries may develop into strategic centres or centres of excellence with responsibilities beyond their local undertakings. According to Forsgren et al. (1992), this belongs to the second degree of internationalisation.


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While the management function has traditionally remained in the home country, its relocation may be considered once a considerable share of sales and production originate from foreign markets. Recent findings from a survey of HQ units in Swedish MNCs support this notion (Birkinshaw et al., 2006). Building on the work by Forsgren et al. (1992, 1995), the relocation of HQ units may be labelled “the third degree of internationalisation”. Different patterns of relocation have been identified. Firms may relocate a HQ unit directly (direct relocation), or decentralise its functions to other units which are then relocated, so that the functions in question can be viewed as having been relocated indirectly (indirect relocation). The latter type of relocation behaviour may be difficult to detect and may thus also be labelled as hidden (TT – The Confederation of Finnish Industry and Employers, 2002). Further, relocation can also be full, partial or virtual. Full relocation means that the entire top management group and all HQ functions are moved. Partial HQ relocation signifies that only selected members of the top management group and functions are transferred (Birkinshaw et al., 2006; Braunerhjelm and Lindqvist, 1999; TT 2002). Virtual relocation refers to situations in which HQ management responsibilities are handled through frequent travel and modern IT support systems. It is important to note that the research approaching HQ relocation as part of the internationalisation process tends to assume that the relocation is a one-off type of decision, and that there is a continuous development towards ever-increasing degrees of internationalisation. For example, the possibility of repeated relocations or of the HQ returning to its original country of location is not considered. Also, the HQ has often been implicitly treated as a unitary, physically existing unit where all management functions are located. Few questions have been posed concerning its inner workings or its purportedly integrated character. Based on our own findings as well as recent studies of large industrial firms in Finland (Ali-Yrkkö and Ylä-Anttila, 2002; TT, 2002) and Sweden (Birkinshaw et al., 2006), we would argue that these assumptions can not accommodate the full range of behaviours that are in fact associated with HQ mobility.

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A multiple case study

This research draws on qualitative, in-depth case studies of Finnish MNCs. Case studies are commonly used in international business research (Ghauri, 2004) and are argued to be particularly well suited for explorative, theory-developing purposes (Eisenhardt, 1989). We were concerned with comprehending how the relocation process unfolds and which factors drive it (see also Langley, 1999). Ferlie and Pettigrew (1996, p.501) in their discussion on HQ change and restructuring, note that “case studies can better grasp the complex organisational processes which may be at work, and the meanings which actors attach to their actions”. They also point out that we already know something of the ‘what’ of the HQ change, but little of the ‘why’ or the ‘how’ (Ferlie and Pettigrew, 1996, p.515). Combining a process perspective with case studies is considered particularly suitable, as they allow us to obtain rich data and a holistic understanding of complex, dynamic and context-specific phenomena (Eisenhardt, 1989; Hartley, 2004, Yin, 2003). Moreover, the partly hidden nature of HQ relocation invites a case study approach.

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The sample for the study was drawn from the population of large Finnish MNCs. Based on data from previous studies, industry reports, press papers and discussions with top managers in MNCs and experts working in research institutes, we identified cases of HQ relocation and drew up a list of potential research sites. Thirty companies were further analysed and 19 of them were selected for closer scrutiny. Four particularly illustrative cases were selected for the investigation reported here. These four multinationals, to which we were granted access, represent the most international companies in Finland. The four cases vary along the temporal dimension. Three of the four are retrospective, while one is a longitudinal, real-time study of a relocation process (see Table 1). Leonard-Barton (1990, p.250) argues that “the most significant limitation of the wholly retrospective research is the difficulty of determining cause and effect from reconstructed events”. We designed a longitudinal, real-time case study alongside the multiple retrospective cases in order to benefit from the “proximity in time to current events” and thereby increase the likelihood that the sequence and nature of events can be determined accurately (Leonard-Barton, 1990, p.254). Table 1

Characteristics of sample companies, HQ relocations and data collection Primary data: number of interviews

Rounds of data collection

Industry

Company Relocation trajectory

Type of case

Wärtsilä

Division HQ of Wärtsilä Diesel in Helsinki until 1990, in Strasbourg 1990–1997 and Zurich 1997–2000, then again in Helsinki (combined with corporate HQ)

Retrospective

13

2002, 2004, Marine diesel engines and 2005 powerplants

Kone

Division HQ of Kone Elevators relocated from Helsinki to Brussels in 1991, moved back to Helsinki in 2000–2001 and combined with corporate HQ

Retrospective

16

2002, 2004

Nordea

National organisations headquartered in Copenhagen, Helsinki, Stockholm and Oslo, respectively; then efforts to ‘virtualise’ HQ functions, but convergence toward Stockholm as physical location of top management meetings

Retrospective

57

2001–2002, Finance and 2005 banking

Nokia

Longitudinal, All HQ functions concentrated in Espoo, Finland until 2004; real-time then relocation of Enterprise Solutions business group HQ and certain key corporate HQ functions to New York

6

2004–2006

Elevators and escalators

Mobile communications

The main data collection method used is personal interviews with key managers from different organisation levels and units. These data are complemented by archival material, annual reports, and media coverage.


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The first round of interviews was conducted in 2001–2002 in the context of a research project on the internationalisation processes of large Finnish MNCs (Mannio et al., 2003). The HQ relocations of elevator company Kone and propulsion manufacturer Wärtsilä emerged from this project as important topics (Barner-Rasmussen and Björkman, 2003; Marschan-Piekkari, 2003). We therefore re-analysed our earlier interviews on the internationalisation of these companies (Kone seven interviews and Wärtsilä eight interviews) specifically focusing on the relocation issue. Re-analysing data from a novel perspective may offer exploratory potential and be very insightful (Corti et al., 2004; Åkerström et al., 2004). A second round of interviewing took place in 2002–2004. The issue of HQ relocation was incorporated into a study of Kone’s subsidiary operations (eight interviews). Two repeat interviews focusing specifically on HQ relocation in Kone and Wärtsilä respectively were conducted. Archival material pertaining to relocation was also obtained. The third round of interviewing took place in 2004–2005 when we engaged three junior researchers to further investigate relocation processes in Wärtsilä (Ritala, 2006), Nordea Bank (Backlund, 2005) and Nokia (Lampinen, 2005). Fifty three interviews collected in 2001–2002 for a large research project on Nordea Bank, which involved the third author of this paper (see Søderberg and Vaara, 2003, for a detailed description of this project), further contributed to our understanding of the Nordea case. To optimise cross-case comparability of data, several interviews were conducted as a team and a common, semi-structured interview guide was developed. Except for some minor quantitative information, the questions in the interview guide were open-ended and respondents were encouraged to answer them at length based on their own experiences. In retrospective cases, the researcher typically combines historical data collected through the analysis of documents with retrospective interviews (Langley, 1999). We acknowledge that the collection of historical information covering a ten-year period entails a risk of retrospective bias and memory decay. However, we use triangulation to verify the data from key informants and other sources (Huber and Power, 1985; Welch, 2000). When possible, interviews have been recorded and transcribed verbatim. The data were first analysed within each case by writing up a relocation story and then across cases.

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Findings

4.1 Patterns of HQ Relocation Wärtsilä is today a leading propulsion company. Under the name Wärtsilä Diesel, it was formerly a division within the Metra conglomerate. In the late 1980s, Wärtsilä Diesel internationalised quickly through large acquisitions in France and the Netherlands. In the autumn of 1990, its HQ moved to Strasbourg. Motivations for the move included the need for a foothold inside the EU, controlling the new acquisitions, finding a better balance between these and units in Finland and signalling both internally and externally that Wärtsilä Diesel wanted to be an international actor. In 1997, a merger with NSD, a Swiss firm, resulted in the HQ being relocated to Zürich. As the move to Strasbourg had not met expectations (it was difficult to get there from Finland and it had not become an EU hub), the decision to move again was relatively easy, even though Zürich was considerably more expensive. Being in Zürich decreased the resistance against the merger

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within NSD and brought the HQ closer to the division’s daily business. Around this time, however, the absence from Finland began to result in isolation from goings-on there. Meanwhile, Wärtsilä NSD had in effect become the sole main business of its corporate parent Metra, which was subsequently renamed Wärtsilä in September 2000. As some 80% of the owners of Metra-Wärtsilä were located in Finland, the HQ of the diesel business was moved back to Helsinki. This also solved the problem of the high costs in Zürich. Among the four cases, Wärtsilä is an example of extreme mobility in terms of repeated relocations. The HQ ‘travelled’ widely and changed locations as many as three times during a period of approximately ten years. In the beginning, the pattern of relocation was full and visible, while towards the end it became more hidden, as the functions and staff of corporate and division HQ were intertwined. Kone is a leading elevator and escalator company globally. It is owned by the Finnish Herlin family. The division HQ of Kone Elevators was relocated from Helsinki to Brussels in 1991, when Kone still consisted of five global product divisions. Brussels was an international city, the future EU capital, with international schools and attractive tax rates. Important elevator markets were located in France and Italy, where Kone had expanded through acquisitions. There was a need to better integrate the acquired units through reverse staff transfers from subsidiaries to HQ. Another factor was the demand for an international cadre at the apex of the organisation. It was perceived as difficult to attract management talent to Finland because of its peripheral location, cold climate and peculiar language. However, already by 1995, divestment of the corporation’s four other businesses had made Kone into a single product corporation. In 2001–2002, the HQ of the elevator business was moved back to Finland. Arguments included high travelling costs and communication gaps between the division and the parent corporation. In the long run, our interviewees speculated whether the return of the division HQ to Finland will increase the share of Finns in top positions of the Kone organisation, reinforce an ethnocentric mindset and trigger yet another relocation move in the future. In this case, Kone underwent two relocations within a ten-year period. The process involved a full relocation once the entire elevators division was relocated to Brussels. However, it also involved partial relocation when some of the divisional staff and functions remained in Belgium when the HQ was moved back to Finland. As in Wärtsilä, the relocation was partly hidden since the corporate HQ and the division HQ were located in the same premises and departments and employees were moved between them or even had dual responsibilities. Nordea, a leading financial services group in the Nordic and Baltic Sea region, was created in 2000 through a merger between Finnish-Swedish bank MeritaNordbanken, Christiania Bank of Norway and Unidanmark of Denmark. MeritaNordbanken had in turn been created through the merger of Merita (Finland) and Nordbanken (Sweden) in 1997. This chain of mergers was motivated by finance sector deregulation, pressures to internationalise stemming from e.g., EU enlargement and the EMU and the rise of e-banking. Nordea first tried to communicate its restructing as a ‘merger among equals’ and adhered to a ‘balance of power’ principle in e.g., staffing decisions, but soon started to handle cross-national tensions in the merged bank by emphasising its character as a pan-Nordic organisation instead. These efforts to integrate and harmonise corporate culture were summarised in the notion of a ‘One Nordea Approach’, which replaced the ‘merger among equals’ thinking as official policy in 2004. Under the ‘One Nordea Approach’, the alleged unity of the Nordic region and the highly mobile or virtual character of management work in the bank were strongly emphasised. Some of our


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interviewees drew on these ideas to claim that the physical location of Nordea’s management did not matter and that the HQ was indeed now virtual in character. Our second round of interviews in 2005 nevertheless confirmed earlier indications that Stockholm was emerging as the de facto HQ and the location of top management meetings. A partial explanation is that the ‘virtual HQ’ model already quite soon after the merger had proven tiresome for key Nordea executives whom it forced to engage in extensive travelling (Tienari and Vaara, 2003). Like Wärtsilä, Nordea also represents an example of extreme mobility, albeit in terms of virtual HQ and not repeated relocations. Nokia is the world leader in mobile communications. The Nokia Enterprise Solutions (ES) business group was created in January 2004 by combining parts of Nokia Mobile Phones and Nokia Ventures. Its HQ was placed in New York. Up until then, Nokia’s decision making had formally been concentrated to Espoo, Finland. Reasons for the relocation included: the need for diversity in decision making; closeness to customers and partners; and the difficulty of attracting foreigners to Finland. New York, by contrast, was seen as an attractive location for global talent. It is of particular interest that as a consequence of the relocation decision, not only the ES management team but also the corporate top management team became virtual, as three of its members relocated to New York. In addition to the American who was hired to lead the new business group, the CFO’s office, the head of Nokia corporate HR, and Nokia’s treasury and investor relations also moved from Espoo to New York. Both the CFO and the head of HR were among the few non-Finnish top managers at Nokia at the time. In Nokia’s case, the full, direct and quite open relocation of the division HQ also entailed – and enabled – the partial, hidden and to some extent virtual relocation of some key corporate HQ functions.

4.2 Key drivers and dimensions of HQ relocation Based on our case findings, we may explain and conceptualise HQ relocation as an outcome of six key drivers and two dimensions (see Table 2). The key drivers may be internal or external to the case company; the dimensions may be labelled as pragmatic or symbolic. Together, the six drivers and two dimensions provide a way of systematising factors associated with HQ relocation. They are prioritised differently in different firms, and even within the same firm, their relative importance varies across time as business conditions and goals change. Therefore, the same key drivers operate in both directions: at one time, they may push the HQ to relocate to another host country and at another time, they may attract it to return to its original location. The interplay between the key drivers and the two dimensions results in different patterns of HQ relocation such as full, partial, virtual, hidden or direct and under particular circumstances in highly mobile HQ units. The cases of Kone, Wärtsilä and Nordea show that cross-border mergers and acquisitions have led directly to reconsideration of the HQ location in Finland. The argumentation often has both a pragmatic and a symbolic dimension. For example, control of key subsidiaries or closeness to new owners does have practical importance (drivers 1 and 3), but the symbolic importance of HQ location should not be underestimated in terms of the credibility of the firm, commitment to acquired units and perceived distance (drivers 1 and 4). Also, HQ location was often driven by symbolic considerations such as being close to ‘the centre of gravity’ or staying politically neutral (driver 5). In Nordea, the solution of a virtual HQ enabled the bank to treat the country organisations equally and keep a balance between the Nordic

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countries – at least perceptually (driver 1). Even in formally ‘equal’ mergers such as Nordea, experiences of winners and losers are often related to symbolic issues including the corporate name, the choice of corporate language, or the HQ location (Vaara and Tienari, 2003). The importance of the symbolic dimension is supported in earlier research (Birkinshaw et al., 2006; Euro, 2001: Forsgren et al., 1995). Table 2

Conceptualisation of HQ relocation Dimensions Pragmatic

Key Control and drivers integration of subsidiaries

Symbolic

Shorter travelling times to newly Showing ‘commitment’ to acquired units (Wärtsilä 1st and 2nd acquired units and reducing perceived distance (Wärtsilä relocation, Kone 1st relocation) 1st and 2nd relocation, Kone 1st relocation); decreasing potential internal strife between merged units by ‘virtualising’ HQ (Nordea)

Inducing HR-related change

Recruiting non-Finns (Wärtsilä, Kone); attracting ‘global talent’ that is not prepared to move to Finland (Nokia)

Acquiring global mindset (Wärtsilä, Kone); diversity in decision making (Nokia); instilling Nordic mindset (Nordea)

Responding to owners and other stakeholders

Improving communication with parent corporation and owners (Kone 2nd relocation); improving communication with owners, unions and industry organisations in Finland (Wärtsilä 3rd relocation)

Enacting corporate strategy (first decentralisation, then centralisation in both Wärtsilä and Kone; global presence in Nokia; Nordic presence in Nordea)

Physical presence in relevant area

Being inside the EU (Wärtsilä, Kone 1st relocations); being colocated with key customers, skilled employees (Nokia) and key competitors (Wärtsilä 1st, 2nd relocation)

Perceived credibility derived from presence in EU (Wärtsilä, Kone 1st relocations), USA (Nokia); being a Nordic company (Nordea); being where owners are (Wärtsilä 3rd relocation, Kone 2nd relocation)

Costs and Stockholm logistically easy spatial structure (Nordea), Strasbourg logistically of management difficult (Wärtsilä), existence of direct flight New York-Helsinki (Nokia), expense of having HQ abroad (Kone 2nd relocation, Wärtsilä 3rd relocation)

Location politically neutral with regard to stakeholders and key competitors (Kone, Wärtsilä 1st relocations), as well as major subsidiaries (Kone 1st relocation)

Quality-of-life

Image of target location as an attractive place to live (Wärtsilä 1st and 2nd relocations, Kone 1st relocation, Nokia)

Good climate, easy language, availability of housing and schools (Wärtsilä 1st and 2nd relocations, Kone 1st relocation, Nokia)

Further, our case studies show HQ relocation often to be motivated by a quest for resources, such as global managerial talent, perceived to be relatively scant in the


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location of departure and relatively plentiful in the target location. Pragmatic motives of this type were found in the Wärtsilä, Kone and Nokia cases (driver 2). Closeness to key customers and competitors were also mentioned (driver 4). General arguments on the benefits of agglomeration for the availability of skilled employees and knowledge spillovers from customers, suppliers and competitors (Porter, 1990; Saxenian, 1994) apply also to HQ relocation. In none of the cases did the financial performance of the corporation seem to be a direct driver of the HQ relocation. Neither did respondents argue that any of the undertaken relocations had directly influenced corporate financial performance. Although the high costs of particular locations were in some cases mentioned as an argument for relocation, it is clear that for companies of this size, any location-related savings would constitute only a small fraction of annual operating costs. The expected economic benefits were seen as longer-term and indirect, derived from e.g., smoother and better integrated operations or from being able to attract more competent employees. Previous research has argued that different types of HQ are relocated for different reasons. For example, Birkinshaw et al. (2006) found that corporate HQ location choices were typically influenced by access to the capital markets, rather than by increased corporate overseas activity. Scholars have argued that corporate HQ are more exposed to the financial markets, and symbolise links to national identities and roots in a way that division HQ do not. By contrast, division HQ may be under stronger pressure to retain close linkages to local markets and units dispersed around the world. Moreover, division HQ appear more sensitive to the ‘attraction forces’ of major subsidiaries and consequently more mobile and likely to relocate (Birkinshaw et al. 2006; Forsgren et al., 1995). However, our study shows the challenges associated with separating corporate and divisional levels of analysis. Distinctions between corporate and division HQ are sometimes unclear, the borders between them fluid and their roles unstable. Our cases show that over time, the pressures placed on the Wärtsilä and Kone HQ gradually changed from ‘DHQ-type’ pressures to ‘CHQ-type’ pressures, as the business portfolios of their parent corporations changed. In the Nokia case, the presence of corporate staff at the same premises as the new division HQ was argued to play an important role in giving the latter sufficient ‘critical mass’.

5

Discussion and concluding remarks

This study contributes to current understanding of HQ relocation by showing that under particular circumstances, HQ may be highly mobile. Our case studies demonstrate that the strategic decision to relocate a HQ unit across borders is not necessarily a one-off event, but may be repeated or even take a virtual form. Therefore, we have labelled HQ relocation a dynamic phenomenon and perceive HQ units as mobile, something that has not been discussed in previous studies of HQ relocation (Birkinshaw et al., 2006; Euro, 2001; Forsgren et al., 1995). In contrast to previous work in the field (Birkinshaw et al., 2006; Forsgren et al., 1995), our findings invite a critical discussion of how appropriate the internationalisation process perspective is to explain HQ relocation. From that perspective, the decision to relocate HQs overseas is regarded as yet another step in the internationalisation process of the firm (Forsgren et al. 1995). All our four case companies were highly international, yet in two of them, the HQ returned to the firm’s country of origin after having been

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‘on the move’ for approximately ten years. This relocation pattern can be interpreted as ‘de-internationalisation’ (Benito and Welch, 1997). On the other hand, based on the relocation stories gathered in the case companies, we know that the relocations helped the involved executives gain valuable experience that contributed a more global mindset (see e.g., Osland et al. 2006). From this perspective, the decision to relocate the HQ abroad should not be interpreted as having proven in hindsight to be erroneous. Neither should the return of the HQ to the home country necessarily be viewed as a step ‘backwards’. The notion of mobile HQ units suggests a dynamic, rather than sequential, approach to location decisions. Our study extends current research on HQ relocation by identifying a diversity of relocation patterns such as full, partial, direct, hidden and virtual. We complement previous discussions of these patterns (Birkinshaw et al., 2006; Braunerhjelm and Lindqvist, 1999; TT, 2002) by introducing the concept of virtual relocation. Moreover, we show that the patterns are not mutually exclusive, but often simultaneously present, as the functions and staff of corporate and division HQ tend to be intertwined. The insights gained from case studies clearly indicate that HQ mobility can best be understood by exploring it in its proper temporal, social and corporate context. Above, we conceptualise HQ relocation as an outcome of certain external and internal drivers such as the need to control and integrate foreign acquired units, induce HR-related change, or establish a physical presence in a relevant geographic area. Moreover, we argue that each of these drivers has a pragmatic and a symbolic dimension, both of which need to be considered in order to understand the dynamics of relocation processes. In line with previous research (Birkinshaw et al., 2006, Euro, 2001; Forsgren et al., 1995), we emphasise the importance of the symbolic dimension. This dimension is often downplayed by corporate actors in favour of the pragmatic dimension, perhaps because the latter is felt to be more legitimate and easier to argue for. In small and open economies such as Finland, the moving abroad of HQ units is often considered problematic. Not only does it carry practical implications, such as losing good taxpayers abroad, but also – and perhaps more importantly – HQ location is a matter of considerable symbolic importance. Nokia and Nordea are cases in point. Nokia is a Finnish ‘crown jewel’ and any effort to relocate its corporate HQ would be much resisted. For Nordea, the issue of HQ location has been difficult for other reasons: it can not build a strong HQ in any of the Nordic countries since this will tilt the corporate balance toward that country – at least perceptually. The solution of a virtual HQ enables the bank to treat the country organisations equally. As for practical implications of HQ relocation, our study suggests that the while the company-internal consequences may be clearly felt, the direct societal consequences should not be overestimated. Even in very large MNCs, HQ relocation in most cases involves only a handful of executives and their families. In the relocations we studied, respondents’ estimates of the number of individuals involved varied from ‘approximately half a dozen’ (Wärtsilä) to ‘not more than a hundred’ (Nokia). The impact of such small numbers of people moving abroad – often for a limited period of time – is likely to be relatively limited. Naturally, this does not exclude the possibility of more problematic aggregate consequences over time, such as mimetic behaviour by peer companies. On the other hand, relocations potentially also entail improved corporate competitiveness, which may benefit shareholders, employees and other stakeholders in the country of origin. The total effect of HQ relocation for the country of departure is thus difficult to assess, but may not be only negative. Overall, we do not regard HQ relocation as a major


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problem at the societal level. HQ and the functions they harbour can, as we have shown, be highly mobile and therefore, no relocation should probably be considered permanent. A final observation is that HQ relocation is a highly complex process that is influenced by factors at several different levels of analysis, ranging from individual behaviour to trade barriers between countries and regions. In contrast to a popular argument, we do not find strong evidence that individual income taxation alone is a decisive factor in determining HQ location: high taxation does not seem to drive HQ out of a particular location, nor preclude their return. However, in combination with other factors, high levels of personal income taxation in a country clearly constitute a barrier to the recruitment of foreign nationals to that country and may thus over time contribute to globalising MNCs locating their HQ elsewhere. Given that our findings are based on Finnish data only, it remains a task of future research to determine their relevance in other contexts. We suggest that corporate geography may have much to offer for future research, as the phenomenon of HQ relocation is closely associated with the spatial structure of the MNC. Buckley and Ghauri (2004, p.95) have recently argued for increasing cross-fertilisation between international business and corporate geography, suggesting that such interdisciplinary research “should be in the forefront of the analysis of globalisation”. Our findings support this initiative in that the comparative advantages of different locations, particularly in terms of ‘quality of life’ (which would tend to attract a competent workforce) and good connections to many parts of the world, certainly seem to be one factor influencing HQ location. To conclude, our results also show that HQ relocation interfaces with many other fields of study, such as MNC strategy and international human resource management. This implies that future attempts to penetrate the dynamics of HQ relocation may do well to take a multidisciplinary approach. We particularly wish to encourage studies on how HQ (re-)location influences the recruitment, retention and motivation of competent human resources. The financial aspects of HQ relocation – the projected and actual costs and benefits – also clearly merit closer scrutiny. A final, highly interesting avenue for future research is to examine the relationship between HQ relocation and corporate culture and politics.

Acknowledgement We would like to thank the participants in the Nordic Workshops in International Business 2004 and 2006 and in the Process Research Workshop at the Academy of Management 2006 as well as Kalevi Euro for valuable comments to earlier versions of this paper. Above all, we are grateful to the business practitioners who shared with us their experiences of relocation processes. This study has been financially supported by the following foundations: Ella and Georg Ehrnrooth, Foundation for Economic Education, Helsinki School of Economics, Jenny and Antti Wihuri, Marcus Wallenberg, Swedish School of Economics and Business Administration.

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