Top management in global companies: To relocate or not to relocate, that is the question

Let’s assume a business headquartered in a European country. Following market internationalization the company expanded to the US, set up subsidiaries there and then began using expatriation to link the foreign units to the headquarters. In the following years, the US operations grow and the business focus increasingly shifts from Europe to the US, creating a bigger need for being close to major customers and stakeholders that now reside in the US. Given this scenario, what could be done?

A recent article by Dutch researchers suggests that despite a growing internationalization of markets and industries, a relocation of the entire corporate headquarters, though possibly addressing the issues in the above scenario, is quite rare. Naturally, headquarters relocation is a significant and very costly project. Alternatively, the relocation of elements of headquarters (e.g. core functions such as finance) may be more feasible and seems to happen more frequently. Thus, the scholars from Rotterdam School of Management addressed this trend by examining whether top management should relocate across national borders or not.

Based on a qualitative and quantitative study of 100 of the largest multinational companies in the Netherlands, the scholars argue that despite several advantages, the relocation of top management members is not always desirable. The study results indicated that only about half of the responding corporations reported that the relocation of top management team members led to higher performance. Thus, several barriers exist and the need for assessing both benefits and costs of relocation for taking the right decision becomes apparent.

The authors note that the main benefits of relocating top managers are strategic in nature. Specifically, relocation grants better access to global markets, stakeholders, and overall strategic knowledge. Although physical proximity to the key markets is beneficial, the physical remoteness from the headquarters implies several barriers. These include personal ties (e.g. an executive does not want to relocate), functional interdependencies (e.g. interdependencies within the top management team), and fiscal and legal constraints at the individual, organizational and country levels. Naturally, these barriers imply associated costs. Given the previous discussion, the authors argue that cost-benefit analysis, as well as an assessment of the interplay between relocation drivers and barriers is essential for making relocation decision, with the latter not always turning positive.

Fortunately, the physical relocation of top management team members’ office is just one of various solutions. For example, in case the costs outweigh the benefits firms can make better use of information technology and international travel, or manage so-called dual offices instead of relocating the whole headquarters. Extensive usage of communication technology and travel has its own costs and benefits of course, but generally speaking it can support the need of being closer to major customers and, at the same time, it overcomes the problems related to being too distant from headquarters. The dual offices option means that top management team members have two offices, one at headquarters and one in the host country. Such a structure might be easier to implement than relocating the whole executive office, and thus is another way of managing the trade-off between strategic benefits and physical relocation costs.

All in all, the authors conclude that the relocation of top management team members abroad is not an ‘all or nothing’ issue. There are always several benefits and costs included, and an assessment of their interplay is crucial for thinking about and deciding upon relocation. Fortunately, as the reviewed article suggests, issues related to an increasing internationalization of markets and industries have several possible solutions…

 

9 thoughts on “Top management in global companies: To relocate or not to relocate, that is the question

  1. Relocating a company is in my book essential.
    cyprus for example attracts many foreign company’s due to the low corporate taxation.i bet companys save a tone of money this way

  2. Sometimes change is required to see whether there can be some improvement. Relocating the top management may affect the company negatively for a short time but the new one can pick it and show good outcome.

  3. Setting Up Your Own Travel Agency

    Tourism is a very lucrative business to be in. The tourism industry has experienced a significant growth for the past couple of decades because of the technology afforded by the Internet. With information very accessible due to the capabilities of the Internet, a large part of the world’s population has expressed an increased interest to go on a holiday abroad at least for once a year.

    A businessman would do well to take advantage of this growth in the market. There is good money in the market of tourism. This market is worth billions of dollars. One of the operations through which you an entrepreneur could reap the benefits of this multi-billion market is to set up its own travel agency. With a travel agency, the entrepreneur is at the middle of the market. Tourism is dependent on visitors, and these are the individuals that a travel agency can cater to.

    The establishment of a startup is a process that requires a definite plan as well as an informative guide. Here is a step-by-step guide to establishing a travel agency.

    Establish Connections

    Connections and networking are very important when setting up a travel agency. This type of business strives in having business connections with establishments in a certain destination. This is part of the planning that takes a lot of time. The advice for startup travel agencies would be to start small and concentrate first on a small locale and eventually expand as more connections are made. Whatever the path chosen by the entrepreneur is the necessity to close deals and establish links with renowned connections in many countries around the world remains.

    The Internet, however, makes that very easy to accomplish as a budding travel agency operator can simply send emails to leads and negotiate contracts. This can be done without making expensive phone calls or travelling to hotels in a chosen destination. These days, it is now faster to establish one’s business including travel agencies, although it will still take a considerable amount of time to polish the requirements for this kind of undertaking.

    Research on Current Regulations

    It is imperative that an individual knows the rules of the market before operating as a travel agency operator. In the United Kingdom, it would be best to join trade associations that are meant to speak for travel agencies’ behalf. There are two of these associations intended for travel agents based in the United Kingdom, namely, the Association of British Travel Agents and the Travel Trust Association, also called the Travel Trust Association. Because a travel agent will have to allow their clients to make airline reservations, it is important to secure Air Travel Organisers License. Finally, the law stipulates that travel agents to insure clients in the case of insolvency. Membership in these associations will include bonding to make sure that the travel agency is fully insuring its clients against the effects of insolvency and also make sure that the members are complying with the law.

    Make the Necessary Registrations

    In order for a business to be recognized and considered legal to operate, a businessman aspiring to start his own travel agency should find out about the necessary paperwork and legal registrations that he has to accomplish. Once this is done, the entrepreneur is now free to start operating as a business and turn his attention to marketing and generating income for the business.

    About the Author:

    Ted Hunter is a freelance writer specializing in topics that are related to the travel industry. His writing clients include corporate entities like Travel Republic, a well-known travel agency in the United Kingdom.

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