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Headquarter Relocation in a Scandinavian Perspective
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Master Thesis
Cand. Merc. Finance and Strategic Management
Dan Nielsen Rikke Frøhlich
Supervisor: Phillip C. Nell
Characters (excl. figures):!201,904 Characters (incl. figures): 246,704 Standard pages (excl. figures): 88.7 Standard pages (incl. figures): 108.4 Handed in: 29th August 2013
Copenhagen Business School - 2013
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Executive Summary
The purpose of this master thesis is to uncover the relatively new phenomenon of headquarter relocations in a Scandinavian perspective, and add to the limited academic research. While previous literature focus either on static locations of headquarters (Benito, Lunnan, & Tomassen, 2011;
Birkinshaw, Braunerhjelm, Holm, & Terjesen, 2006; Forsgren, Holm, & Johanson, 1995), domestic relocation of headquarters (Strauss-Kahn & Vives, 2009) or have study a predetermined group of companies (Baaij, Mom, Van den Bosch, & Volberda, 2012; Barner-Rasmussen, Piekkari, &
Bjorkman, 2007; Lunnan, Benito, & Tomassen, 2011)we investigate actual relocation events in and out of Scandinavia between 2000 and 2012. Further, we add to the academic research by investigating differences between relocations of corporate and divisional headquarters, inward and outbound relocations and relocations motivated by cost and value-adding.
We construct the largest, known to us, database of actual cross-border relocation events in and out of Scandinavia during the period, large enough to be available through secondary data sources. The relocation events were identified from multiple secondary data sources in English, Danish, Swedish and Norwegian: company material, academic literature, consultancy reports and from the news database Factiva.
We identify a total of 105 relocation events by 94 separate companies. All relocations are analyzed using a total of 12 location-specific and firm-specific variables. Data for variables was collected from company material and the global firm database ORBIS. Based on this extensive dataset we construct descriptive statistics for headquarter relocations within our scope of research.
Based on differences within our three segmentations we find that six variables influence headquarter relocations according to our data.
• Corporate taxation
• Personal taxation
• Institutional quality of the country
• Foreign ownership
• Size of the MNC measured on revenue
• Age of the MNC
During the period, Scandinavia had a net gain of headquarters, and the case can be made that Scandinavia is in fact an attractive location for headquarters, although we see differences in attractiveness of the individual countries.
Table of Content
Introduction ... 7!
Research Question ... 8!
Literature ... 11!
MNC Theory and Internationalization ... 12!
Corporations and Organizational Structure ... 12!
Internationalization of Corporations ... 13!
Why Do Corporations Internationalize? ... 13!
First Degree of Internationalization: Foreign Production and Sales ... 14!
Second Degree of Internationalization: Foreign Subsidiaries Take a Strategic Role ... 14!
Third Degree of Internationalization: Breaking Down The Concept of Home ... 15!
De-internationalization: Moving back Home ... 15!
Summary ... 15!
The Role of the MNC Headquarter ... 17!
Why Do Headquarters Exist? ... 17!
Parenting Value ... 18!
The Roles of the Headquarter ... 18!
The Parts of the Headquarter ... 20!
Internationalization of Headquarters ... 21!
Full Corporate Headquarter Relocations Is a Rare Event ... 22!
Partial Relocations might Take Place in Larger Numbers ... 22!
The Dual Nature of Divisional Headquarter ... 23!
Power Relations Between Subsidiary and Corporate Headquarters ... 23!
Knowledge Spill-over ... 23!
Principal-agent Relationship ... 24!
Summary ... 24!
Drivers for headquarter relocation ... 25!
Location-specific drivers ... 26!
Business Environment ... 26!
Institutional Quality ... 26!
Business Services ... 27!
Industry ... 27!
Firm-specific Drivers ... 29!
Size and Age ... 29!
Internationalization ... 29!
Ownership ... 30!
Mergers & Acquisitions ... 31!
Geographical Distance ... 32!
Summary ... 32!
Research ... 33!
Research Strategy and Design ... 34!
The Four Levels of Research Purpose ... 34!
Sampling Method and Data Collection ... 36!
Scope of Research ... 36!
Identifying and Confirming Relocation Events ... 40!
Summary ... 42!
Measurements ... 43!
Reliability and Validity of Measures ... 43!
Overview of Measurements ... 43!
Analysis ... 49!
Database Introduction ... 50!
Headquarter Types ... 51!
Countries ... 51!
Strategic Motivations ... 52!
Segmentation in the Analysis ... 55!
Location-specific ... 59!
Corporate Taxation ... 61!
Personal Taxation ... 67!
Market Size (Total GDP) ... 73!
Wage Level (GDP pr. Capita) ... 79!
Institutional Quality (Kaufmann Index) ... 85!
Industry ... 89!
Firm-specific ... 95!
Internationalization ... 97!
Foreign ownership ... 101!
Ownership structure ... 105!
Age ... 115!
Geographical Distance ... 119!
Conclusion ... 124!
Corporate and Divisional Headquarter Relocations ... 125!
Inward and Outbound Relocations ... 126!
Cost and Value-adding Motives for Relocation ... 127!
Closing remarks ... 128!
Corporate Taxation ... 128!
Personal Taxation ... 129!
Institutional Quality ... 129!
Foreign ownership ... 129!
Size and Age of MNC ... 129!
The Benefits of Attracting and Retaining Headquarters ... 130!
Headquarter Relocations Impact on Companies ... 131!
Tax Havens ... 132!
Foreign owners ... 133!
Scandinavian Markets for Headquarters ... 135!
Global Market for Headquarters ... 136!
Limitations and Further Research ... 140!
Relocation of Group Functions ... 140!
Performance Consequences ... 140!
Power Relations Between Headquarter and Subsidiaries ... 141!
Dual Agency ... 141!
Type of Ownership ... 141!
Change in Size of Headquarters ... 142!
Job Effects of Headquarter Relocations ... 142!
Acknowledgements ... 143!
References ... 144!
Appendix 1 - Search strings ... 154!
Appendix 2 - Measurement overview ... 156!
Appendix 3 - Number of relocations to and from non-Scandinavian countries ... 160!
Appendix 4 - Top 10 Kaufmann index ... 161!
Appendix 5 – Industries ... 162!
Appendix 6 - Industry categories ... 163!
Appendix 7 - Relocation in Service industries and age distribution ... 164!
Appendix 8 - Group functions ... 165!
Appendix 9 - M&A related relocations ... 166!
Appendix 10 - Article overview ... 167!
Introduction
As part of the internationalization process companies have begun to relocate headquarters abroad.
Earlier, plant facilities and sales activities were relocated abroad, as foreign locations were more beneficial, but now also headquarters are subject for internationalization.
The phenomenon, termed internationalization of the third degree (Barner-Rasmussen et al., 2007), has gotten increasingly more attention in academic research in recent years. Much research finds an increasing frequency of headquarters relocating abroad (Baaij et al., 2012; Birkinshaw et al., 2006;
Laamanen, Simula, & Torstila, 2012; Strandell & Löf, 2003).
The phenomenon, although increasingly getting more attention, is still subject of only a limited amount of research. The majority of existing studies focus on relocation of divisional headquarters (eg. Benito et al., 2011; Forsgren et al., 1995; Lunnan et al., 2011) while fewer investigate companies relocating corporate headquarters (eg. Birkinshaw et al., 2006; Laamanen et al., 2012).
Some recent literature apply a more detailed view on headquarters as consisting of several different parts and roles (Baaij et al., 2012; Goold, Pettifer, & Young, 2001), which enable more specific research, such as in this study.
While some studies investigate domestic relocations(eg. Strauss-Kahn & Vives, 2009)or across several countries (eg. Laamanen et al., 2012), most are based on single small open economies, such as Norway (Benito et al., 2011; Lunnan et al., 2011), Finland (Barner-Rasmussen et al., 2007), The Netherlands (Baaij et al., 2012) and Sweden (Birkinshaw et al., 2006; Forsgren et al., 1995). It is in these countries the internationalization process is expected to be furthest and therefore the headquarter relocation phenomenon is expected to be strongest (Benito, Larimo, Narula, &
Pedersen, 2002; Benito et al., 2011). Small open economies are also increasingly more dependent on their big multinational corporations (Benito et al., 2002) reinforcing the importance of understanding the reasoning behind headquarter relocation within these countries.
Based on this, the phenomenon of headquarter relocation is particularly interesting in a Scandinavian perspective. The Scandinavian countries, Denmark, Sweden and Norway are countries with strong, stable and competitive economies (The Economist, 2013a; The Economist, 2013b), which make out good business climates. But they are also small open economies and might be facing a growing trend of companies relocating their headquarters abroad.
In the earlier steps of internationalization loss of blue-collar jobs worried governments, but now the countries also stand to lose well-educated, so-called white-collar, jobs. Governments and policymakers like to retain current headquarters and attract new ones as they pay tax income, have a
high demand of jobs both directly and indirectly through demand of legal, financial services etc.
and enable a stronger attraction on other company headquarters.
Research Question
In the light of the introduction, we wish to describe the headquarter relocations in and out of Scandinavia. We do so by creating the, to us, largest known database of actual cross-border relocation events. Earlier studies have focus either on static location of headquarters, instead of the actual relocation event (Benito et al., 2011; Birkinshaw et al., 2006; Forsgren et al., 1995), domestic relocation of headquarters(Strauss-Kahn & Vives, 2009)or study a predetermined group of companies (Baaij et al., 2012; Barner-Rasmussen et al., 2007; Lunnan et al., 2011).
We state our research question as:
What characterizes the countries and companies involved in headquarter relocations in and out of Scandinavia in the period 2000-2012, and what
does this mean for Scandinavia as an attractive headquarter location?
To help answer our research question we investigate the following:
• Does country and company characteristics differ between corporate and divisional headquarter relocations?
• Does country and company characteristics differ between inward and outbound relocations?
• Does country and company characteristics differ between cost and value-adding motivated relocations?
We answer the above questions by first presenting the current research and theory on headquarters and headquarter relocation in the Literature review. In the following section Research method we explain how we collected data on relocation events and which measurement we apply. The
Analysis section is split into two. First we present the data on the countries involved in relocations, second we investigate locations-specific data, and then we look at firm-specific data. We sum up our findings in the Conclusion and end the paper by discussing our findings in Discussion and Implications and suggesting possible areas for further research in Limitations and Further Research.
Literature Review
The literature review gives an overview of the literature upon which we have built this study’s theoretical framework and research.
First, we will touch upon the structure and internationalization of the modern corporations. The purpose is to introduce MNC theory and the internationalization of corporations.
Second, we look at theory on headquarters to create a thorough understanding of the purpose and roles of the modern headquarter and how it can be separated into different parts.
Last, we focus on drivers for headquarter relocation. Based on the previous sections we discuss drivers for relocating headquarters and lay the base for our research.
MNC Theory and Internationalization
This section provides an overview of the structure of multinational corporations and their internationalization. With this section we start out by describing the structural setting which headquarters are part of and highlight the importance of divisional and regional headquarters. The section forms the understanding of MNCs and internationalization that this study is built upon.
Corporations and Organizational Structure
To get a better understanding of corporations it is necessary to understand how they can be structured and what implications this has for the concept of headquarters.
Some corporations exist in a single company structure with no other companies associated. Larger corporations exist in a group structure, where several companies are bound together in a hierarchical network of a mother company, parent companies, subsidiaries and divisions.
A group structure consists of at least two companies, a parent company and one or more subsidiaries. The subsidiaries are companies of which the parent company owns over 50% (P. B.
Nielsen, Larsen, & Barndorph, 2010). Depending on the size of the corporation, subsidiaries themselves can own several other subsidiaries (Strandell & Löf, 2003) and large corporations can thus have several hundreds of interlinked companies.
In the 1920s corporations started to organize companies in what would be known as the Multidivisional Structure or M-form (Chandler Jr., 1991).
In the M-form decision power is delegated to divisional and regional units with own separate headquarters. Top management is focused on the strategic responsibility of the group and each division has formal authority to coordinate operations and allocate resources among the subsidiaries below them (Chandler Jr., 1962; Williamson Oliver, 1975). This makes the divisional and regional
Figure 1 - Simplified group structure.
headquarters important entities in the corporation as they not only free up the top management to solely focus on strategic issues, but also allow for specialization and enable operational decisions to be made by management closer to operational activities, enhancing operational flexibility.
As companies expand operationally and geographically, the complexity and amount of information that management needs to process increases.
Since Fouraker and Stopford (1968) first discussed the structure of MNCs and the implementation of a division-based M-form, this organizational structure has been considered the answer to management problems of size, operational diversity and geographical dispersion(Chandler Jr., 1991; Forsgren et al., 1995). Several studies have later confirmed the widespread use of the M-form in MNCs(Egelhoff, 1988; Egelhoff, 1982; Hill &
Pickering, 1986).
Internationalization of Corporations
This section provides the foundation that enables us to discuss internationalization of headquarters.
The internationalization of corporations is a well-researched topic. Below we give a brief overview of some of the main reasons for internationalization of corporations through the concept degrees of internationalization. Next we look at when companies de-internationalize their foreign activities.
Why Do Corporations Internationalize?
If corporations wish to maintain its international competitive advantage it must add to its current advantages or offset disadvantages by internationalization into foreign markets (Porter, 1990).
The Eclectic paradigm(eg. Dunning, 1981; Dunning, 2009), group competitive advantages of MNCs into three categories, in an attempt to explain foreign direct investments and international activity of the MNC:
1) Location advantages relating to taxes, natural resources, access to workforce etc.
2) Ownership advantages related to firm-specific factors, such as production technique, patents, economics of scale etc.
Figure 2 - Simplified M-form structure
3) Internalization advantages, which based on transaction cost economics explains the make or buy decision of the corporation.
MNCs with strong advantages will leverage these in global expansion and add to its current competiveness by internationalizing into foreign markets. Lack of strong advantages on the other hand also creates a motivation for internationalization.
One example of missing location advantages is the relatively small home markets characterized by the so-called small open economies (SMOPECs). The need for international expansion therefore quickly arises for companies based in SMOPEC countries(Benito et al., 2002). The same is the case for availability of natural resources, a sound business climate, innovative research environment etc.
that firms will internationalize to gain access to.
First Degree of Internationalization: Foreign Production and Sales
The initial steps of internationalization are exporting, establishment of foreign sales activities, relocation of production etc. (Benito et al., 2002). This has been termed first degree of internationalization (Barner-Rasmussen et al., 2007; Forsgren et al., 1995). In this stage the foreign units are still under the strategic supervision and control of the home country.
Second Degree of Internationalization: Foreign Subsidiaries Take a Strategic Role
As the company further develops its internationalization, from a strictly operational focus to a more strategic focus, the relationship between the parent company and the subsidiaries also develops.
Initially the subsidiaries will be dependent on the home parent company, but as internationalization progresses, the subsidiaries develop competences and take on international responsibilities(Benito et al., 2002; Benito et al., 2011). The increased influence of the subsidiaries leads to a change in the power relationship between the parent company and the subsidiaries and the subsidiaries assume a more powerful strategic role in the MNC (Benito et al., 2002; Benito et al., 2011; Forsgren et al., 1995).
The second degree of internationalization is furthermore a development of the purpose behind foreign establishments. During internationalization of the first degree, companies establish in other countries to be present in export markets. In the second degree of internationalization, foreign
establishment develop the competitiveness of the company by exploiting location specific advantages (P. B. Nielsen et al., 2010).
Third Degree of Internationalization: Breaking Down The Concept of Home Recent studies have introduced the concept of internationalization of the third degree (Barner- Rasmussen et al., 2007; Benito et al., 2011), which forms the basis of this study.
Internationalization of the third degree refers to corporations relocating headquarter activities to foreign locations.
De-internationalization: Moving back Home
The majority of literature on the internationalization process is aimed at clarifying the move from a domestic to a foreign location and the drivers behind this process. Opposed is the process of companies divesting and moving out of a country. Benito & Welch (1997) describe this latter phenomenon as de-internationalization. The paper defines de-internationalization as reduction or withdrawal of operations in a country, decreased level of commitment or divestments of entire subsidiaries. When the initial location specific advantages that drove internationalization of operations such as low labor cost or closeness to suppliers diminish or become trivial, some companies choose to de-internationalize. In the same way headquarter activities can be relocated to foreign locations; they might be relocated out of foreign locations, if the initial drivers of internationalizations changes.
It’s not agreed upon whether the likelihood of de-internationalization increases or decreases as MNCs become more internationalized. Benito & Welch (1997) argue that the flexibility to withdraw from foreign commitments increases in the later stages of internationalization, since a company will have multiple subsidiaries at dispersed locations, and will be less dependent on a single subsidiary. On the other hand Johanson & Vahlne (1977) describe how management commitment and psychological pressure can constitute exit barriers, due to the pressure to show that the right decisions were made in the past. As companies move through the stages of internationalization the probability for a complete or even partial withdrawal decreases.
Summary
The MNC is in need of decentralized decision power because of its size and complexity. The M- form addresses this issue by delegating responsibility to divisions based on products or geographical
areas. The divisional and regional headquarters are important parts of the MNC with strong decision power and strategic responsibility that enable top management to focus on strategic issues and enhance the operational flexibility of companies.
Corporations move through the stages of internationalization, to improve competitive advantages by entering foreign markets. In recent years MNCs have started to internationalize headquarter activities to further add to or offset missing advantages.
The Role of the MNC Headquarter
To get an understanding of how headquarters add value to corporation, we describe the different roles and parts of headquarters and what responsibilities they have.
Why Do Headquarters Exist?
Headquarters remain an important part of the MNC(Ambos & Mahnke, 2010) Egelhoff (2010) argues that subsidiaries lack overview as they often focus on distinct business areas and are unable to recognize when knowledge sharing between units can benefit the corporation as a whole. Such an overview is best obtained and managed from a central unit. A headquarter unit will more easily be able to coordinate and maintain overview of the corporation over time and across several business areas. Additionally to centralizing information internally in the corporation, the headquarter must also collect and understand information from customer, suppliers and competitors to develop common strategies and create insight across the subsidiaries(Lunnan et al., 2011).
Even if the subsidiaries had insight and could recognize the benefits of collaboration, it wouldn’t necessarily take place if the subsidiaries act out of pure self-interest. Headquarters will in this case be able to set up an organizational structure that create incentives for subsidiaries to share assets and knowledge with other units and thereby add value to the whole company (Egelhoff, 2010).
Divisional and regional headquarters can be used for access to advantages of other locations.
Porter(1990)suggests that the placement of regional headquarters should be used not for administrative and overview purposes but to access to location specific advantages. Lunnan et al(2011)further suggest that MNCs place their divisional headquarters near central markets, resource-rich areas or clusters of advanced technology to gain access to the specific benefits of this location.
Some research suggests the development of alternative less hierarchal network structures of organization, such as transnational firms (Bartlett & Ghoshal, 1989), heterarchy structures (Hedlund, 1986) and metanational firms (Doz, Santos, & Williamson, 2001). Characteristic of the network structure is the development of competent and sophisticated subsidiaries, which through a less hierarchical perception of the firm gains a greater level of autonomy. The implication of this perspective on the corporation is essentially that the traditional hierarchal structures are devalued
and the importance of headquarters is diminished. However, there exists little empirical evidence on the spread of the network structure amongst MNCs(Ambos & Schlegelmilch, 2010; Barner- Rasmussen et al., 2007; Wolf, 1997).
Parenting Value
Campbell et al (1995) use the term parenting advantage to explain the value added from having a corporate headquarter, which can influence the multiple businesses it owns. They argue that headquarters have a great impact on business performance either positively or negatively since its influence is rarely neutral. For headquarters to add and not destroy value it’s essential that they have a thorough understanding of the context within its subsidiaries are present and are able to contribute with resources and capability endowments. In other words, there need to be a fit between the resources and skills of the parent company and the needs and possibilities of its subsidiaries (Campbell et al., 1995) for parenting advantage to take place.
Simplified, the value created by headquarters, can be seen as the difference in the cost of maintaining it and the value it adds to the business
units and MNC as a
whole(Zimmerman & Fabian, 2013).
If we consider this perspective in relation to headquarter relocations, a relocation could either lower the cost of maintaining the headquarter, or increase the value added by the
headquarter to the MNC. Both cases create value for the corporation through increased parenting value.
The Roles of the Headquarter
To provide parenting value the corporate headquarter takes on several different roles and responsibilities. Birkinshaw et al (2006) view headquarters as having an external and internal role.
They highlight the external role of corporate headquarters, as mediating between business units and
Figure 3 - Parenting value. Constructed from:(Zimmerman & Fabian, 2013)
external stakeholders of the corporation. Headquarters need to attend to shareholders and other external stakeholders and maintain a positive relationship with customers and competitors alongside its internal obligations of monitoring, evaluating and developing the MNC as a whole.
Chandler (1991) further breaks down the internal role of the headquarter into the integrative role and entrepreneurial role. A headquarters’ integrative role coordinates the MNC’s activities across business units and achieves synergies by pooling resources and centralizing value-adding activities.
The entrepreneurial role on the other hand looks for and explores new business opportunities as well as stimulating and assisting the subsidiaries in understanding shifts in the business environment, and assisting them in incorporating these changes into their strategies (Chandler Jr., 1991).
Figure 4 - Roles of the headquarter. Constructed from:(Birkinshaw et al., 2006; Chandler Jr., 1991)
A third way of breaking down the roles is based on the responsibility the headquarter takes on behalf of the MNC. Goold et al (2001) describe the headquarter as having a minimum corporate parent role, a value-adding parenting role and a shared services role.
The minimum corporate parent role has limited possibility of creating value but is essential as it makes out the legal and regulatory obligations of the firm. Tasks such as raising finance, basic controls etc. fall under the minimum corporate parent role.
The value-adding role focuses on developing and sharing core competences between the divisions of the MNC. The role is closely related to the overall strategy of the corporation as it works with strategic guidance, leveraging corporate resources and facilitating synergies.
Lastly, the shared service role performs services such as payroll, training and process transaction, all functions needed by the MNC.
The Parts of the Headquarter
So far we have considered headquarters as one combined entity. Below we break it down for a more detailed perspective.
Previous literature describes three parts of the corporate headquarter(Baaij et al., 2012; Birkinshaw et al., 2006; Braunerhjelm, 2004; Desai, 2009; Strandell & Löf, 2003): Generally, the Executive management team, the Core staff functions and the Legal seat or domicile of the MNC.
The executive management team consists of the CEO and the additional executives in charge of divisions, areas or critical staff functions such as treasury, communication or HR.
The core staff functions, include all group functions such as HR, treasury, communications, procurement, IT, R&D etc. Often, due to an increased drive for service improvements and cost effectiveness these functions are outsourced or managed as separate corporate centers (Braunerhjelm, 2004; Goold et al., 2001). In this paper we term the combination of the executive management team and core staff functions operational headquarter.
The corporate legal seat is where the corporation is legally registered. The location of the legal seat determines which legal, regulatory and fiscal regime the corporation is subject to (Baaij et al., 2012).
The legal seat can in some cases be registered abroad for tax or legal purposes as a shell company.
In these cases the legal seat doesn't make out a strategic focal point or strong center of gravity in the MNC (Birkinshaw et al., 2006; Desai, 2009).
If we combine the literature on the separate parts of the corporate headquarter (Baaij et al., 2012;
Birkinshaw et al., 2006; Braunerhjelm, 2004) and the literature on different roles of the corporate headquarter (Goold et al., 2001) we see that certain parts of the headquarter seem related to certain roles.
The legal seat is as mentioned, a juridical unit, which together with certain group functions such as finance/control and treasury, constitute the minimum corporate parent role. The additional group
functions could be considered as a shared service role while top management is the center of the value-adding parenting role.
This combination lets us combine our terminology with the roles and parts of the headquarter, as described in the figure below.
Figure 5 - Comparison of roles and parts of headquarters with paper terminology. Own construction
Internationalization of Headquarters
Traditionally, headquarters has been a single entity in one location (Birkinshaw et al., 2006;
Braunerhjelm, 2004). However, the internationalization of subsidiaries, globalization of external stakeholders as well as the emergence of easy international communication has made MNCs separate parts of the headquarter, and place them at locations optimal for each part(Baaij et al., 2012; Benito et al., 2011; Birkinshaw et al., 2006; Strandell & Löf, 2003).
Several studies have found evidence for relocations of both corporate and divisional headquarters (Arthur D. Little Ltd, 2009; Braunerhjelm, 2004). Furthermore, many studies suggest that the trend of relocating headquarters abroad is increasing(Baaij et al., 2012; Birkinshaw et al., 2006;
Laamanen et al., 2012; Strandell & Löf, 2003; Strandell, 2008). Previous research has identified a substantially lower number of corporate headquarter relocations than divisional or regional headquarter relocations (Benito et al., 2011; Birkinshaw et al., 2006; Laamanen et al., 2012).
Corporate headquarters have a different purpose and operates on another strategic level, than divisional headquarters. Therefore the motivation behind relocating divisional headquarters differs from that of corporate headquarters (Birkinshaw et al., 2006). Below we comment on the differences between relocation drivers for corporate and divisional headquarters.
Full Corporate Headquarter Relocations Is a Rare Event
Previous literature finds that only rarely does the entire corporate headquarter relocate(Baaij, Van Den Bosch, & Volberda, 2004; Baaij et al., 2012; Birkinshaw et al., 2006; Doz et al., 2001). In the study of US-based headquarters in the period 1994-2002, Baaij et al (2004) find only a single cross- border headquarter relocation. Birkinshaw et al (2006) mention that they found 23 of the fortune 500 companies, had relocated their entire corporate headquarter outside USA. The scarcity of corporate headquarter relocation is possibly linked to the significant symbolic value a corporate headquarter relocation entails, since the public sees the location as the nationality of a corporation (Laamanen et al., 2012). Although previous studies generally only find a relatively low number, the relocation of corporate headquarters is an acknowledged phenomenon, and is a phenomenon that is expected to continue(Baaij et al., 2004; Birkinshaw et al., 2006; Braunerhjelm, 2004; Strauss-Kahn
& Vives, 2009).
Partial Relocations might Take Place in Larger Numbers
Corporate headquarters is not necessarily one unit, but can be split into separate parts (Baaij et al., 2012; Desai, 2009). Splitting the headquarters into parts allows us to distinguish between different types of headquarter relocations.
Barner-Rasmussen et al (2007) distinguish between three types of headquarter relocations: full, partial and virtual. A full relocation takes place when the top management and the group functions are relocated, in other words the entire operational headquarter. Partial relocations move only part of top management and/or group functions, but not all(Birkinshaw et al., 2006; Braunerhjelm &
Lindqvist, 1999). Lastly, virtual relocation happens when the MNC through frequent travel, IT support systems etc. lets management work and live outside the country of the official headquarter.
In her paper Strandell (2008) highlights the, originally Swedish, company Esselte as an example of a virtual headquarter. When an American company acquired Esselte in 2002, the European business managers didn't follow the office back to the US. Instead they worked in separate European capitals, such as Warsaw, London and Stockholm communicating and collaborating through extensive travel and IT communication.
A final type of relocation that Barner-Rasmussen et al (2007) don't address is relocation of the legal domicile. The relocation of the MNCs registered location doesn't necessarily entail the relocation of the operational headquarter and vice versa (Birkinshaw et al., 2006; Laamanen et al., 2012).
Previous studies use the relocation of the legal seat as selection-criteria in their investigation of headquarter relocations (eg. Laamanen et al., 2012).
The Dual Nature of Divisional Headquarter
In the period 2000 to 2006 Benito et al (2011) find that a sample of 30 large non-financial Norwegian companies had increased their share of foreign located divisional headquarters from 29% to 42%, thus showing a clear upward trend of foreign placement of divisional headquarters.
Below we highlight three motivations for relocating divisional headquarters: Power relations between subsidiaries and corporate headquarters (eg. Forsgren et al., 1995), Knowledge spill-overs (eg. Benito et al., 2011) and principal-agency relationships (eg. Lunnan et al., 2011).
Power Relations Between Subsidiary and Corporate Headquarters
Some research points to a power balance between the corporate headquarters and the foreign subsidiaries of a MNC (Benito et al., 2011; Forsgren et al., 1995).
Subsidiaries wish to influence the resource allocation in the MNC to their own favor (Forsgren et al., 1995). Dominant subsidiaries have a higher likelihood of attracting divisional headquarters, closer to their location, which increases their influence over the division. The likelihood is further increases if the division is more internationalized.
The corporate headquarter on the other hand desires efficient allocation of resources amongst all MNC’s divisions and subsidiaries. The more dominant a division is within the whole MNC, the less likely it is that the divisional headquarter will be located away from the corporate headquarter itself.
This is further strengthened if the MNC as a whole is more internationalized (Forsgren et al., 1995)
Knowledge Spill-over
The likeliness of divisional headquarters moving overseas increases with the attractiveness of the new host country, measured in a good business service industry, a stable economy and in general a good business climate (Birkinshaw et al., 2006; Lunnan et al., 2011). Benito et al (2011) argues that there might be strategic benefits with regard to knowledge spill-overs and access to resources especially if that location is a leading-edge industry cluster (Porter, 1990).
Principal-agent Relationship
When great geographical distances exist between units in the MNC, it creates an environment of information asymmetry that increases agency costs(Hitt, Hoskisson, & Ireland, 1994). When locating divisional headquarters closer to subsidiaries, agency costs are reduced as it enhances the division managers’ understanding of the subsidiary and its environment, thereby eliminating some of the information asymmetry (Benito et al., 2011; Lunnan et al., 2011).
The same argument goes for closeness to the corporate headquarters of the MNC. The role of the corporate headquarter of allocating resources to divisions in the best possible way, is dependent on getting reliable and timely information from the divisional headquarter(Bouquet & Birkinshaw, 2008). If divisional headquarters are located far away, it becomes harder to receive this information as the communication between the entities becomes less effective.
Therefore MNCs may move their divisional headquarters to gain efficiency by co-locating with foreign subsidiaries but they might also keep them at home when the company becomes large, highly diversified and complex to manage, in order to be able to get information from divisions when they need it (Benito et al., 2011). This is related to the initial description of the power relationship between subsidiaries and the corporate headquarter, as the location of the divisional headquarters is ultimately a result of the principal-agent relationship.
Summary
Through parenting value headquarters add value to the MNC. Externally by acting as an intermediate between stakeholders and the corporation and internally by taking on administrative and coordination responsibilities as well as strategically oriented tasks. The tasks and functions performed by headquarters can be split in three separate roles; a minimum corporate parent role, a value-adding parenting role and a shared services role. The Executive management team, the Core staff functions and the Legal seat perform these roles. This study combines the parts and roles of the headquarter into the legal domicile and the operational headquarter.
Internationalization of headquarters is becoming a more frequent phenomenon, however the number of full corporate headquarter relocations are still relatively low compared to divisional headquarters.
Divisional headquarter are not guided by the same considerations as corporate headquarters.
Divisional headquarters has a dual nature of being a link between the subsidiary and the corporate headquarter.
Drivers for headquarter relocation
There are two aspects of relocating headquarters: whether to relocate and where to relocate.
Previous studies have described both aspects through a number of different factors. The purpose of this section is to give an overview of some of the drivers of headquarter relocation that have served as inspiration in this study. A full of main articles and their findings can be found in appendix 10.
Inspired by Baaij et al (2004) we divide drivers into two groups: Location-specific drivers that concern country and industry factors, and firm-specific drivers that concern variables specific to the MNC and internal aspects of the organization.
There are several interlinked determinants in deciding whether to relocate and where to relocate headquarters (Forsgren et al., 1995). The drivers might have several dimensions and levels such as:
External/Internal and Symbolic/Pragmatic dimensions (Barner-Rasmussen et al., 2007), Legitimacy/Efficiency (Benito et al., 2011) Push/Pull factors (Laamanen et al., 2012), Centrifugal/Centripetal forces (Benito et al., 2002), Efficiency, Strategic and Symbolic levels (Birkinshaw et al., 2006).
We won’t go into further detail but simply note that although we link certain variables to headquarter relocations, these do not exist in a vacuum. The MNC is at any given time affected by a number of different, possibly counteracting variables that affect the location decision through different dimensions.
Location-specific drivers
The location-specific drivers concern country and industry characteristics that influence headquarter relocations. If the MNC lacks benefits from its current location, this might push them to relocate to another location. If another location presents greater location-specific benefits this will in turn pull them to locate in this position.
Business Environment
Several studies link the business environment of a country to the location of headquarter activities.
Some of the factors highlighted are low corporate taxes, employment rate, market size, wage levels, effective infrastructure and access to highly skilled employees(Baaij et al., 2012; Barner-Rasmussen et al., 2007; Bel & Fageda, 2008; Henrekson & Öhrn, 2011; Laamanen et al., 2012; Lunnan et al., 2011; Strauss-Kahn & Vives, 2009).
The importance of the factors is not always agreed upon by research. One example is corporate tax, which gets a lot of attention by media and politicians (Laamanen et al., 2012). Some research highlights that this has a large effect on relocations of the legal domicile of the MNC (eg. Baaij et al., 2012), while others suggest that corporate tax rates have a smaller or almost no influence (eg.
Braunerhjelm, 2004).
Some factors are double-sided, in the sense that both a high and low level can encourage relocation.
Laamanen et al (2012) consider wage level as one of these factors. Low wage levels have traditionally been seen as favorable for a location, while higher wage levels might indicate things like a well-educated workforce etc.
Institutional Quality
Lunnan et al (2011) suggest that divisional headquarters often locate in mature and safe locations.
These type of characteristics fall under what are considered the institutional quality of a location.
Institutional quality covers the cultural and political climate, as well as infrastructure and the legal and regulatory framework of a location. Several studies find institutional quality as an important explanation for the location of headquarters (Baaij et al., 2012; Braunerhjelm, 2004; Lunnan et al., 2011).
Business Services
While manufacturing operations and sales subsidiaries are dispersed across a great demographic and geographic range, headquarters are normally concentrated in large metropolitan areas (Bel &
Fageda, 2008). This agglomeration is partly caused by the availability of large-scale business services and financial intermediation services in metropolitan areas (Enright, 2000; Porter, 1990).
One prominent example is financial clusters, such as London, UK. Birkinshaw et al (2006) identify two specific beneficial reasons to be near a financial cluster: First it eases the communication with institutional investors and investment banks. Second it makes the corporation more visible in the market and creates a higher familiarity of the stock among investors. Establishing corporate headquarters in a financial center is not necessarily efficient in terms of better performance but has a symbolic value since it sends a signal of no longer being constrained by local norms and expectations (Birkinshaw et al., 2006). A company relocating to a foreign financial center thus makes clear that it is a player in the global financial markets (Barner-Rasmussen et al., 2007), which can create social legitimacy and thereby be advantageous in the long run.
Industry
Previous literature sees the industry of the company as an important explanation for headquarter relocation (Baaij et al., 2004; Benito et al., 2011; Grøgaard, Gioia, & Benito, 2013; Lunnan et al., 2011).
Grøgaard et al (2013) find that even for firms with origin in SMOPECs, which are characterized by a natural tendency to internationalize, industry factors have a significant effect on the internationalization of companies. Even after firm-level characteristics are taken into account the significance of industry factors is supported.
Headquarters tend to relocate to locations that are specialized within the same industry and where competitors of the same sector are present, also known as agglomeration. Agglomeration creates industrial clusters with knowledge spillover, labor market pooling and input sharing from suppliers and competitors(Lunnan et al., 2011; Porter, 1990; Strauss-Kahn & Vives, 2009).
Strauss-Kahn & Vives (2009) state that these are important pragmatic reasons why industrial activity and concentration are essential in the location decision for headquarters. Further, they highlight that symbolic reasons, such as prestige and legitimacy might also be gained by co-locating within a cluster. One prominent example of such is the ICT cluster, Silicon Valley in San Francisco.
Besides access to capital, suppliers, employment etc. companies also gains legitimacy by locating in the global hotspot for their industry.
If industrial advantages can be accessed through the current location this might counteract or neutralize other motives for relocating(Benito et al., 2002; Strauss-Kahn & Vives, 2009). However, companies established in strong industry clusters can also be more competitively geared for global competitive advantages, thereby motivating relocation to exploit this advantage (Porter, 1990).
Firm-specific Drivers
The firm-specific drivers concern intra-firm characteristics that influence headquarter relocation.
While some characteristics might push headquarters to relocate, some might work to prevent them from doing so. The firm-specific drivers cover factors such as size, ownership and geographical distances within the MNC.
Size and Age
In their study of US headquarters Strauss-Kahn & Vives (2009) investigate, amongst others, age and size of corporations and headquarters and how it links to relocations. The paper finds that larger, in terms of sales, and younger headquarters tend to relocate more often. Large headquarters are often concerned with global activities and will be attracted by major business centers, such as the clusters explained above. Further they suggest that the history of the company matters when deciding whether to relocate. Younger headquarters does not have the same attachment to their current location, and will therefore be more likely to relocate.
Laamanen et al (2012) argue that larger headquarters, measured on employees, relocate less because of larger practical challenges of moving employees, firms, assets etc.
In the case of divisional headquarters, larger and more diversified MNCs tend to co-locate these with the corporate headquarter, because of the larger complexity of a large MNC (Benito et al., 2011).
Internationalization
Several studies find internationalization of the MNC as an important indicator of the likelihood to relocate headquarters (Baaij et al., 2012; Birkinshaw et al., 2006; Forsgren et al., 1995; Laamanen et al., 2012; Strandell & Löf, 2003).
The internationalization process is in itself a driver of further internationalization of headquarter activities. As the MNC internationalize it becomes more dependent on and affected by activities located abroad and might therefore be motivated to relocate closer to new centers of gravity(Benito, Christensen, Lunnan, & Tomassen, 2008).
Several studies suggest that closeness to customers has a strong effect on the propensity to relocate (Baaij et al., 2012; Braunerhjelm, 2004; Laamanen et al., 2012).
In their case study of four Finnish firms, Barner-Rasmussen et al (2007) find that the presence of key customers or competitors in another location, can make corporations relocate headquarters. For instance Danish Arla established a regional headquarter in the Middle East in 2008, to strengthen their relationship and closeness to this important market (Lene Møbjerg, 2008).
Ways of measuring internationalization in previous literature include foreign sales(eg. Laamanen et al., 2012), foreign employees(eg. Strandell & Löf, 2003) and amount of international assets (eg.
Baaij et al., 2012).
Ownership
Many studies find ownership to be an important factor in explaining the relocation of headquarters(eg. Barner-Rasmussen et al., 2007; Birkinshaw et al., 2006; Strandell & Löf, 2003).
There are two dimensions to ownership: The concentration of ownership and the nationality of owners.
Corporations can have highly dispersed ownership structure, e.g. some listed firms, or have a very concentrated ownership structure, for example family businesses or privately held companies.
With a dispersed ownership structure the company is under pressure to improve performance and increase the wealth of their shareholders. Furthermore, no small group of owners can decide on the future of the company (Laamanen et al., 2012). Therefore it wouldn't be expected for owners in a highly dispersed ownership structure to be opposed to headquarter relocations if it improves performance.
If the ownership is concentrated, relocations might be constrained by non-performance related reasons. A family or private owner might be guided by emotions, traditions or pressure from other stakeholders, such as employees (Laamanen et al., 2012). Birkinshaw et al (2006) furthermore argue that a private and concentrated ownership structure can make corporate headquarters less likely to relocate since the need to create stock liquidity and demands on regulatory disclosure are smaller. If governments make out a deciding part of owners their influence could be guided by concerns such as job creation and image, not related to the corporation’s performance (Benito et al., 2011; Birkinshaw et al., 2006).
Foreign ownership is a strong factor in explaining relocations of corporate and divisional headquarters(Baaij et al., 2012; Birkinshaw et al., 2006; Globaliseringsrådet, 2007; Henrekson &
Öhrn, 2011; Strandell & Löf, 2003; Strandell, 2007; Strandell, 2008; Ulstein, Grünfeld, & Ekrann, 2012; Vikström, 2005; Vikström, 2011:18).
The subject of foreign ownership has gotten a lot of attention in Scandinavia, especially in Sweden.
During the ‘90s many large Swedish corporations were taken over by foreign investors and subsequently the country saw a large wave of headquarter relocations(Henrekson & Öhrn, 2011).
Mergers & Acquisitions
Companies engaging in M&A activity have a higher propensity to relocate headquarters(Strandell
& Löf, 2003; Strandell, 2008; Strauss-Kahn & Vives, 2009).
In the case of acquisitions the decision of what to do with the old headquarter needs to be addressed.
If the company is interested in maintaining presence in the country Benito et al (2011) argue that the acquirer will most likely retain the current management since the company through the acquisition is moving into unfamiliar territory. Holding on to the managers can limit information asymmetry and maintain efficient coordination and control of local resources.
When a company is acquired its stakeholders might fear negative consequences from the acquisition, so to obtain commitment and cooperation from the stakeholders, the acquirer needs to obtain legitimacy within the company. One way of obtaining legitimacy is to retain the office and current management as a divisional or regional headquarter in the acquiring corporation (Lunnan et al., 2011). The status as a divisional or regional headquarter status might not in this case be a result of strategic importance, but a tool to decrease resentment towards the acquirer and increase embeddedness of the company.
One example is the acquisition by Brightpoint, of Danish company Dangaard. After the acquisition the former office and management was retained as a new European headquarter within Brightpoint.
However, only one year later the Danish headquarter was shut down in a cost cutting initiative, suggesting that Dangaard didn’t actually have a large strategic importance for Brightpoint (Andreassen, 2008; Ritzau, 2007).
In the case of mergers, where the location of the corporate headquarters is not given in advance, the location can become a big concern. The location of headquarters has a profound emotional and symbolic meaning (Barner-Rasmussen et al., 2007), and the attachment of management and the stakeholders to a location can be so strong that no agreement on a new location can be made. This was the case in the merger between the two telephone companies Telia and Telenor (TeliaSonera, 2013a). Swedish Telia was to merge with Norwegian Telenor in the late 90’s but after long negotiation disagreements on main office location the companies walked away from the merger. A few years later Telia merged with the Finish Sonera and established a corporate headquarter in Sweden (TeliaSonera, 2013b).
Geographical Distance
As companies expand internationally, activities are spread over multiple locations, creating distance between parts of the organization. If the geographical distance between headquarters and operations becomes too large, not only does travel and communication costs increase, and the company might also experience difficulties in knowledge sharing and internal collaboration (Laamanen et al., 2012;
Lunnan et al., 2011; Strandell, 2008). Headquarter relocation can be done with the objective of decreasing this distance and to facilitate communication between entities.
Simultaneously, headquarters might be attracted by other benefits in locations farther away from subsidiaries, which would create greater distance to subsidiaries. Examples include leading-edge industry clusters, where knowledge spill-over effects outweigh increased distance to subsidiaries.
Both effects possibly increase parenting value either through decreased headquarter costs, or increased added value by headquarter functions. Lunnan et al (2011) find that in certain cases, such as financial constraints there might be advantages of co-locating all headquarter activities close to home, and manage all international activities from one central location.
Summary
Headquarter relocations are affected by location and firm-specific drivers. Location-specific drivers concerns country and industry factors, while firm-specific concern intra-firm related factors.
The measures presented above are inspired by previous literature and will later form the basis for our own analysis of our dataset.
Research Method
The Research Method section gives an overview of how we have conducted our research.
First, we will touch upon our research strategy and design, followed by our sampling method and data collection. Last, we cover the measures used in analyzing our dataset.
Research Strategy and Design
The following section cover considerations regarding research strategy and design. First we cover the explorative and descriptive purpose of this study. Later we show how this study combines our explorative and descriptive purpose with quantifiable data analysis.
The Four Levels of Research Purpose
The purposes of business research generally fall into four types: explorative, descriptive, explanatory and normative(Ankersborg & Watt, 2007), which develop progressively in complexity and understanding(Blumberg, Cooper, & Schindler, 2008).
The explorative study uncovers parts of a somewhat unknown area. For example if only limited previous research exists on a phenomenon, it is suited for explorative research. The descriptive study builds on existing knowledge and tries to further describe the area in more detail. The explanatory study attempts to explain the phenomena that the descriptive study has merely observed.
Lastly the normative study suggests changes to the current state of the area based on research.
As we highlight in the literature review, the topic of headquarter relocations is a rather new area of research. While some previous literature exists, the amount of academic research within the field is limited and focused on certain subjects. For this paper we have therefore adapted a two-stage research design(Blumberg et al., 2008). Initially we apply an explorative purpose by searching through secondary data sources (see details on sampling method in section below). Based on the acquired information and insight, we move into the second stage where we apply descriptive statistics to the gathered information.
Within the scope of this paper we do not fulfill an explanatory or normative research purpose.
However, previous literature has fulfilled this purpose. For example a Swedish report by Strandell
& Löf(2003) fulfills the explanatory and normative purpose of business research. The study conducts an explanatory analysis of the causes behind headquarter relocations. Based on this analysis they make suggestions on how, and to which degree, countries can affect the factors that cause companies to move abroad.
This study applies a quantitative and deductive research strategy and design. In other words we quantify our findings and analyze them based on existing knowledge and theory within the academic literature (Bryman & Bell, 2011).
Studies involving an explorative purpose, as this paper, are typically conducted through inductive and qualitative research, as this method is especially suited for the nature of explorative business research(Blumberg et al., 2008). There are however several reasons why this study is better suited for a quantitative deductive research design. Below we list three important considerations.
1) The existing literature is mainly of a quantitative nature. Previous research has developed, described and tested a number of variables, measurements and indicators for headquarter relocation.
Therefore a pool of existing knowledge based on quantitative research and data is available for a deductive approach.
2) Our sample is large and diverse. The gathered dataset for this study contains a total of 105 observations of relocation events in Scandinavia, and is the largest dataset of this sort known to us.
Through quantitative research we can identify differences in large datasets that we wouldn’t be able to through qualitative research (Bryman & Bell, 2011).
3) This study is not exclusively explorative, but also contains elements of descriptive statistics. As mentioned explorative research is traditionally linked with a qualitative research strategy, but no similar link is suggested to descriptive research purposes.
Sampling Method and Data Collection
A crucial part of constructing our dataset is sampling and data collection. The following section covers sampling criteria and data collection method.
First, we cover the scope of research and which observations have been included or excluded from the dataset. Secondly, the steps of identifying and confirming relocations are covered. Lastly, we briefly explain the construction of an excel database based on our observations.
Scope of Research
Relocation events in our dataset were chosen within the following scope.
Relocations in and out of Scandinavia in 2000-2012
Relocations in and out of the three Scandinavian countries: Denmark, Norway and Sweden in the period 2000-2012 form the base of our analysis. Relocations between Scandinavian countries have also been included. Relocations within the same country are not included.
Throughout our analysis we focus on the year in which the decision to relocate was made. This entails that some relocations that physically took place within our time period have been excluded, and relocations that took place outside the period included.
In 1999 Securitas decided to move part of its top management to London, UK from Stockholm, Sweden. The actual relocation didn't finalize before mid-2000, but since the decision was made the year before, outside our time-period, the relocation is excluded from our sample (Reuters News, 1999; Securitas AB, 2000 p. 47).
The opposite case is found in the previously Norwegian company Seadrill. In 2012 Seadrill decided to move their Corporate Headquarters from Stavanger, Norway to London, UK. The actual relocation did not take place until 2013, but as the relocation was decided and made official in 2012, the relocation is included in the sample.
Corporate and Divisional headquarters
In accordance with the previous academic literature we investigate two distinct types of headquarters.
1. Corporate headquarters: Corporate headquarters is split into two parts. The operational headquarter, where executive management and usually most group functions are located, and the legal domicile, which is the registered location of the company. Both distinctions are included in this study.
2. Divisional headquarters: Corporations can have both divisional headquarters for a specific product or regional headquarters covering geographical areas, such as Europe or Scandinavia. For much of this paper we don’t distinguish between divisional and regional headquarters. The term divisional headquarter will therefore be used for both types. When we need to distinguish between the two, we use the term Pure
divisional headquarters for product divisions, and Regional headquarters for geographical oriented headquarters.
Group Functions and Business Units not Included
This study does not include relocations of just headquarter group functions or business units, including production facilities or sales offices.
Full, Partial and Legal Seat Relocations
We include three definitions of a headquarter relocation in our research. Full relocations, where both legal seat and the full operational headquarter are relocated. A legal seat relocation when no management was relocated, but the registered location of the headquarter was changed. And lastly, partial relocation when only some management was relocated. Partial relocations might or might not include a change in the legal domicile of the corporate headquarter.
Mergers & Acquisitions Presents a Special Case
When mergers and acquisitions take place it will most likely involve a headquarter relocation event.
To give an example imaging a French company acquires a Danish company. When the Danish company is acquired, it is converted to a subsidiary or a division of the French company.
Technically the previous headquarter responsibility and the legal seat of the Danish company has
Figure 6 - Divisional headquarter terminology
been relocated from Denmark to France, but this relocation will not necessarily be included in our dataset. Whether acquisitions are included in the sample depends on what happened with the former headquarter of the acquired company.
If the office, which after an acquisition could be considered a divisional headquarter of the French company, remained active in the country it was not considered a headquarter relocation. The reason being that although responsibility technically is moved, no active decision as to where the head office should be located is made. Therefore we consider it a technical relocation. For example Swedish Selmer Bostäder AB, acquired by Norwegian Veidikke ASA in 2000 is excluded from the sample. Although Selmer Bostäder AB was fully integrated into Veidikke ASA under the name Veidekke Fastighetsutveckling AB, the office remained active in Sweden(Reuters, 2000).
If, on the other hand, the office is shut down, or it is announced that management will move to a different location, the relocation would be included in our sample as a divisional headquarter relocation. For example American Klipsch acquired the Danish company Jamo in 2005. Already before Klipsch was announced as the buyer, Jamo made public that they would significantly reduce the office in Denmark, to the point where it was de facto shut down, and move management out of Denmark (Danish News Digest, 2005). This relocation is included in our sample.
In some cases the acquired company keep its office active for a period of time after an acquisition before shutting it down. One example is the relocation of the Swedish company Wasabröd. The Italian Barilla Group acquired Wasabröd in 1999. The Swedish headquarter did not however remain active until 2007 before relocating to Italy(Wasabröd, 2013). In our sample the relocation of 2007 is included with no mention of the 1999 acquisition.
If an active decision is not made the analytical value of our variables are reduced, as it is the active decision between the locations that matter to the result. So although this approach increase the risk of false negatives in our sample, we do so in an effort to reduce noise in our final results.
Double-relocations From Mergers or Joint Ventures
In the case of a merger or joint venture the decision on headquarter location will be made between the two companies, with two possible outcomes. The companies can agree on choosing one of the two current locations to continue as a corporate center for the new merged group or they can decide to establish the headquarter in a new location.
