The internationalization of markets and industries means executive offices and core functions are being moved abroad. Relocating top managers, however, can be risky. Organizations should explore the alternatives before making a decision. There are arguments for and against leaders crossing borders.
Long-distance relocation of the whole of a company’s headquarters remains rare. Long-distance relocation of the offices of members of the top management team and of core functions such as finance and R&D, on the other hand, is becoming more common.
The phenomenon is most clearly seen in small but highly internationalized economies such as Finland, Sweden and the Netherlands. However, it applies in bigger countries, too. The CEO of American oil services group Halliburton, for example, moved from the company’s Houston headquarters to Dubai in the United Arab Emirates in 2007.
The arguments for relocating executive offices can be powerful. When the ‘centre of gravity’ in an industry shifts it makes sense for members of the senior team to shift, too. The arguments against, however, might be stronger. In a recent survey, only half of companies that had moved senior managers abroad saw a rise in performance as a result.
Why might relocation ‘backfire’? A study of multinational corporations headquartered in the Netherlands provides some answers. Fifty-eight multinationals participated in the study, including Fortune Global 500 companies such as Royal Dutch Shell, Royal Philips Electronics, Unilever and Heineken.
Based on analysis of both interviews with leaders and survey data, the research identifies the factors that influence decisions on whether or not to relocate. These are split into ‘relocation drivers’ and ‘relocation barriers’.
The first ‘camp’ includes growing dependency on global markets and shareholders, a shift in focus towards overseas markets, and a decline in the international competitiveness of the home market (as a result, for example, of changes to legislation or a dwindling talent pool).
All of these are good reasons for ‘investing’ in a move. They are, however, counterbalanced by more intangible factors. Potential ‘barriers’ include:
Companies will need to assess the drivers and barriers carefully and understand the interplay between them. If the costs of the barriers outweigh the benefits of the drivers, a move will be ill-advised.
The following will be important ‘indicators’ for C-suites and boards when making their decision:
In a high number of cases, relocation of members of the senior team will not be the most effective strategy. Increasing the use of international communications technologies and international travel will be better. Alternatively, CEOs and senior leaders can be given the ‘best of both worlds’ option of the dual office — i.e. setting up abroad while retaining a base and staff at corporate HQ.
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