Luggage tag for Japan Air Transport, 1937 (Source: Wikimedia Commons)
Ideas for Leaders #368

Relocating Leaders Abroad: Pros and Cons

This is one of our free-to-access content pieces. To gain access to all Ideas for Leaders content please Log In Here or if you are not already a Subscriber then Subscribe Here.

Key Concept

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.

Idea Summary

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:

  • Reluctance to leave. Unwillingness on the part of executives to move from their home or current ‘host’ country can reduce motivation and performance.
  • Interdependencies between leaders. In some circumstances, the removal of an individual from HQ will threaten the cohesion of the top team.
  • Fiscal and legal constraints. For example, rules requiring top managers to be based in the home country and tax penalties imposed for leaving.

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.

Business Application

The following will be important ‘indicators’ for C-suites and boards when making their decision:

  • The percentage of shares held abroad; the number of financial listings abroad.
  • The percentage of total assets and employees abroad.
  • Volume of sales abroad.
  • The size and quality of the management talent pool.
  • The percentage of the top team native to the ‘home’ country — and the percentage with no international experience.
  • The fiscal and legal environment — both ‘at home’ and in the new country.
  • The quality of the infrastructure — both ‘at home’ and in the new country.
  • The degree of interdependency between members of the senior leadership team.

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.

Contact Us

Authors

Institutions

Source

Idea conceived

  • December 2011

Idea posted

  • April 2014

DOI number

10.13007/368

Subject

Real Time Analytics