A great article in the latest Economist magazine looks at the issue of corporate locations, and where you place your key executives. The subtitle asks: “Does the location of a company’s headquarters matter any more?” Read the article, from the 8 March 2007 editiion, here (subscription may be required).
Basically, the answer is that, “Yes” it does matter. Certain executive positions are being offshored, and big companies, like IBM and Nokia are leading the way in this trend.
FROM: The Economist
Manager, offshore thyself
Mar 8th 2007
From The Economist print edition
Does the location of a company’s headquarters matter any more?
ASK fans at the cricket World Cup, which starts in the West Indies on March 11th, where Wisden Group, the sport’s best-known publisher, is headquartered and most would guess London. Its heritage and brand are quintessentially English. Britain is still its biggest source of earnings. But its future lies to the east. Supporters of the Indian cricket team account for 60% of the traffic to the firm’s fast-growing Cricinfo website. Advertising and sponsorship in India are exploding too. Tom Gleeson, the group’s chief executive, relocated to Bangalore in August 2006. “If we are seriously saying that the future of the business is in India, then as CEO that’s where I have to be,” he says. Mr Gleeson’s hope is that a local successor will eventually replace him.
Wisden may be small, but it is not alone in rejigging the location of its top brass to suit the changing needs of its business. Wall Street banks have started shipping senior people from New York across the Atlantic in a nod to London’s growing financial clout. Nokia, Finland’s mobile-phone giant, has splintered its top ranks in the opposite direction: four members of its 11-strong senior management team, including the chief financial officer, are based in New York state. America accounts for only 7% of the firm’s sales, but it is a vital market, a financial hub (over 40% of the company’s investors are there) and home to lots of technology firms. As “convergence” shakes up the mobile-phone industry, Nokia wants to be close to the action.
Procurement bosses are meanwhile trickling towards Asia. In October John Paterson, IBM’s chief procurement officer, moved to Shenzhen, China, the first time the head of a company-wide function at the firm has been based outside America. Asia accounts for one-third of IBM’s $40 billion purchasing budget and that share is expected to grow. Mr Paterson says he had to move in order to improve IBM’s purchasing talent in the region and to develop the local supply base, particularly for software and services.
Wisden, Nokia and IBM believe others will follow their lead. Parcelling jobs out to where they are done best is, after all, the essence of offshoring. It’s all too easy to be distant from your market and from your people, warns Mr Gleeson. Yet virtual management does not have to mean decentralised management. Technology means you can run global operations from anywhere in the world, says Mr Paterson. The boss of Lenovo, a computer firm, lives in Singapore, for instance, but its principal operations are in China and America.
Some think the status and power of headquarters are waning as a result. One sign of this may be growing sales of commercial property. Robert Bonwell of Jones Lang LaSalle, a property consultancy, reports that occupiers offloaded real-estate assets worth more than $55 billion last year, much of it office space.
But the era of the virtual HQ is still some way off. Corporate headquarters have three main jobs: handling administrative tasks such as paying tax and raising capital; housing “parenting” roles such as strategic planning, dealmaking and talent management; and providing shared services that span businesses. Shared services have been progressively unplugged from headquarters over the past decade, but the other roles tend to be stickier.
According to Margaret Exley of Mercer Delta, a consultancy, managers like to be near each other. Left to their own virtual devices, they would tend to focus on their own fiefs. Bosses also like to be near investors. Recent research by academics in Britain and Sweden suggests that corporate headquarters are becoming more mobile: 23 firms in the Fortune 500 have moved their head offices from one country to another, more than half of them in the past five years—partly because they want to be near global financial centres.
In some cases heritage matters too. Wal-Mart is synonymous with Bentonville, its home town in Arkansas, and Hershey takes its name from the town in Pennsylvania where it is based. Heineken’s boss has his office in what used to be the founding family’s salon. Wisden’s Mr Gleeson may have moved, but he will not tamper with tradition too much: the editor of Wisden’s famous yellow Almanack remains firmly entrenched in Britain.
Manager, offshore thyself
