The research, based on a series of questionnaires and interviews, found that three types of stimuli lead companies to make a move. The first includes mergers and acquisitions. When companies join forces, they may seek a new corporate headquarters that has better access to capital markets and global competitors. AstraZeneca International, for example, was created by the 1999 merger between the Swedish company Astra and the U.K.’s Zeneca group. It is now headquartered in London, a hub for both finance and the pharmaceutical industry. Meanwhile, business unit centers tend to move to locations that are close to the merged operation’s multiple centers of gravity. For instance, after automation technology companies Asea AB and BBC Brown Boveri AG merged in 1990, the company’s process automation unit was relocated to Stamford, Conn., to be close to big industrial customers, whereas its metallurgy business remained in Sweden, to stick close to large Swedish steel companies.
The second mainspring of relocation is internal: either a change in the makeup of the business or a shift in the company’s global outlook. News Corporation’s move to New York from Melbourne, for example, recognized the fact that the company’s major assets had shifted to New York. Following its international customers and moving closer to financial markets prompted the decision by Autoliv, a Swedish manufacturer of seatbelts and airbags, to move some corporate functions to the United States in 1997. It then moved its corporate headquarters across the Atlantic in 1999. Finland’s Nokia has relocated its corporate finance function to New Jersey for similar reasons.
The final stimulus is what the authors label “an external threat from a host regime.” The packaging materials manufacturer Tetra Pak’s move from Sweden to Switzerland in 1981 provides an illustration. The company’s founders relocated after they became embroiled in a tax dispute with the Swedish government. And the brewing company SABMiller relocated to London from South Africa in search of a more stable business environment.
The authors note that cities and regions have the most to lose when corporations move out. Corporate and business unit headquarters attract business and money to an area, including professional services — banking, legal services, consulting, and accounting — and, of course, these enterprises contribute to local employment.
Aneel Karnani (email@example.com), “Essence of Strategy: Controversial Choices,” Ross School of Business Working Paper Series, Working Paper No. 1032. Click here.
Carly Fiorina, then CEO of Hewlett-Packard Company, wrote in a letter to shareholders in 2001 that “The merger of HP and Compaq is the best way to strengthen our businesses and improve our market position.” Walter Hewlett, HP board member and son of cofounder William Hewlett, openly disagreed. This very risky acquisition,” he wrote, “worsens the HP shareholders’ portfolio of businesses. It does not solve any strategic problems.”
Mr. Hewlett lost the argument. After a period of bitter wrangling involving an array of experts, investment bankers, management consultants, and stock analysts on both sides of the issue, the $25 billion HP–Compaq deal went ahead, and Walter Hewlett was stripped of his position on the board.
That high-profile case may have seemed vitriolic (and even more so for its aftermath of board-level wiretapping), but management disputes are actually not unusual. In fact, Aneel Karnani, associate professor of corporate strategy and international business at the Stephen M. Ross School of Business at the University of Michigan, has written that they are necessary. According to Professor Karnani, the nature of organizational decision making almost always involves conflict. Smart managers are bound to have opposing views, and differences of opinion should be encouraged because the ability to debate is a critical organizational skill. To make effective decisions, corporations must manage that conflict effectively.