Factors Influencing Location of Regional Headquarters for Multinationals

Abstract

As organisations pursue foreign markets as part of their growth strategy, global integration of the businesses throughout the world is always a challenge. In response to this challenge, multinational organisations have embraced the concept of regional headquarters. The study investigates the criteria used by multinational companies to identify the locations of their regional headquarters. The study also reflects on the importance or value that multinational companies assign to the respective regional offices. The assigned value covers the control imposed on the regional headquarters, the strategic decision-making authority apportioned to the regional headquarters, innovation responsibility and marketing responsibility. By using this study as a reference, the South African government and other stakeholders will be able to formulate strategies aimed at positioning the country as a preferred host of regional headquarters. The country will then be able to reap some of the benefits associated with hosting regional headquarters such as concentration and accumulation of international capital and skills. Based on the literature review, 18 factors were identified as important in making the regional headquarters location decision. A survey questionnaire to determine the importance of the 18 factors and assigned value was developed and interviews were conducted with 20 senior executives representing multinational companies that have a presence in South Africa. Out of the 18 factors, six factors were found to be very important, seven factors are important and the remaining five are less important. Out of the 13 factors found to be very important and important, South Africa featured positively on all with the exception of two factors where less than 60% of the respondents rated the country favourably. These factors are the availability of a skilled workforce (25% favourable) and the availability of an economic IT infrastructure (30% favourable). On the assigned value, the study found that companies always strive for a balance between local responsiveness and global integration. Expatriates are deployed where there is a shortage of local skills and regional offices contribute in the formulation of the global strategy. Centralisation of R&D is ii preferred in driving innovation and a level of local customisation is accommodated in marketing initiatives at regional offices.