Many big companies relocate their headquarters and other facilities around the world to allow themselves to capitalize on the strategic benefits of the location. The strategic decision about the location of the business can open doors for new opportunities and can help them boost their bottom lines dramatically. Therefore, it’s important for businesses to make sure they’ve chosen the right location to establish their business. As costs of relocation are pretty high, businesses undergo months of research and planning before picking their new location.
Although most of the big companies and multinationals have headquarters in the country, they were founded in, and some factors can cause these companies to move their headquarters. Here are some reasons why companies relocate their headquarters around the world.
To Leveraging Tax Breaks
The very first reason for companies to relocate their headquarters is to enjoy low or no corporate taxes. The primary objective of a company is to earn profits. Countries with low corporate taxes allow companies to earn greater profits. Many countries around the world, such as Canada, have been reducing their corporate taxes to attract businesses to boost employment opportunities and economic growth.
Moreover, some countries in the world have no corporate taxes at all. These tax haven countries such as Panama, Switzerland, Bermuda, and Luxembourg are like corporate magnets. They attract companies due to their no corporate tax policies. Not just this, some of these countries also protect the financial information of these companies, which can be very attractive under certain circumstances.
Although this might seem like a smart move for corporates, this can often lead them into hot water. Companies relocating to save their profits can be blamed for tax evasion and might even be labeled as being irresponsible. Tax shaming has become a new norm. Even companies who are paying taxes often have to undergo public scrutiny to avoid paying taxes. This can have consequences affecting the corporate image of the company.
Moving to a new location just to save taxes can destroy the image the company has built over the years. Therefore, it’s important for companies to consider all the pros and cons of relocation before making the move.
To Raise Capital
Another reason for corporates to move their headquarters is to raise finances. Companies move their headquarters to financial hubs to have better opportunities to raise capital. Some of the best places for relocation when looking for better financial opportunities are London, New York, Hong Kong, and Frankfurt.
These financial centers have big investors to raise capital. Moreover, these places also have better investment opportunities. Both of which are very important for a company. However, these locations can be very expensive. As major corporate hubs, they’re a suitable place for companies, which in turn increases the demand making the place expensive. A company moving to a financial center will have to pay higher rents.
As most big companies can afford it, they often choose to have their headquarters in a place that has greater potential to raise finances to ensure better growth.
Have Access to Talent
Having access to the right talent is also one of the major considerations when relocating. Companies want to make sure they’re located in a place that can meet their labor demands. Skilled labor is a huge asset. It can often be hard to find the right talent when located far away. Companies want to be located in places where they can find white-collar talent suitable for their business operations. They also want to have access to unskilled labor at the prices they’re willing to pay.
Mergers and Acquisition
Often companies merged or acquired by bigger corporates move their headquarters to the location of the merging or buyer company. This happened when Budweiser was acquired by InBev and moved to Belgium. This makes it easier for the management to run the newly merged or acquired company. However, this relocation does come with a lot of challenges. The company has to go through the following to make the relocation is a success:
- Addressing Cultural Differences
- Reengineering Internal Processes
- Realigning Company’s Programs
Relocation due to a merger or acquisition can be very challenging for the firm. The company doesn’t just have to cope with change in management but also has to adapt to internal and external changes in the company’s processes and the external environment. It’s therefore very crucial for companies to completely think it through when making such relocation decisions.
There are two types of factors when considering relocation: push factors and pull factors. Push factors encourage companies to leave their current location and seek a better place, whereas pull factors attract companies to come and settle at a new place.
An increase in corporate taxes of the country where the company is located will act as a push factor. In contrast, a decrease in another country’s corporate taxes will act as a pull factor. Here’s a list of factors that can act as a push factor for a company.
Increase in Corporate Taxes
An increase in corporate taxes in the country can cause companies to look for alternate locations with lower corporate taxes. Higher corporate taxes can lower profit margins. Therefore, companies are often looking for a location with lower taxes.
Political stability plays a very important role in shaping the business environment of a country. An unstable political environment means that the economic policies regarding taxes, interest rates, trade, and businesses may change anytime without any notice. This is a red flag for big companies that may find relocation to a more stable country as the best option.
Moreover, countries with unstable political conditions are very risky to invest in. It’s often very difficult for companies to operate in these countries due to unstable conditions. This increases the overall financial risk of investing in such countries.
Increase in Competition
An increase in domestic competition can also cause the companies to relocate to have access to a greater market. Industries with low barriers of entry can often find themselves in such a situation. Too much competition can lower profit margins as the companies have to keep low prices to hold on to their customer base.
Domestic recession and slow to no economic growth can also cause countries to relocate. Companies may move from countries in a recession to countries in a boom to escape recessionary conditions. Although this might not be a smart choice as every country has to go through a slow period. Relocation just because the economy is slow might not be a good choice.
Trade Sanctions and Embargoes
Companies may relocate from countries under trade sanctions and embargoes to be able to import and export freely. Many companies are dependent on imports for their raw materials. Being unable to import raw materials can cause serious damage to companies. This applies more to manufacturing than the headquarters of a company. A company may move manufacturing to a country without the sanctions without having to move their headquarters.
Exiting a Trade Union
Trade unions have a lot of benefits for companies in the country. Many companies such as Panasonic, Dyson, and Sony announced their relocation due to Brexit. Companies are always looking out for such economic events and have contingency plans prepared to ensure their business functions aren’t affected.
Following Other Business Functions
The headquarter may follow other business activities and functions. The relocation first starts with moving important business functions abroad. The very first thing is to export your products. It then develops a sales channel and network. Once a network has been established, and the company has its own sales subsidiary overseas, it then invests in manufacturing.
If the conditions are suitable and most of the business functions and activities have already been moved abroad, the headquarter may consider moving. This is because it’s easier to manage business processes and production when business functions are located in proximity to the management hub, i.e., the headquarters.
Better Business Climate
Having a suitable business climate is also one of the major considerations of these corporates. They want to make sure they’re based in a country that supports economic growth and foreign businesses.
Having a suitable business climate doesn’t just depend on corporate taxes or the political environment. It depends on the entire business ecosystem. Some of the major things that companies consider when looking for a suitable business climate is:
A Big and Growing Target Market
Companies want to stay close to their markets. It helps them learn the changing trends and keeps them informed about the needs of their target groups, which helps them evolve products, services, and messages accordingly with time. A multinational may want to stay close to its largest market to make sure they’re able to meet their demands. Moreover, the growth of your TG is one of the most important things for your future success. A company may want to establish its offices in a place that has future potential to earn big profits.
Having some competition can be good for a company. It can encourage companies to work harder and be more innovative in their offerings to differentiate themselves. A healthy business climate should have some competition to regulate prices and ensure greater customer-centricity.
Although some competition may help companies, too much competition might lower the company’s chances of success and limit their profits. Therefore, it’s very important to study the competition before making any relocation decisions.
Other Important Factors
These include external factors like political, economic, social, technological, environmental, and legal considerations that may affect the functions of a business, some of which have already been explained above.
Clustering in Metropolitan Areas
According to a study, 65 percent of the headquarters in the United States are located in the top 20 metropolitan centers of the country. This is a very important observation and proves that most of the companies prefer metropolitan areas as the location of their headquarters. This is due to better financial opportunities and access to talent in these areas. Companies established in smaller cities move to big metropolitan areas once they have the capital to support their move.
Moving Core Functions Abroad
As mentioned earlier, it’s a common practice to move your business operations abroad before relocating your headquarters. Many companies in the past have moved their manufacturing abroad. This is due to the access to cheap labor in these markets.
The cheap labor allows these companies to lower their labor costs, increasing their profits dramatically. Although moving the manufacturing process abroad may seem like the first step to headquarter relocation, there are a lot of factors that limit companies to move to these countries.
Most of these places are located in third-world countries that don’t have a stable political or economic environment. They also have a lack of talent due to limited educational opportunities. Moreover, these countries don’t have a well-established financial system which makes raising capital very difficult. They also have a lack of investment opportunities which can further limit a company’s prospects to establish their headquarters in the country.
Hiring the Right Commercial Movers
Big companies hire commercial movers to ensure their moving goes smoothly without any issues. These companies make sure to hire the right moving experts with experience, skills, and expertise to undertake such a huge moving task.
If you’re looking for such movers to help you relocate your offices, contact Valley Relocation. We’re a commercial office moving company that offers relocation services in San Francisco, San Jose, and Sacramento. To move your headquarters to the financial hubs and metropolitan areas of the US, call (800)-284-6285.