Academic journal article E+M Ekonomie a Management

The Strategic Location of Regional Headquarters for Multinationals in Africa: South Africa as a Host Country

Academic journal article E+M Ekonomie a Management

The Strategic Location of Regional Headquarters for Multinationals in Africa: South Africa as a Host Country

Article excerpt

JEL Classification: M16.

Introduction

No company can operate at a global scale by centralizing all decisions and then farming them out to the entire world for implementation (Ohmae, 1989). The conditions in each market are too different and in some cases changes in market conditions are too rapid to accommodate long distance management. It is for this reason that many multinational companies have opted to establish regional headquarters (RHQs) in the different markets where they operate. The establishment of these regional offices allows multinational companies to have a local insight of the market, competition landscape and customer preferences. With such detailed insight, multinational companies are then able to formulate effective and responsive regional strategies. In addition, multinationals can improve competitiveness and differentiation against local companies by drawing from global resources such as finance, technology, bulk procurement, human capital and research to address regional customer requirements (Ambos & Birkinshaw, 2010; Ambos & Mahnke, 2010; Chen, 2008).

The importance and value of RHQs in the academic literature has generally focused on RHQs in industrialized countries (Asakawa & Lehrer, 2003; Doz & Prahalad, 1984; Hewett, Roth, & Roth, 2003; Piekkari, Nell, & Ghauri, 2010) although there has been an increasing focus on the Asian markets too (Holt, Gray, Purcell, & Pedersen, 2000; Lasserre, 1996). The result is that we do not yet fully possess an overall framework for understanding how value and decisions are devolved, how location decisions are made (certainly less so than with FDI flows), and how their structures and strategies are evolving to accommodate the growth in emerging markets. For example, are MNEs devolving the same amount of value and decision-making powers to RHQs in emerging markets as they would if they were located in industrialized host countries? In terms of location of RHQs in emerging markets, how do MNEs deal with institutional voids? This issue becomes all the more pressing in Africa which arguably has amongst the most uncertain institutional environments. In this paper we examine the dominant criteria used by MNEs to choose their locations for RHQs in Africa by examining South Africa as a host country for the continent with specific reference to the advantages of agglomeration and the accompanying economies of scale, the role of distance, and a sound institutional environment. The hegemony of South Africa on the African continent lends itself as a natural entry point for multinationals seeking to do business in Africa (see Luiz and Charalambous (2009); Luiz and Stephan (2012)). The topic is important because thus far there is no literature focused on location criteria for RHQs in Africa and indeed very little on the role of MNEs in Africa in general and the continent increasingly represents the last frontier to international business.

1. Literature Review: Criteria for Identifying RHQs Location

RHQs are intermediaries between corporate headquarters and country branches or subsidiaries themselves located in a number of countries. Dicken (2003, p. 239) explains it as follows:

Regional headquarter constitutes an intermediate level in the corporate organizational structure, having a geographical sphere of influence encompassing several countries ... Their primary responsibility is to integrate the parent company's activities within a region, that is, to coordinate and control the activities of the firm's affiliates (manufacturing unites, sales offices, etc.) and to act as the intermediary between the corporate headquarters and its affiliates within its particular region.

As organizations pursue foreign markets as part of their growth strategies, they are faced with the trade-off of local responsiveness and global integration. This has to be accommodated in their strategies and structures and in their organizational control (see Luiz and Visser (2014)). …

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