urban studies - national university of singapore

Urban Studies, Vol. 38, No. 1, 157–183, 2001

Towards a Regional Strategy: The Role ofRegional Headquarters of Foreign Firms inSingapore

Henry Wai-chung Yeung, Jessie Poon and Martin Perry

[Paper � rst received, September 1999; in � nal form, February 2000]

Summary. This paper presents a framework for analysing the role of regional headquarters inthe globalisation strategies of transnational corporations (TNCs). Drawing upon a theoretical gapin existing urban studies and international business literature, we argue that the triadisation andregionalisation of TNC activities increase the demand for control and co-ordination functionspreviously performed by the global headquarters. Many global corporations consequently estab-lish regional headquarters to penetrate into emerging markets, which may be too geographicallydistant to be co-ordinated and managed by the global HQs, and to achieve simultaneously globalintegration and local responsiveness. Based upon an empirical survey of 130 RHQs in Singaporeand 20 follow-up personal interviews, we test some of the propositions of this regional strategyframework. Our � ndings tentatively con� rm that three independent variables play a statisticallysigni� cant role in shaping the strategic decision by global corporations to establish RHQs inSingapore: geographical distance, strategic necessity and the availability of business services.

Introduction

How do global corporations manage theirvalue-added activities outside their home re-gions? The accelerated globalisation oftransnational corporations (TNCs) fromNorth America, western Europe and Japansince the late 1960s has challenged theircapabilities to manage subsidiaries andaf� liates abroad. With increased globalreach, TNCs have to resolve the dauntingissue of how to manage complex productionand marketing networks outside their homecountries and regions (Prahalad and Doz,1987; Bartlett and Ghoshal, 1989; Bartlettand Hedlund, 1996; Nohria and Ghoshal,1997). This transnational management task is

intensi� ed by global competition in mostleading industries (Porter, 1986; Hood andValne, 1988; Hamel and Prahalad, 1994). Onthe other hand, a parallel process to globali-sation is regionalisation in which three re-gions have clearly emerged as the leadingpillars of a tripolar global economy—NorthAmerica, western Europe and east Asia(Levy, 1995; Poon, 1997; Mirza, 1998). Thedriving force behind regionalisation is theformation of relatively homogeneous mar-kets, an outcome of economic integration atthe regional scale. While the truly globalmarket-place is still to be created in mostindustries, TNCs are organising regional

Henry Wai-chung Yeung and Martin Perry are in the Department of Geography, National University of Singapore, 1 Arts Link,Singapore 117570. Fax: 65 777 3091. E-mail: [email protected] and [email protected]. Jessie Poon is in theDepartment of Geography, University of Buffalo– SUNY, Wilkeson Quad, Buffalo, New York 14261, USA. Fax: 716 645 2329. E-mail:[email protected].

0042-0980 Print/1360-063X On-line/01/010157-27 Ó 2001 The Editors of Urban StudiesDOI: 10.1080/0042098002 0014866

HENRY WAI-CHUNG YEUNG ET AL.158

strategies consistent with the relative markethomogeneity at this geographical scale.

In this context of globalisation and region-alisation, we � nd that many global corpora-tions are increasingly adopting a regionalstrategy in which regions become the pri-mary organisational focus of the worldwideweb of TNC activities. This strategy isnecessary for two reasons. First, even withinthe relative market homogeneity at theregional scale, localised management isrequired to understand fully the nature andever-changing conditions of host regions.Secondly, managing from a distance, particu-larly cross-regional management, is nolonger an acceptable tool for strategic man-agement in a world of keen competition andhigh demand for local responsiveness. Theimplementation of a regional strategy inmanaging foreign activities takes the form ofestablishing regional headquarters (RHQs) inhost regions. Taking a stricter de� nition, weview regional headquarters as a business es-tablishment that has control and managementresponsibilities for the operation of one ormore other subsidiaries or af� liated compa-nies located in the same host region. Thisde� nition effectively excludes regionalof� ces that are de� ned as either solely arepresentative of� ce or a sole operating es-tablishment in the region. For AmericanTNCs, the regional strategy is translated intoestablishing regional co-ordination and man-agement centres in Europe and Asia (seeHeenan, 1979; Daniels, 1987; Sullivan,1992). Similarly for European TNCs, theirentry into the Asia-Paci� c markets is spear-headed by setting up RHQs in Asia (seeLasserre, 1996; Ho, 1998). Coming fromAsia, Japanese TNCs are increasingly estab-lishing RHQs not only in North America andwestern Europe, but also interestingly withinAsia to manage their diverse production andsourcing networks in east and south-eastAsia (Aoki and Tachiki, 1992). Together,these trends towards a regional strategy inthe global reach of triad-based TNCs becomean exciting topic for research in urban studiesand international business.

With a few exceptions, urban studies and

international business research have not fullyaddressed the role and functions of RHQs inthe global reach of TNCs. Instead, the litera-ture has focused exclusively on thecon� gurations of parent–subsidiary relation-ships and the responsibilities allocated toforeign subsidiaries (see, for example,Alsegg, 1971; Otterbeck, 1981; Prahalad andDoz, 1987; Bartlett and Ghoshal, 1989).Since the 1970s, these studies have evolvedfrom the strategic management school inwhich it is believed that the understanding ofthe relationships between parent TNCs andtheir subsidiaries will enhance the effective-ness of implementing global strategies andmanaging foreign subsidiaries. Early studiesof parent–subsidiary relationships focused onvarious mechanisms through which TNCscould combine faster growth with the controland co-ordination of their foreign af� liatesand subsidiaries (Alsegg, 1971; Youssef,1975; Doz and Prahalad, 1981, 1984; Cray,1984; Gates and Egelhoff, 1986; Martinezand Jarillo, 1988, 1991; see also the branchplant literature in Britton, 1976; Dicken,1976; Watts, 1981; Phelps, 1993; Turok,1993). A key dimension for distinguishinginternational strategies was the extent of inte-gration and level of autonomy that foreignsubsidiaries had from parent TNCs. Controland co-ordination mechanisms containedboth strategic and cultural attributes. Strate-gically, foreign subsidiaries of TNCs couldbe controlled through resource allocation byparent HQs. These strategic resources couldbe capital, materials, technology and, some-times, knowledge in networks (Gupta andGovindarajan, 1991; Marschan et al., 1996).Boards of directors in foreign subsidiariescould also be a useful mode of strategicgovernance (Kriger and Rich, 1987). In othercases, however, consensual decision-makingwas also recognised as a facilitator of cul-tural control (see, for example, Jaeger, 1983;Baliga and Jaeger, 1984). Various social con-trol mechanisms were recognised such asinformal communications, socialisation, trustrelationships and rotation of top executives.

Another recent strand of the literature onparent–subsidiaries relationships focuses on

TOWARDS A REGIONAL STRATEGY 159

Table 1. Typologies of subsidiary role types

Key authors Local implementer Specialised contributor World mandate

White and Poynter (1984) Miniature replica Rationalised manufacturer Global mandateProduct specialist

D’Cruz (1986) Branch plant Globally rationalized World product mandate

Bartlett and Ghoshal Implementer Contributor Strategic leader(1986)

Jarillo and Martinez Autonomous Receptive Active(1990)

Gupta and Govindarajan Local innovator Global innovator Integrated player(1991) Implementer

Roth and Morrison (1992) Integrated Global subsidiarymandate

Source: Birkinshaw and Morrison (1995, Table 1).

the role of subsidiaries within a TNC’s in-vestment portfolio. These studies havemoved away from such questions as how tocontrol and co-ordinate foreign subsidiaries.Instead, they ask what is the role of foreignsubsidiaries in the overall strategy of theTNC. Various typologies to capture the roletypes of foreign subsidiaries have been pro-posed (see Table 1). A local implementer, forexample, is expected to have only limitedgeographical, product and value-added scope(Birkinshaw and Morrison, 1995; Birkin-shaw, 1996). Its existence is merely to lo-calise the global strategy pre-determined bythe parent TNC. There is not much scope forinnovations and active participation in theformulation of global strategies. In thissense, the organisational structure of a TNCwith several local implementers resemblesthat of a multidomestic structure (Dunning,1993). This is in fact how most TNCs man-aged their overseas subsidiaries in the early20th century. The role of a subsidiary as aspecialised contributor means that it has con-siderable expertise in certain functions oractivities, although the subsidiary is stillhighly co-ordinated with other subsidiaries ofthe same TNC. The role of a specialisedcontributor is thus rather passive because ithas to perform certain functions ‘imposed’

by its parent � rms. Through specialisation incertain products or functions, a subsidiarycan contribute to the successful launch ofglobal products by the parent TNC. A � nalrole type of subsidiaries is the world mandatethat works with its HQ to develop and im-plement global strategy (Roth and Morrison,1992; Birkinshaw and Hood, 1997).

To date, there are only a handful of studieson regional HQs (see, for example, Heenan,1979; Grosse, 1981; Daniels, 1987; Perry,1992; Sullivan, 1992; Forsgren et al., 1995;Lasserre, 1996; Ho, 1998). This oversightre� ects the tendency to adopt a dichotomousview of the relationships between parentHQs and their foreign subsidiaries. In otherwords, any TNC is perceived to have onlyone headquarters based in a particular coun-try. Everything else is a subsidiary whichexperiences varying degrees of control andco-ordination, depending on the nature of itsrelationships with the HQ and its role in theglobal strategy of the parent � rm. Althoughthe notion of a subsidiary as a world mandateof global strategies can provide some in-sights into the role of regional HQs withinthe TNC organisation, it is still far fromoffering a comprehensive understanding oftheir functions, organisation, structure andresponsibilities within the overall corporate


hierarchy of TNCs. Another reason for therelative lack of attention to regional HQs inexisting research may be attributed to theperceived lack of direct importance in thesecorporate entities. Early internationalisationof TNCs followed a multidomestic structurein which foreign af� liates and subsidiariesperformed a local implementer role. At thattime, regional HQs were redundant becauselocal subsidiaries were expected to followthe general guidelines and strategic predis-position of parent � rms in North Americaand western Europe. It should be noted, how-ever, that this tight control of some distantbranch plants might not always be effectivelyco-ordinated from parent companies. Theglobal market then was also very fragmentedwithout clearly recognisable regional divi-sions of labour and emerging regional mar-kets. Today, the complexity of acceleratedglobalisation has forced TNCs to considerthe strategic option of using RHQs to controland co-ordinate their value-chain activities indifferent regions.

This paper presents some empirical� ndings from an exploratory study of theRHQs of foreign � rms in Singapore. Wehave chosen Singapore, a city-state with ahigh concentration of RHQs controlled byforeign TNCs, as our location of study andsurvey. The major concentrations of RHQs inthe Asia-Paci� c region are found in Singa-pore, Hong Kong and Tokyo, although awider range of locations is now being pro-moted as competing centres (for example,Seoul, Taipei, Kuala Lumpur and Bangkok;see Figure 1). Hong Kong and Singapore arewell known as ‘twin capitals’ for the locationof RHQs that are responsible for the entireAsia-Paci� c region. It should be noted, how-ever, that some global TNCs maintain oneRHQ each in Hong Kong and Singaporebecause both RHQs have different sub-regional scope within Asia. Whereas RHQsin Hong Kong tend to be responsible forcontrolling and managing other subsidiariesin east Asia (i.e. China, Taiwan and SouthKorea), their counterparts in Singapore takecharge of subsidiaries in south-east Asia and,sometimes, Australia and New Zealand. Such

a complementary sub-regional division oflabour among RHQs in Hong Kong andSingapore is more common among US andEuropean TNCs. It is much less commonamong Japanese TNCs (and to a lesser extentTaiwanese and South Korean TNCs) becausethe parent companies can control operationsin east Asia directly. But they often establisha RHQ in Singapore to manage their sub-sidiaries and production networks in south-east Asia. Together with Tokyo, Hong Kongand Singapore were rated the ‘big three’centres for RHQs in the Asia-Paci� c regionin the 1990s (Business International, 1990;The Straits Times, 28 May 1990; BusinessTimes (Singapore), 26 June 1991). The Econ-omic Development Board of Singapore re-cently estimated that Singapore hosted some2000 regional of� ces, one-quarter of whichmight be RHQs of foreign � rms (The StraitsTimes, 31 January 1996). The samples in ourstudy are therefore designed to be representa-tive of RHQs of foreign � rms located inSingapore.

This paper is based on results from aquestionnaire survey of 130 RHQs of foreignTNCs in Singapore and follow-up personalinterviews with 20 respondents. It aims tomake two modest contributions to the litera-ture: to build a general analytical frameworkfor understanding the management and con-trol of regional operations by global TNCs;and, to test some of the underlying proposi-tions in this framework. Through an analysisof both quantitative and qualitative data, we� nd that there is a strategic necessity forglobal corporations to establish RHQs in or-der to achieve greater locational bene� tsthrough regional positioning and informationintelligence activities. We also note that hostcountry conditions play a crucial role in at-tracting the urban location of these RHQs.Analytically, the propensities of global cor-porations to establish these regional organi-sational structures are dependent upon thestructural context of globalisation and re-gionalisation and the regional context ofhome country variables (proximity, familiar-ity with and commitment to host regions,etc.) and host country variables (government


Figure 1. Major capital cities in east and south-east Asia

incentives, local infrastructure and proximityto regional markets, etc.).

This paper is organised into four sections.The next section sets the empirical context ofthis paper by brie� y reviewing the role ofRHQs of foreign � rms in Singapore. In sec-tion 2, the paper outlines the role and func-

tions of RHQs according to shifts in regionalstrategy and functions. We then propose aregional strategic approach through whichglobal TNCs manage their foreign sub-sidiaries/af� liates in different geographicalregions. Based on qualitative informationfrom personal interviews with top executives


from RHQs in Singapore, we build an ana-lytical framework for understanding the re-gional organisation of TNC activities. Wealso derive some testable propositions fromthis framework. In the penultimate section,we use data from a survey of 130 RHQs inSingapore to test some of our earlier proposi-tions. In the concluding section, we summar-ise the main � ndings of this paper andidentify some limitations of this study.

Regional Headquarters of Foreign Firmsin Singapore

Despite the recent economic crisis, the Asia-Paci� c region remains an increasingly im-portant centre of gravity in the globaleconomy (Dixon and Drakakis-Smith, 1993;Abegglen, 1994; Kawagoe and Sekiguchi,1995; Lasserre and Schutte, 1995; de Bettig-nies, 1996). The in� ux of inward FDI intothe region has been on a huge scale, primar-ily through the activities of TNCs. Severalcountries within the region (China, Singa-pore, Malaysia and Hong Kong) are the lead-ing destinations for FDI and TNCs amongthe developing countries. Together, these 4Asian economies accounted for 37 per centof the total FDI to all developing countries(US$281 billion) for the period 1981–92(UNCTAD, 1994, Table I.5). Singapore is acity-state strategically located at the southerntip of peninsula Malaysia in the south-eastAsian region (see Figure 1). It has grownfrom a British colonial entrepot in the late19th century and early 20th century to amodern economic centre specialising in high-value-added manufacturing activities and in-ternational � nancial and business services(Regnier, 1991; Huff, 1994; Perry et al.,1997; Low, 1998). As early as 1970, Singa-pore was ranked second in Asia in termsannual per capital income, after Japan(Yeung, 1973, p. 6). Today, it has an annualGNP per capita at US$26 400 (Asia Maga-zine, 16–18 August 1996, p. 17). The dom-estic economy has experienced high growthrates above an average of 6.7 per cent in thepast three decades (see Table 2). Foreigninvestment has always been one of the cor-

nerstones of the island economy (Hughes andSing, 1969; Yoshihara, 1976; Mirza, 1986;Rodan, 1989). As shown in Table 3, netforeign investment commitments in Singa-pore’s manufacturing sector have growntremendously from S$89 million in 1963 toS$5716 million in 1996, representing morethan 64-fold jump over a period of threedecades (see also Ramstetter, 1996). Thissurge in foreign investment became muchmore drastic in the post-1985 period whenJapanese investment supplemented in� owsfrom leading investors in the US, the UK, theNetherlands and Germany. In 1996, Japan(S$1960 million) came very close to the US(S$2262 million) as the second-largest inves-tor in Singapore’s manufacturing sector. For-eign-owned companies in Singaporeaccounted for over half of total equity invest-ment from Singapore in 1993. Throughoutthe 1980s and into the early 1990s, Singa-pore attracted over 10 per cent of all FDIreceived by destinations outside the OECD(Perry et al., 1997, p. 15).

Given its export orientation and smalldomestic economy, Singapore has reliedupon foreign investment to drive its industri-alisation process and economic developmentover the past three decades. Since its inde-pendence, Singapore has relentlessly pursueda national development strategy that dependsheavily on the in� ux of foreign capital in theform of direct investment and on the leadingrole of state-owned enterprises. This relianceon foreign capital worked very well in the� rst two decades of Singapore’s industrialis-ation by plugging itself into the so-callednew international division of labour. Thestrategy of courting foreign capital was per-ceived as

essential in view of the weak domestictechnological base and the long lead-timeneeded to transform domestic entrepottraders and small-scale entrepreneurs intoa dynamic industrial entrepreneurial classable to compete in the global market(Chia, 1997, p. 32).

The city-state was transformed from anisland of massive unemployment in the


Table 2. Singapore’s macro-economic indicators, 1960–92 (percentage)

Indicators 1960–66 1960–69 1970–79 1980–92

Annual real GDP growth rate 5.7 8.0 8.3 6.7Annual in� ation rate 1.1 1.1 5.8 2.4Savings ratio (over GDP) 6.7 11.5 28.8 42.7Investment ratio (over GDP) 17.5 20.7 40.5 41.3Foreign investment (percentage of GFCF) 2 2 22.1 26.3

1960 1969 1979 1992

Gross domestic product (S$million) 5 059 10 730 26 285 64 771Agriculture and quarrying 3.8 2.7 1.5 0.4Manufacturing 16.6 23.2 29.4 27.6Construction and utilities 7.0 10.7 9.1 8.9Commerce 24.6 22.9 19.4 18.2Transport and communications 8.8 7.2 11.6 14.7Financial and business services 14.0 16.5 18.9 26.1Other services 19.6 15.7 12.2 10.2

Source: Huff (1995, Tables 1– 2 and 6).

1960s to an offshore manufacturing pro-duction site sustained by imported labour bythe late 1970s. The ‘Second Industrial Revol-ution’ through upward wage adjustmentsduring the late 1970s resulted in a shift inSingapore’s industrialisation strategy froman offshore production location to a centrefor the spatial agglomeration of high-value-added and high-tech investments in leadingindustries. Since the mid 1980s, Singaporehas also been actively seeking the location ofthe control and co-ordination functions ofleading global corporations in order to de-velop the city into a truly international busi-ness hub, serving countries within andbeyond the south-east Asia region. Regionalheadquarters of major global corporationshave been sought after and promoted. It ishoped that these RHQs bring in high-value-added jobs and skills to the aspiring white-collar workforce in Singapore. The state hasagain taken the initiative to attract theseRHQs through a clearly de� ned set of strate-gies.

Given this development strategy, the Sin-gapore economy was, and still is, heavilydependent on foreign investment. In 1966,foreign investment represented some 45 percent of total gross � xed assets in manufactur-ing (Rodan, 1989, p. 99). By 1978, this � gure

had grown rapidly to 79 per cent. Majority-foreign-owned companies also accounted for87 per cent of all manufactured exports for1976–88 (Rodan, 1989, p. 130). The Depart-ment of Statistics (1992b, Table 7) estimatesthat, by 1989, foreign interests controlledsome 73 per cent of total assets in all sectorsof Singapore’s economy, amounting toS$685 billion. As an assessment of the im-portance of foreign capital in Singapore’seconomy, Huff (1995) estimates that foreigninvestment contributed some 22 per cent and26 per cent of the gross domestic � xedcapital formation during the 1970–79 and1980–92 periods respectively (see Table 2).This ratio of foreign investment to GFCF iscertainly one of the highest among the AsianNIEs. Today, Singapore is hosting some3000 foreign TNCs, 700 of which are inthe manufacturing sector (Tan, 1995, p. 5).Some 80 per cent of Singapore’s exports,40 per cent of employment and 26 per centof gross domestic capital formation aredirectly or indirectly accounted for by for-eign TNCs. A large number of RHQs, con-trolled by these foreign TNCs, exist tocontrol and manage their diverse operationsand production networks in south-east Asiaand, sometimes, in the Asia-Paci� c region.How then do we analyse their strategic

164 HENRY WAI-CHUNG YEUNG ET AL.

Tab

le3.

Net

inve

stm

ent

com

mitm

ents

inm

anuf

actu

ring

inSi

ngap

ore

byco

untr

yof

orig

in,1

963–

96(S

$mill

ion)

Cou

ntry

1963

1973

1980

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

USA

18.3

8.8

505.

842

7.3

443.

454

3.5

586.

652

0.2

1054

.896

9.2

1201

.414

52.2

2451

.720

75.8

2262

.0Ja

pan

27.2

151.

413

9.7

244.

149

3.8

601.

169

1.3

541.

270

8.2

713.

285

8.0

779.

491

3.8

1152

.519

60.4

Eur

ope

43.9

360.

420

1.0

218.

828

5.8

358.

154

4.2

435.

368

4.2

618.

788

1.8

907.

015

26.3

1389

.1Fr

ance

22

18.8

15.1

27.8

15.2

86.0

106.

060

.475

.234

.112

4.9

54.0

140.

559

.1G

erm

any

218

.469

.220

.116

.790

.346

.726

.416

5.7

60.2

106.

420

4.6

91.8

183.

924

6.4

Ital

y0.

42

45.4

25.

122

.068

.032

.82

70.1

26.7

43.3

38.9

12.8

53.9

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herl

ands

2.5

0.6

1.0

75.2

57.1

70.9

82.9

174.

072

.621

6.2

43.1

7.7

175.

639

1.4

517.

8Sw

eden

3.2

21.0

53.6

14.9

5.4

8.7

22

7.1

1.2

19.3

5.0

22

2Sw

itzer

land

5.3

235

.84.

77.

727

.810

.10.

932

.712

.663

.166

.311

.413

.260

.1U

nite

dK

ingd

om3.

71.

912

9.5

69.4

93.4

42.4

56.6

174.

689

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6.5

305.

535

7.8

525.

177

1.6

397.

6O

ther

22.

07.

11.

65.

68.

526

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962

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.310

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30.

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02

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20.0

170.

114

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.717

.719

.814

.464

.248

.847

.554

.997

.810

4.8

Tot

al88

.622

4.1

1199

.088

8.0

1190

.614

48.0

1657

.816

25.4

2217

.924

61.1

2733

.031

77.0

4327

.448

52.4

5716

.2

Sour

ce:

Dep

artm

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ofSt

atis

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(var

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year

s).


role and the reasons behind their establish-ment in Singapore?

The Role of Regional Headquarters in theGlobal Strategies of TNCs: Towards anAnalytical Framework

Since the late 1970s, the global economy hasbecome more competitive and regionalisedwith the emergence of the triad regions cen-tred around North America, western Europeand the Asia-Paci� c (Ohmae, 1985; Levy,1995; Poon, 1997). In particular, the strategicrole of regional HQs is increasingly import-ant as TNCs seek ‘regional embeddedness’—a process of regionalisation in which a TNCoperates and manages its subsidiaries on aregional basis to capture economies of re-gionalisation. This regional strategy can bede� ned as “the cross-subsidisation of market-share battles in pursuit of regional pro-duction, branding and distributionadvantages” (Morrison and Roth, 1992,p. 45; see also Morrison et al., 1991). A US� rm with a regional strategy will locate itsstrategic decision-making within the host re-gion (for example, Asia), while maintainingthe same regional structures for all otherregions in which it operates. The TNC thusbecomes an international � rm with regionaloperations. Its RHQs are strategic mid-wayhouses to implement global strategies at aregional level. They are the “strategic win-dows” and “windows of in� uence” for global� rms (Kriger and Rich, 1987, p. 45). As“strategic windows”, RHQs attempt to un-derstand local host region changes as soon aspossible and, in the process, not overlookchannels for learning of those changesquickly. As “windows of in� uence”, RHQsserve as two-way conduits of in� uence be-tween various stakeholder groups in the hostregion and key decision-makers in parent� rms at home. RHQs can encourage thesestakeholders to think or to act in ways thatadvance the interests of the � rm andin� uence decision-makers in home countriesin ways that advance the interests of localstakeholder groups.

Our conceptualisation of the role of

RHQs in global TNCs challenges certainwell-ingrained beliefs concerning parent–subsidiary relationships. More than a decadeago, Bartlett and Ghoshal (1986) examinedthe “UN model assumption” and“headquarters hierarchy syndrome”. Tothem, the “UN model assumption” was thatthe corporate headquarters perceive uniformsubsidiary roles and functions. A related be-lief in corporate governance was the“headquarters hierarchy syndrome” throughwhich subsidiaries were seen as imple-menters of global strategies. We argue, how-ever, that the strategic and functionalnecessity of RHQs has become more evidentwith the emergence of what Hedlund (1986,1993) labels as the “heterarchical” TNC.This type of TNC depends much less on thehierarchical control and co-ordination mech-anisms employed by the HQ over its sub-sidiaries (see also Birkinshaw, 1994; Nohriaand Ghoshal, 1997; Yeung, 1998). Instead, aheterarchical TNC has many centres with amatrix of organising principles. The sum to-tal of a heterarchy is

to create a situation where ‘management’is as much a horizontal as a vertical affair,and becomes part of every unit’s and indi-vidual’s task (Hedlund, 1993, p. 231; orig-inal italics).

The strategic role of regional HQs in a het-erarchical TNC is to promote lateral relation-ships and normative integration within awider regional framework. In these new het-erarchical structures, corporate HQs func-tions are geographically diffused and nodimension (by product, country or function)is uniformly subordinate. Operations in anyparticular region, for example, contain arange of activities with different levels ofstatus and geographical responsibility. Cor-porate strategy is formulated and imple-mented in a spatially scattered network,giving strategic in� uence to the regional HQsand, sometimes, to individual subsidiaries.This organising principle towards a regionalstrategy enables a global corporation to sus-tain its competitive advantage in the triadisedglobal economy and, yet, allows it to be highly


responsive to local market conditions. In-stead of organising transnational operationson a product or area structure, the networkstructure contains elements of both and in-volves a whole set of dual reporting linksbetween product and area segments of theTNC. Some of the changes in the role ofRHQs are:

(1) More � exibility in organisational choice:varying organisational forms between in-tra� rm integration (for example, wholly-owned subsidiaries) and inter� rmco-operation (see, for example, strategicalliances) allow a strategic combinationof organisational forms to maximise theopportunities of the operation.

(2) Overlapping functions and responsibili-ties: the locus of decision-making de-pends on the location of particular chiefexecutives, rather than a strict hierarchyof authority.

(3) More footloose in location: as the chainof command and hierarchy of authorityare getting increasingly blurred, TNCsmay be willing to accommodate theirregional operations in accordance withthe preferences of key members of thecorporate network. Top executives incharge of particular functions or prod-ucts may choose to reside in world cities(such as Hong Kong or Singapore) andto co-ordinate the global operations fromthat city.

With respect to location preferences, theserecent developments tend to favour the loca-tion of RHQs in world cities that are geo-graphical ‘controlling points’ of the globaleconomy. These world cities offer a strategiclocation on the global transport and com-munication network, high-quality externalservices (such as � nancial and business ser-vices), a particular range of labour marketskills (such as skilled labour in informationprocessing) and rich social and culturalamenities (Friedmann and Wolff, 1982;Friedmann, 1986; Sassen, 1991; Knox andTaylor, 1995; Graham, 1999). In this regard,Singapore and Hong Kong stand out as thetop choices for RHQs in the Asian region.

The Role of Regional Strategy and Structure

What then do we know about regional HQsin the internationalisation strategies ofTNCs? Not much indeed. Heenan’s (1979)early study of different dimensions affectingthe choice of regional HQs by 60 US TNCsand 47 Japanese TNCs shows that there werenoticeable similarities and differences intheir preferences for locational variables. USTNCs tended to locate regional HQs on thebasis of a city’s political stability, its sup-porting infrastructure, costs of maintainingan expatriate staff and availability of airtransport and communications. Geographicalproximity to corporate HQs was of leastconcern to these US TNCs. To JapaneseTNCs, the economic importance of the localmarket to the host region, its supporting ser-vices, government attitudes towards the par-ent TNCs, educational and medical facilities,political stability and a city’s internationaland multicultural orientation were the criticalfactors. Other studies of regional HQs in theAsia-Paci� c tend to concentrate on suchspeci� c empirical issues as host governmentincentives (see, for example, Dicken andKirkpatrick, 1991; Kumarapathy, 1994;Perry, 1995), regional production networks(see, for example, Aoki and Tachiki, 1992)and the role of producer services (see, forexample, Ho, 1998).

In another recent study by Lasserre (1996),the functional roles of regional HQs havebeen further developed and conceptualisedinto a life-cycle model (see Figure 2). Henotes that there are two primary roles ofregional HQs: integrative and entrepreneu-rial. For integrative regional HQs, theirspeci� c functions within the overall corpo-rate organisation are:

—co-ordination: to ensure that the busi-nesses exploit synergy and follow consist-ent policies across the region; and

—pooling resources: to manage certain keyfunctional activities across the region.

For entrepreneurial regional HQs, theyserve certain enhancing functions:

—scouting: to serve as a base from which to

Integrativeroles(co-ordination,resourcespooling)

Strong

Weak

Consolidation

Administration

Development

Entry

Weak Strong

Entrepreneurial roles(scouting, signalling, stimulating)


Figure 2. The life cycle of a regional headquarters. Source: Lasserre (1996, Figure 3).

search opportunities and initiate new ven-tures across the region;

—strategic stimulation: to assist the busi-nesses in understanding the changing na-ture of the regional environment and tohelp them to integrate these changes intotheir business strategies. In the regionalmatrix, regional HQs serve as a central‘switchboard’ between product divisionsand country managers; and

—signalling commitment: to demonstrateinternally to the product division and ex-ternally to local governments, the generalpublic, shareholders and the � nancial com-munity that the company is committed tothe region.

Over time, Lasserre (1996) argues, regionalHQs roles are changing in response to thedifferent stages in the evolution of a com-pany’s presence in Asia. At the entry stage, itis likely that a regional HQ takes on more anentrepreneurial role. As the company be-comes more established in the region duringthe development phase, the regional HQswill augment the facilitator pro� le and addthe integrative role to its primary functions.When the regional operation reaches the con-solidation stage when local subsidiaries are

suf� ciently mature, the regional HQs willplay a much more integrative role to exploitthe synergy between different local sub-sidiaries. In the � nal administration stage, thefull responsibilities for carrying out varioustasks by the regional HQs will be taken overby local subsidiaries, leaving only an admin-istrative role for the regional HQs. Accordingto this life-cycle model, regional HQs areeventually eliminated and replaced by directcontrol and co-ordination by parent compa-nies. While useful in drawing our attention tothe strategic variation in RHQ functions,such a depiction of the evolution of RHQssuffers from the limitation of all product-cy-cle conceptualisations (see, for example,Storper, 1985; Taylor, 1986). When appliedto individual organisations, the scope for de-viation is so wide that most RHQs are un-likely to evolve in the same ideal sequence.

Towards a Regional Strategic Frameworkfor Analysing RHQs

Our analytical framework starts with two keyfeatures of today’s global economy and aglobal corporation (see Figure 3). Triadisa-tion refers to the emergence of a regional

Triadisation Global competition

Global corporation

Regionalisation inwestern Europe

Regionalisation inNorth America

Regionalisation inAsia

Structural

Context

(I)

Homecountryconditions

geographical distancefamiliarity with foreign regionscommitment to foreign regionsregional integration

Hostcountryconditions

Local infrastructureproximity to marketsgovernment incentives

Regional

Structure

(II)Regional strategiesRegional strategies Regional strategies

Regional HQsRegional HQs Regional HQs

functions/rolesresponsibilitiescontrol/co-ordination



Local subsidiariesLocal subsidiaries Local subsidiaries


Figure 3. A framework for understanding regional strategy and regionalisation.

structure in the organisation of the globaleconomy in which regions have become thestrategic sites of economic activities andmarket growth. Global competition refers toa global trend in which competition is nolonger contained within national boundaries,but is rather conducted on a global scale.Faced with these two key features of thestructural context, the organisational chal-lenge to a global corporation is how to tapinto emerging regional markets and containcompetition at a regional level (rather than aglobal scale). Regionalisation re� ects thestrategic predisposition for leading globalcorporations to embed themselves in regionalmarkets. Figure 3 (panel I) shows this inter-action between the regionalisation of globalcorporations and the structural context oftriadisation and global competition.

To devise a practical regional solution toglobal competitive pressures, a global cor-poration needs to build a regional structure(panel II in Figure 3). Within this regionalstructure, a RHQ is established to perform

strategic roles as suggested in recent studies(see above). This RHQ is often given powerand autonomy to exercise control over itslocal subsidiaries. This can be achievedthrough sending a top executive (usually atthe board director level) to head the RHQ.Localisation of top management may alsooccur in the RHQ when it has become fullyestablished. A RHQ also performs certainfunctions to enable the success of these localsubsidiaries. It is thus necessary for us toexamine the relationships between home andhost country conditions and the strategiesand functions of RHQs. Derived from pre-vious studies of RHQs, we postulate thatcertain home country conditions in� uencethe strategic choice of establishing RHQs.Our proposition is that foreign � rms fromdifferent home countries have differentpropensities to set up RHQs in the same hostregion. These different propensities can beexplained by their � rm-speci� c attributes thatare embedded in the speci� c business andinstitutional environments of their home


countries. In Figure 3, we propose severalconditions related to the role of home coun-try attributes in shaping the strategies andfunctions of RHQs.

Geographical distance from host countries.When the parent � rm is far away from thehost region, it is more likely for the � rm toestablish a RHQ to exercise control over itslocal subsidiaries and to explore more mar-kets through increased geographical respon-sibilities.

Psychic distance and familiarity with hostregions. There is much less strategic necess-ity for a parent � rm, which is culturally orpsychologically familiar with the host region,to establish a RHQ. This is because theparent � rm can directly exercise control overand can co-ordinate local subsidiaries with-out a RHQ. Devoting resources to establish aRHQ is also not required to accumulatelearning or to understand regional differen-tiation. This social dimension of internation-alisation strategies by TNCs has been wellexplored and documented in the Scandina-vian business literature (see Johanson andWiedersheim-Paul, 1975; Johanson andVahlne, 1977; Forsgren et al., 1995).

Commitment or responsiveness to hostregions. Parent � rms committed to the hostregions tend to be more willing to establishRHQs as a sign of regional commit-ment. RHQs serve both as a means of show-ing commitment to the public and asan organisational solution to a regionalisationstrategy. In practice, a parent � rm mayhave a substantial portion of its business andmarket share located in the host region.Establishing a RHQ in the host region offersa clear signal to its customers, suppliersand even employees that the company iscommitted to making a long-term contribu-tion to the host region. It is also able to behighly responsive to variations in businessopportunities and environment in the hostregion (see Prahalad and Doz, 1987; John-son, 1995).

Extent of regional integration. This is the lasthome country variable, but it is perhaps themost important variable (see the parent–sub-sidiary literature above). The extent of re-gional integration refers to the propensity ofparent � rms to adopt a regionalisation strat-egy to control and co-ordinate their diverseoperations in the same host region as anintegrated matrix rather than as stand-alonesubsidiaries. Such a propensity is likely toimpact signi� cantly on the strategies and or-ganisation of their RHQs so that parent � rmswith a greater extent of regional integrationin their transnational operations tend to havea higher strategic necessity to establishRHQs and to exercise stricter control overthese RHQs.

On the other hand, host country conditionsmay also in� uence the strategies and organis-ation of RHQs. They are:

Local infrastructure. Local infrastructuremay play an important role in the locationaldecision of RHQs by parent TNCs. ManyRHQs require easy access to advanced pro-ducer services in order to execute their stra-tegic management functions. These producerservices include banking and � nance, trans-port and telecommunications, legal and con-sulting services and so on. The role of localinfrastructure, however, may diminish whenthe strategic necessity of establishing theRHQ becomes paramount. Local infrastruc-ture therefore becomes secondary to the roleof regional strategy in making a choice aboutthe establishment of RHQs.

Proximity to market. The importance of mar-ket access underscores the fundamental stra-tegic rationale for establishing RHQs.Proximity to markets therefore provides aclear locational advantage to a place (nor-mally a city) where RHQs are located. Thisis particularly the case when a RHQ is estab-lished as part of a wider regionalisation strat-egy by the parent TNCs.

Government incentives. Several studies havepostulated that host government incentivesmay have an impact on the establishment of


RHQs by certain types of TNC (Dicken andKirkpatrick, 1991; Perry, 1992, 1995). Thespeci� c impact of these incentives on thelocational decisions of TNCs, however, re-mains mostly secondary. For example, Perry(1995) concludes that the Operational Head-quarters (OHQ) scheme offered by the Econ-omic Development Board of Singapore didnot seem to have a major impact on thechoice of Singapore by RHQs. This lack ofsigni� cant in� uence of government incen-tives on the locational choice of OHQs canbe explained by the fact that many TNCschoose to establish RHQs in host regions forstrategic reasons (such as market access and/or intelligence gathering). Once this strategicimportance of the region is established, hostgovernment incentives become secondary tolocational considerations. Another reason isthat these government incentives are not welldesigned to cater for the speci� c needs ofdifferent types of RHQ.

In summary, we have examined pertinenthome and host country conditions that areresponsible for TNCs’ decisions to set upRHQs in different host regions. We expectthat home considerations such as geographi-cal distance, unfamiliarity with host regions,the desire to become more entrenched in thehost region and the necessity for locationalpositioning in order to exert governance con-trol or to facilitate co-ordination are all im-portant explanatory variables. Similarly,though to a lesser degree, we expect that hostcountry attributes could enhance or attenuatea city’s attractiveness over other competingcities for RHQ establishment. Before we pro-ceed to report the � ndings from our empiricalinvestigation, we need to explain the pro-cesses of data collection and analysis.

Data: Survey Process and Responses

The data on the RHQs of foreign � rms inSingapore (and other world cities) are verylimited. There is no comprehensive survey ofRHQs in Singapore. All published studies onthis subject must rely upon information sup-plied by the Economic Development Board(EDB) of the Singapore government and me-

dia reports. Small-scale surveys have beenconducted to obtain additional � rm-level data(see, for example, Dicken and Kirkpatrick,1991; Perry, 1992, 1995; Kumarapathy,1994). Although the EDB does not keeptrack of RHQs of foreign � rms in Singapore,it does occasionally publish information per-tinent to the recipients of its various incen-tive programmes (including the OperationalHeadquarters (OHQ) scheme). This infor-mation can be used as the basis to ascertainthe nature and extent of OHQs in Singapore.

We collected the data for this studythrough a survey of RHQs in Singapore in1996. To date, there is no comprehensivedirectory or published listing of RHQs inSingapore. We compiled a survey populationframe from three sources: Singapore newspa-per reports post-1990 identifying new RHQopenings, changes in the existing status orannouncing investment linked to the RHQs;the Singapore Kompass Business Directorylisting of RHQs; and, annual reports of theEDB (administrators of the OHQ and otherincentives). A survey population of 350RHQs was compiled. After a preliminaryscreening to check that the RHQs fell withinthe scope of the study and to obtain a contactname and address, the population of RHQs inour database was reduced to 257. This surveypopulation of RHQs was about 13 per cent ofa total of 2000 regional of� ces in Singaporethen estimated by the EDB (The StraitsTimes, 31 January 1996). The EDB’s esti-mate, however, included a large number(possibly about 1500) of representativeof� ces, head of� ces of Singapore-based andforeign organisations whose sole regional op-erations were in Singapore. We estimatedthat there were about 500 RHQs of foreign� rms in Singapore. Our database (N 5 257)therefore covered about 50 per cent the totalpopulation of RHQs according to our stricterde� nition. It comprised almost equal num-bers of European and US TNCs, with fewerAsian TNCs (see Table 4). This pro� leunderrepresented Asian TNCs, particularlyJapanese and to a lesser extent Taiwaneseand South Korean. When compared with theoverall pro� le of foreign investment in Sin-


Table 4. Comparison of original and survey population, by sector and nationality

Original samplea Survey responseb Interview responsec

Region Number Percentage Number Percentage Number Percentage

ManufacturingAmerica 59 16.9 26 20.2 1 6.3Asia 44 12.6 19 14.7 5 31.3Europe 73 20.9 45 34.9 7 43.8

ServicesAmerica 37 10.6 17 13.2 2 12.5Asia 20 5.7 6 4.7 1 6.3Europe 24 6.9 16 12.4 0 0.0

Total 257 100 129 100 16 100

a Based on 257 cases out of the total survey population of 350.b Based on 129 of 130 respondents.c Based on 16 of 20 respondents.Source: Survey data.

gapore (Department of Statistics, 1992a; seealso Table 3), service-sector investmentsmonitored by the EDB (which were domi-nated by RHQ expenditure) were consistentwith the nationality mix in the survey popu-lation (Economic Development Board,1995).

The RHQs in our sampling-frame weresurveyed through a postal questionnaire. Weobtained 130 useable returns, representing aresponse rate of 52 per cent (N 5 257). Re-sponses were broadly in line with the surveypopulation (Tables 4 and 5). A number ofcountries dominated the regional groupings:in respect of the respondent sample, the maincountries of origin were the US (39), Ger-many (17), Japan (16), the UK (10), France(7), the Netherlands (5), Sweden (5) andSwitzerland (5). Compared with the originalpopulation, the Asian sample was dominatedby RHQs linked to parent Japanese TNCs.With respect to employment size, the respon-dent pro� le might be weighted in favour oflarger of� ces, but this is dif� cult to judgegiven the incomplete information coveringthe survey population (Table 5). By national-ity, the US sample contained the highestshare of RHQs with over 25 staff (60 percent), the European the lowest (20 per cent)

and the Asian in the middle (52 per cent).A cross-section sample of 20 respondents

was then included in follow-up personal in-terviews through which we obtained furtherdetail on their location decisions, regionalorganisation and operational strategies.These 20 respondents were selected on thebasis of their country of origin, industrialsector, and willingness to participate in thefollow-up study. The aim of these personalinterviews was to acquire richer material onthe strategic processes and organisationalmechanisms of establishing RHQs in Singa-pore. This material could not be obtainedthrough the postal survey (see Yin, 1994;Numagami, 1998). As shown in Table 4,compared with the main survey, this sub-sample tends to underrepresent RHQs con-trolled by US manufacturing TNCs andEuropean service TNCs. We conducted mostinterviews with the directors or managingdirectors of the RHQs in Singapore. Thisensured the accuracy and reliability of thequalitative information obtained. This ma-terial formed the basis of the qualitative casestudies. Because of space constraints in thispaper, we have chosen speci� cally to reporttwo case studies—British Gas Asia Paci� cand Ricola Asia Paci� c (see next section)—

172 HENRY WAI-CHUNG YEUNG ET AL.

Tab

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28.3

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936

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on the basis of their theoretical relevance andcompleteness of information obtained. Weuse these case studies to contribute to theemerging theoretical perspective on theregional strategy of global corporations. Wealso secured the consent and veri� cation ofthese two cases by our interviewees. Throughtriangulation of evidence recorded in differ-ent formats, qualitative information alsocomplements the preliminary quantitativeanalysis presented in this paper (see alsoDenzin and Lincoln, 1994, 1998; Fielding,1999). Personal interviews were conductedafter the initial postal survey and, along witha review of company annual reports andpreliminary reports, these provided themeans to triangulate our information. Inthe following section, we present some of thequantitative and qualitative analyses ofthe survey and interview data.

Explaining the Establishment of RegionalHeadquarters by Foreign Firms in Singa-pore: An Analysis of the Survey Results

In� uence of Geography and Parent TNCCharacteristics

As argued earlier, one of the main rationalesfor establishing a RHQ in Singapore is that itforms part of a broader strategy to integrateoperations on a regional basis. In our survey,RHQs were asked the reasons for andin� uences on their establishment in Singa-pore. The statistical analysis of these data ispresented in Table 6. At the general level,some 88 respondents replied that their RHQsin Singapore were “part of a regionalisationstrategy” and 72 respondents said that theirestablishment was due to “geographical dis-tance from the home country”. When the twofactors were cross-tabulated with the nation-

Table 6. Reasons for setting up regional headquarters by foreign � rms in Singapore

1 Why was this of� ce established?

a Part of regionalisation strategy (responses 5 88)

Nationality (percentages)Europe 55North America 25Japan 20

Test of association (2) 5 9.02 ***

b Geographical distance from home country (responses 5 72)

Nationality (percentages)Europe 58.4North America 31.9Japan 9.7

Test of association (2) 5 12.14 ***

2a Why was this of� ce established?

A sign of commitment to the region (responses 5 73)

b What are the special advantages of this of� ce over other forms of regional management?

More integrated within the region (responses 5 88)

Test of association (2) 5 7.39 **

*** indicates signi� cant at the 1 per cent level; ** indicates signi� cant at the 5 per cent level.Source: Survey data.


Table 7. British Gas Asia Paci� c Pte Ltd

Since privatisation in 1986, London-headquartered British Gas plc has become one of Europe’s top 20corporations, with a worldwide turnover of £8.6 billion in 1995 and rapidly expanding its internationaloperations. In 1996, the group underwent a demerger to separate the British sales operations from itsexploration, distribution and international operations, the latter comprising about 80 per cent of itsbusiness. The group plans to double its investments in the Asia-Paci� c region to US$2 billion by 2000.

The group’s regional headquarters for the Asia-Paci� c region, British Gas Asia Paci� c (BGAP), islocated in Singapore and has invested US$1 billion in signi� cant joint-venture projects in 7 regionalcountries: India, Pakistan, Malaysia, Thailand, Indonesia, Vietnam and the Philippines. All theseoperations have been developed since 1990, re� ecting the priority given to building regional operations.BGAP was granted operational headquarters (OHQs) status by the Economic Development Board(EDB) on 4 March 1996 (The Straits Times, 5 March 1996, p. 31).

Regional operationsThe development of regional operations requires joint-venture partners. They potentially encompassthe following activities: exploration, mining, transmission, distribution, power generation. This is partlybecause of the host government’s in� uence over access to energy markets, but also because of theimportance of understanding local laws and customs and providing access to customer links. Obtaininga good partner is critical to determining how rapidly business can be built. Examples of regionaloperations are:

India: a pipeline network in Mumbai in a joint venture with an Indian gas company; a green� eld projectsince 1996; a 44 per cent stake in India’s largest gas distributor (potentially rising to 66 per cent).

Philippines: a US$900 million power station construction in partnership with First Philippine Holdings(60 per cent stake).

Indonesia: exploration activities; may start a power station development in Irian Jaya.

Pakistan: exploration activities.

Malaysia: 20 per cent stake in a power station.

Singapore: regional of� ce and a separate British Gas company which owns 2 LNG tankers; a regionalbase for pipeline inspection work.

Regional headquarters in Singapore

The roleThe role of RHQ in Singapore has gone through several changes since opening in 1992.

1993: A regional controller was appointed to Singapore to oversee regional operations. Initial powerwas limited and regional operations were essentially run from the UK.

Mid 1995: A regional managing director was appointed and was given considerable authority, probablyamongst the top 12 staff in the British Gas group. This shift of authority to Singapore was linked tothe restructuring of the British Gas main board of directors in the UK which resulted in the introductionof greater international business experience and more willingness to devolve responsibility to theAsia-Paci� c RHQ. The general rule now is that projects are run by Singapore in partnership with countrymanagement teams, drawing upon the UK expertise when necessary.

1996: The RHQ in Singapore was awarded OHQstatus to enjoy tax advantages and to show commitmentto the Asia-Paci� c region.

1998: In the � rst quarter of 1998, all � nancial management and reporting of regional operations wereconsolidated in Singapore. R&D work was commenced in Singapore, as one of the commitments underthe OHQ award. These R&D programmes were also used as a mechanism to induce local staff into theorganisation.

The rationaleThe main rationale behind the establishment of RHQ in Singapore is:

Distance to the UK: It is much easier to base senior managers in Singapore to run regional operations.


Strategic necessity: These senior managers need to be working in the region to make effective decisionsand assess investment opportunities.

Control functions: There are two annual meetings of country managers in Singapore each year, butinteraction between these country managers is at their own initiative. Typically, either the countrymanager or a UK specialist sits on the board of directors of subsidiary companies, along with theSingapore managing director. The managing director in Singapore also visits the UK once a month fora meeting of all regional managing directors and key staff of British Gas.

Source: Authors’ interview.

alities of their parent companies, EuropeanTNCs apparently placed the highest priorityon establishing RHQs as part of their region-alisation strategy (for example, see BritishGas in Table 7), followed by US TNCs. Onthe other hand, Japanese TNCs were the leastconcerned with the role of geographical dis-tance (see Table 6). In fact, 72 per cent ofJapanese RHQs did not think that geographi-cal distance was an important considerationat all. When contingency tests of associationwere conducted, the chi-squared values inTable 6 were all statistically signi� cant. Thisindicates that both regionalisation strategyand geographical distance were stronglyassociated with the nationality of � rms. Itfurther suggests that TNCs from outside theAsia-Paci� c region tend to have a higherstrategic necessity to establish RHQs in Sin-gapore to control and co-ordinate their activ-ities within the region. It also highlightsissues related to a � rm’s familiarity with theregion of interest. Compared to their Eu-ropean or US counterparts, Japanese TNCs,while investing rather heavily in the south-east Asian region (see Yoshihara, 1978;Pongpaichit, 1990; Hatch and Yamamura,1996), are less likely to establish RHQs inSingapore because of their proximity to theregion in both physical and psychologicalterms.

Another broad trend emerging from thesurvey results shows that the establishmentof regional headquarters indicates a desire ofglobal TNCs to become more integrated intothe south-east Asian region. In particular, 73� rms noted that their RHQs in Singaporere� ect “a sign of commitment to the region”.This lends some support to our proposition in

the analytical framework earlier. ParentTNCs, which are strategically committed toand integrated into the host region (in termsof sales, business scope, production activitiesand market shares), tend to be more likely toestablish a RHQ as a result of projectedgrowth in pro� t and/or market share. In ad-dition, � rms that chose this option also tendto tick “more integrated with the region”when asked about the special advantages oftheir RHQs in Singapore over other forms ofmanagement control. This suggests thatRHQs re� ect parent TNCs’ desire to positionthemselves geographically in order toexercise greater control and to integrate sub-sidiary activities. Our personal interviewswith British Gas and Ricola, summaries ofwhich are presented in Tables 7 and 8,further point to this interpretation. In theBritish Gas case, senior managers of regionaloperations are required to make fast andeffective decisions in order to tap into busi-ness opportunities. Because of the distancefrom the UK, the top management thoughtthat having a RHQ in Singapore wouldsigni� cantly improve the responsiveness ofBritish Gas to local opportunities in the Asia-Paci� c region. This strategic role of RHQs inincreasing the local responsiveness of foreignsubsidiaries offers a tentative con� rmation ofour proposition in the analytical frameworkoutlined in the earlier section. Similarly, inthe Ricola case, being responsive to localmarket conditions proves to be a criticalstrategic advantage. The RHQ in Singaporealso performs an important function to co-or-dinate its national mandates in respectivecountries of the east and south-east Asianregion.


Table 8. Ricola Asia Paci� c Private Ltd

Ricola is a Swiss pharmaceutical and confection manufacturer. All manufacturing activities are locatedin Switzerland as part of its ‘Made in Switzerland’ quality image. It is well known in Europe and theUS as a manufacturer of pharmaceutical and medicinal products. In Asia, which accounts for 12 percent of its export business, Ricola is more strongly identi� ed as a manufacturer of refreshing candies.

Before establishing its RHQ in Singapore, Ricola ran its Asia-Paci� c marketing operations from thehead of� ce in Switzerland. The Swiss operations are divided across three divisions: production,logistics, and marketing and sales (M&S). The marketing and sales department is responsible forbrand-creating activity and core marketing functions. Area managers in Switzerland are overseeingM&S activities in particular regions.

Regional headquarters in SingaporeAs part of its regionalisation strategy, Ricola established its RHQ in Singapore. The area manager forthe Asia-Paci� c region was relocated to Singapore to:

· become closer to the market, compared with the 6-hour time difference from Switzerland;

· become closer to the distributors and to identify more quickly new trends in the markets;

· develop better relations with the distributors in order to gain trust and insight; and

· ensure generally speedier action and decision-making.

The main functions of Ricola Asia Paci� c:

Supporting distributors: The management ideal of Ricola is to get the distributor to operate as a ‘partner’by providing both day-to-day and market planning support. Individual distributors are given the brandobjectives and targets for their territory, including 3–5 year sales targets. Each local distributor isexpected to produce their own market strategy. Guidance and support are provided by the regional of� ceto ensure a global/regional brand development. They interact on a daily basis in response to immediatemarketing problems and opportunities.

Regional advertising strategy: The RHQ is concerned with the mass communication strategy for brandadvertising. It is working with a Singapore-based advertising agency under the guidance of the headof� ce in Switzerland. The advertising agency is pursuing a regional strategy and seeks co-operation ofits country-based agencies for national customisation. Although Asian markets remain highlydifferentiated, some market similarities and marketing synergy can be exploited.

New market entry: The RHQ investigates and plans the entry into new markets (recent examples includeVietnam and New Zealand).

Local confectioning and customisation of products: As part of the regional penetration strategy, theRHQ develops region-speci� c products designed to build up brand familiarity and interest. For example,the RHQ has designed an ‘entry-level’ product for the regional market. It needs to oversee the productionprocess based on sweet bulk supplies from Switzerland and packaging made in Malaysia. The RHQis also involved in collecting regional marketing information on � avours and customer views to feedbackinto product designs and � avours which eventually become speci� c products for the region.

Display material: The RHQ investigates and arranges the design of display structures customised tothe region, taking into account local climate and store conditions.

Market monitor: The RHQ monitors social and economic trends and competitors’ activities.

Source: Authors’ interview.

Locational Positioning and Host CountryConditions

The previous section suggests that issues ofcontrol and functional integration of activi-ties in the regions help to explain the estab-

lishment of RHQs by foreign TNCs inSingapore. Those TNCs which are strategi-cally committed to host regions and whichare more interested in co-ordinating theiractivities regionally are also more likely toestablish RHQs. This implies that the stra-


Table 9. Descriptive statistics of independent variables (1 5 veryunsatisfactory, 5 5 very satisfactory; N 5 125)

StandardMean deviation

Access to customers 3.96 0.781Proximity to local establishments 3.99 0.677Centrality to regional establishments 4.03 0.621Quality of business services 4.03 0.666Operating costs 2.32 0.860

Source: Survey data.

tegic necessity behind their decisions to es-tablish RHQs in Singapore may be related toadvantages arising from locational and geo-graphical positioning. The need for strategicpositioning, however, must be matched byperceived favourable locational attributes inthe host country. That Singapore is the pre-ferred choice over several of its neighbouringcountries in Asia (see Figure 1) points to itsfavourable locational content. To ascertainthe relative signi� cance of certain host coun-try locational attributes that attracted the stra-tegic establishment of RHQs by foreign � rmsin Singapore (see analytical framework inFigure 3), we conducted a rudimentary statis-tical test of our survey � ndings.

We � rst speci� ed certain attributes of Sin-gapore as a favourable location for RHQs offoreign � rms. We identi� ed the followingattributes as independent variables becausethey were seen as important host countryconditions in in� uencing the decisions ofglobal TNCs to establish RHQs in Singa-pore:

(1) access to customers;(2) proximity to local establishment;(3) centrality to regional establishment;(4) quality of business services; and(5) operating costs.

These variables are independent of the deci-sions of foreign � rms to establish RHQs inSingapore. Independent variables (1)–(3)re� ect the relative locational attraction ofSingapore to TNCs desiring for strategic po-sitioning in south-east Asia. The geographi-cal position of Singapore and its proximity to

other south-east Asian countries (see Figure1) offers a strong incentive for market- andintelligence-seeking TNCs to establish theirRHQs. In strategic terms, these three vari-ables distinguish Singapore from other south-east Asian cities as the premier location ofRHQs in the region. On the other hand,independent variables (4) and (5) demon-strate the speci� c locational attributes of Sin-gapore that may in� uence the ultimatedecisions of foreign TNCs to establish RHQsthere. In other words, whereas independentvariables (1)–(3) may explain why foreignTNCs should strategically establish RHQs inSingapore rather than in other south-eastAsian countries, independent variables (4)and (5) can explain why these TNCs actuallyestablish their RHQs in Singapore.

All � ve independent variables were mea-sured on a Likert scale from 1 to 5 in theoriginal survey questionnaire, with 1 repre-senting very unsatisfactory, and 5 very satis-factory. Table 9 shows some descriptivestatistics on these independent variables. Asevident in Table 9, Singapore fares relativelyfavourably in terms of its position within theregion vis-a-vis other major south-east Asiancities, scoring around 4 for accessibility,proximity and centrality. Of these three vari-ables representing locational positioning,centrality to regional establishments has thehighest mean value at 4.03 and the loweststandard deviation. This indicates that thevariability in responses is also the lowest forthis variable. In terms of infrastructural qual-ity, the country also ranks highly at 4.03 forits business services. However, a major com-


Table 10. Results of logistic regression (dependent variable: informationgathering for parent of� ce; N 5 116)

Parameter StandardIndependent variable estimate error

Intercept 2 2.3402 1.8498Access to customers 2 0.1824 0.3400Proximity to local establishments 2 0.6437 0.4330Centrality to regional establishments 1.1504** 0.4690Quality of business services 0.6208* 0.3346Operating costs 2 0.3053 0.2570

Model statisticsModel 2 5 10.801 with 5 degrees of freedom (p 5 0.05)2 2 log likelihood 5 135.929Somer’s D 5 0.336

** indicates signi� cant at the 5 per cent level; * indicates signi� cant atthe 10 per cent level.

Source: Survey data.

plaint by RHQs in Singapore pertains to highoperating costs. The higher cost of operationsin Singapore contributes to ongoing indus-trial restructuring in Singapore and the shak-ing out of low-cost labour-intensivemanufacturing activities (Ho, 1993, 1994;Chiu et al., 1997).

After specifying the independent variables,we then identi� ed an appropriate dependentvariable which, in statistical terms, changesaccording to variations among independentvariables speci� ed earlier. One such depen-dent variable is measured by the RHQs’ ma-jor function that is to gather information forthe parent company. An overwhelming ma-jority of RHQs (n 5 88) responded posi-tively to this variable when asked for theirmajor function. Our personal interviews alsosuggest that this dependent variable is im-portant because RHQs are expected to be inclose contact with their customers, distribu-tors, suppliers and subsidiaries in order tostrengthen market intelligence and surveil-lance as well as for planning support (seealso Ricola’s case in Table 8). In particular,this variable describes aptly the role of theRHQs in their early stage of establishment.In Lasserre’s (1996) evolutionary typology,this type of RHQ plays a signi� cant en-trepreneurial role in scouting information forparent TNCs, signalling commitment to the

host region and stimulating strategically adeeper understanding of the regional busi-ness environment. We therefore choose it asa dependent variable to re� ect the initialstrategic predisposition for TNCs to establishRHQs in Singapore. We expect the extent ofvariation among those RHQs seeking infor-mation and intelligence to depend on a rangeof host country independent variables (1)–(5).

Given the binary nature of the dependentvariable (i.e. ‘Yes’ or ‘No’ answers), wetested our proposition using a binomial logitmodel. The results are presented in Table 10.The results suggest that the overall � t of themodel as shown by the chi-squared value issigni� cant at the 5 per cent level. Of thethree independent variables used to measurelocational positioning, only centrality to re-gional establishment is highly and positivelysigni� cant (p , 0.05), while access to cus-tomers and proximity to local establishmentsare not. That is to say, the ef� cient andstrategic role of RHQs in market intelligencedepends on their ability to position them-selves centrally within the region. Good andcentral location within the region allowsthese RHQs to tap into the information poolsembedded in nodes of regional networks (seeRicola’s case in Table 8). Usually, thesecentral locations are also well endowed with


geographical advantage and information andtransport capabilities. In this regard, Singa-pore � ts the strategic requirements of globalTNCs very well. The other signi� cant inde-pendent variable is the quality of Singapore’sbusiness services (p , 0.10). Perhaps be-cause the role of RHQs has much less to dowith production than with control and gover-nance issues, high operating costs are offsetby good business service quality in Singa-pore. This would seem logical if the strategicrole of RHQs is to gather information for theparent TNCs. An ef� cient system that facili-tates business activities decreases transactioncosts for harnessing knowledge related tomarket conditions. Hence, the insigni� canceof the operating costs coef� cient reveals thatgood business infrastructure is far more im-portant in explaining RHQs’ presence in Sin-gapore. All in all then, our rudimentaryregression results tentatively suggest that aregional strategy is the key explanation of thepropensity of global corporations to establishRHQs in Singapore.

Conclusion

Despite the economic crisis of 1997/98 andits effects, Asia is expected to continue as amajor growth region of the global economyin the present millennium. As they aim tomake a signi� cant presence in the region andto penetrate into the huge domestic markets,global corporations may � nd that managingtheir subsidiaries and af� liates in the regionbecomes a major strategic management task.To overcome the tyranny of geographicaland cultural distances, these global corpora-tions are increasingly pursuing a regionalstrategy to organise their regional operations.In particular, they establish regional head-quarters to achieve simultaneously global in-tegration and local responsiveness. In thispaper, we have presented a framework foranalysing the strategic role of RHQs in theglobalisation of TNCs. Although it is stillpreliminary, the framework offers some use-ful ideas for empirical testing. In particular,we argue that the regionalisation of globalTNCs can be conceptualised as a strategic

response to the structural context of triadisa-tion and global competition, and the need fora regional structure to manage operations indifferent regions. This regionalisation pro-cess is in� uenced by both home country andhost region conditions.

To test some of these ideas, we made useof primary data collected from an empiricalstudy of some 130 RHQs in Singapore. Pre-liminary results from our analysis of thesurvey data show that three independent vari-ables play a statistically signi� cant role inshaping the strategic decision by global cor-porations to establish these RHQs. First, ge-ography makes a difference in that TNCsfrom outside the Asian region (i.e. US andEuropean) tend to be more likely to set upRHQs in Singapore to co-ordinate and con-trol their activities in Asia. This contrastswith an early study by Heenan (1979) whofound that geographical proximity to corpo-rate HQs was of least concern to US TNCs.Their cultural differences and familiaritywith the host region explain this distanceeffect. In comparison, Japanese TNCs areless likely to establish RHQs within thesouth-east Asian region because the head-quarters in Japan may be able to exercisedirect control and co-ordination of theirsouth-east Asian subsidiaries. Secondly, thestrategic dimension of RHQs is paramount intheir establishment. Most of our respondentsagreed that their RHQs are part of the widerregionalisation strategy. To them, theseRHQs serve a dual function of being a signof commitment to the host region and anintegration centre capable of controlling re-gional operations. As such, RHQs are ofstrategic importance to the successful re-gional operations of these global corpora-tions. Thirdly, the main attraction ofSingapore to these RHQs is its business ser-vices capabilities. This is an important� nding because many Asian mega-cities aretrying to emulate the success of Hong Kongand Singapore in attracting the location ofRHQs. What many of them fail to understandis that the total business environment of thehost city matters most to these RHQs. Our� nding also implies that interurban compe-


tition for the location of RHQs throughgovernment incentives per se is unlikely tobe highly effective among those cities withvery different endowments of infrastructureand service qualities. Of course, governmentincentives may still be important when TNCsare deciding between locations with compar-able business and infrastructure endowments.In addition, it takes some time for individualcities to reach a threshold point of attractivetotal business environment that is an out-come of a combination of political, socialand economic factors. Existing centres ofRHQs, such as Hong Kong and Singapore,are thus likely to continue to enjoy their‘� rst-mover’ advantage and to play a majorrole in the globalisation of TNCs into theAsia-Paci� c region.

Because of its exploratory nature, ourstudy has several limitations that can only beresolved by more detailed future studies ofRHQs. First, although our sample size(n 5 130) and survey response rate (52 percent) are reasonably good, our empiricalanalysis is still quite shallow as our data donot allow for the use of complex statisticaltools. We have tried to overcome some ofthese data limitations through an analysis anda selective presentation of qualitative datafrom personal interviews with RHQs in Sin-gapore. Future studies need to operationalisebetter the dependent variables and measurethem systematically through both question-naire surveys and analysis of corporate data.Secondly, while our � ndings are generalis-able to the case of RHQs in Singapore, theymay be less applicable to RHQs in otherAsian cities, notably Hong Kong and Tokyo.To make a better case for generalisation, weneed to conduct a series of comparativeempirical studies of RHQs in multiple hostcities (for example, Tokyo vs Hong Kong vsSingapore) and regions (for example, NewYork vs London vs Singapore). Thirdly, ourstudy is one of the few empirical studies ofRHQs recently conducted in urban studiesand international business studies. In the con-text of accelerated globalisation, we stillknow very little of the strategic role,functions and capabilities of these RHQs.

Although we have attempted to conceptualisethe in� uences over the strategic necessity ofestablishing RHQs, our framework is farfrom perfect. We need more empirical testingof the ideas embedded in the framework; wealso need more theoretical development inunderstanding the role of RHQs in ful� llinga key objective of major TNCs in achievingsimultaneously global integration and localresponsiveness. Only then can we arrive at abetter conceptualisation and understanding ofthe role of regional headquarters in theglobalisation strategies of transnational cor-porations and their implications for designingpublic policies to attract RHQs and associ-ated business services in speci� c world cit-ies.

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