The Location Choice of Offices of International Companies

Abstract

There has been a structural shift of employment in developed countries towards the tertiary sector, and an increase in the proportion of economic activity being conducted by international firms. This paper is an examination of the factors that influence location choice of international offices, by means of survey data that facilitate a sectoral analysis of location choice. Analysis of the motives that lead to direct foreign operations is based on the ownership–location–internalisation paradigm, which suggests that international firms tend to be most active in those sectors in which their ownership advantages are most pronounced, and in which these advantages are best exploited internally to the firm. A branch–regional classification is used to distinguish cases in which office-location choice is dominated by external market forces (branch offices) and those in which location is determined by internal organisational forces. The primary influences on location choice are market size and the need for personal presence to serve this market. There is also clear evidence of a ‘bandwagon’ effect. But more detailed influences vary with office type and sector. In this respect, the quality and availability of resources are generally more important than direct costs. The United Kingdom emerges as a high-skill economy with a flexible labour force and good communications facilities. It is also the case that, although proximity to London remains important, there is a clear tendency to consider locations further from London, a tendency that will be further encouraged by technical change and improvement in domestic travel infrastructure.