Where is Home for the GlobalFirm?
Q&A with: Mihir A. Desai Published: January 26, 2009 Author: Martha LagaceGlobal markets are changing therelationship between firms and nation-states inimportant ways, says HBS professorÂ
Mihir A. DesaiÂ
. His new working paper, "The Decentering of the Global Firm," offers a practical framework for business leaders tothink strategically about where to locate their company's financial and legal homes, and managerial talent. Q&A with Desai. Keyconcepts include:• Three critical aspects of a firm's national identity—its legal and financial home and its center for managerial talent—areincreasingly distributed worldwide.• There are benefits and costs to decentering, says Desai. The challenge for managers isto choose each home wisely.• Firms that have left their traditional homebase include News Corporation, Shire Pharmaceuticals, Halliburton, and WPP Group, among others.
 Not
so long ago, multinational firms wereassociated with a specific national identity.Caterpillar was a prototypical U.S. company.Honda was a classic Japanese company. Thelocation of headquarters of these and other firms served as proof, and nations took pride inthe achievements of their homegrowncompanies.But all that is changing as firms shape andadapt to global markets.Says HBS professor Mihir A. Desai, "Thedefining characteristics of what makes a firm belong to a country—where it is incorporated,where it is listed, the nationality of its investor  base, the location of headquartersfunctions—are no longer bound to one country.Why are these changes taking place, and whatare their consequences?"As an expert on international corporate and public finance, Desai presents a practicalframework for firms to respond in his working paper "The Decentering of the Global Firm"[PDF].To start, responding strategically to thesechanges requires a reconceptualization of whata corporate home is, says Desai. "Managersneed to make conscious choices about how tounbundle the activities that have traditionally been centered in a home country headquarters."When managers think about the bestlocation or locations for managerial talent, for instance, they should be aware that reallocatingtalent is neither costless nor easy. Interpersonalrelationships and internal communicationnetworks rise in importance. As Desai writes inthe paper: "Senior management teams that arenot well-integrated will not be able to handlesuch reallocations, as trust and preexistingrelationships will be particularly critical in thesesettings. Growing a culture is also much morechallenging in such a 'decentered' setup, andsuch reallocations are best suited for moremature companies."These costs," he continues, "while readilyidentifiable and daunting, must be comparedwith the potentially large benefits created bymanagerial specialization and the ability toaccess differentiated resources easily."In the following Q&A, Desai explains howand why firms are increasingly decentered.Managers will find food for thought toreconceptualize their corporate home and prepare strategically for the future.
MarthaLagace:Whatisdecentering,andwhy is it an important phenomenon?MihirDesai:
We've become accustomed tofirms globalizing various aspects of their operations—for example, the fragmentation of  production around the world, distributionoutlets worldwide, and research anddevelopment facilities that capitalize on localtalent pools. But we still basically think thatfirms belong to some home country where theyare headquartered. This premise underlies theway we talk about firms and variousgovernmental policies. I use the termdecentering to refer to a series of changes thatfirms are undertaking that contradict that logic.In short, the critical aspects of a firm's nationalidentity that we took as immutable are nowrapidly being broken up and distributed aroundthe world, much as other aspects of a firm have been distributed around the world.In order to understand these changes, in my paper I provide a framework that illustrates thecritical dimensions of national identity that are being reallocated and the considerations thatshould motivate managers as they undertakethese changes. I show that there are threecritical aspects of a firm's national identity: alegal home, a financial home, and a home for managerial talent. While all of these homesused to be collocated in the country where afirm was born, this is no longer the case.Managers have distributed these homesworldwide, and in the case of a home for managerial talent, they have splinted that aswell. Now there can be several homes for senior managerial talent as well.As one example, consider Genpact. In theearly 2000s, Genpact (then known as GECIAS)was the wholly owned, outsourcing operation of General Electric and was the largestoutsourcing operation in India. In 2005 GEdecided to partially divest this subsidiary to anumber of private equity players. By 2007, thefirm was named Genpact and was preparing togo public. In the process, its legal home waschanged, first to Luxembourg and then toBermuda. Today, Genpact's only listing is in New York while its managerial talent sits primarily, but not exclusively, in India. With its NYSE listing, is Genpact a U.S. multinational?Or does its mainly Indian managerial talent andits extensive operations in India make it anIndian multinational? Or is Genpact aBermudian multinational because it isincorporated in Bermuda? With its unbundledheadquarters functions, Genpact's nationalidentity is hardly clear-cut. Genpact representshow national identities are mutating and how itis becoming difficult to ascribe firms to particular nation-states.In my paper "The Decentering of the GlobalFirm," I describe how these changes represent anatural extension of trends that have beenoperative for decades in how firms organizethemselves, and therefore, these developmentsare likely not a transitory fad. And then I try toexplain what considerations can help managerschoose the appropriate legal home, financialhome, and home(s) for managerial talent.Finally, I consider the implications for  policymakers as firms make these decisions.
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