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e-Magazine (For the Japanese version of this article)

Series: ASEAN Economic Integration and Japanese Companies (Part 3 of 4) Trends in Asian Regional Headquarters | Tomikazu Hiraga Senior Research Fellow and General Manager for Asia NLI Research Institute [Date of Issue: 30/June/2014 No.0232-0934]

Date of Issue: 30/June/2014

Series: ASEAN Economic Integration and Japanese Companies (Part 3 of 4)
Trends in Asian Regional Headquarters

Tomikazu Hiraga
Senior Research Fellow and General Manager for Asia
NLI Research Institute

Japanese companies now have multiple operations in Asia and ASEAN, and as the geographical distribution, roles and functions of these become increasing diverse and complex, regional headquarters have become critical in balancing the drive for standardization and efficiency with local adaptation. Here we look at key points in relation to the establishment and operation of regional headquarters.

Previously I discussed the trends of shift of Japanese companies into ASEAN where a single firm may now have multiple operations, and how the initial stronger autonomy of production hubs in the various countries has given way to more organic partnerships and relationships among operations as companies pursue greater international specialization. I used the example of the automobile industry to explore these trends.

With companies now coordinating a number of ASEAN and Asian operations, which are also becoming increasingly diverse and complex in terms of their geographical distribution, roles and functions, regional headquarters too are becoming critical in balancing two key issues in international business: the drive for standardization and efficiency on the one hand, and, on the other, local adaptation. Here we look more closely at these regional headquarters.

1. Regional headquarters

Operations which oversee, coordinate and support the business and functions (described in greater detail below) of a corporate group's subsidiaries and related firms in regions regarded as important in developing the group's business (Asia, North America, Central and South America, Europe, etc.) are often called regional headquarters. As companies expand and evolve their international business, regional headquarters are becoming increasing necessary and important; some reports suggest that the tipping point for the establishment of regional headquarters is an overseas sales ratio of 30 percent or more. Japanese companies are not alone-as more firms from Europe, the US, Korea and China establish operations in Asia and ASEAN, they too are setting up Asian regional headquarters.

Positioned between the parent company and local operations and accordingly closer to local operations than the parent company, these regional headquarters are expected to serve a whole range of functions from the broader perspective of the corporate group, including decision-making on key management issues, governance, standardizing operations and boosting their efficiency, and providing support and assistance for local operations. They are particularly effective in creating and managing efficient supply chains for corporate groups; integrating marketing, boosting brand profile and enhancing brand strength; making effective use of capital; and efficiently distributing the tax burden.

The functions of regional headquarters can include: procurement of funds and materials; distribution; creating, implementing and managing management strategies and plans; serving as a holding company and managing operations under the group's umbrella; risk management; production planning and management; analysis and R&D on regional market trends (including the development of service products); capitalization and asset management; marketing; brand management; personnel management and training; legal affairs; tax affairs and accounting; IT; and business processing.

What actual regional headquarters do varies according to companies' particular business types, products and needs and the phase of their international business development, so there is consequently a lot of variation. Some headquarters handle all the above functions; others handle only some of them; and yet others source out some functions to other regional operations (for example, R&D, education and training, and business processing).

2. Countries and regions with many regional headquarters

Currently, the bulk of companies have their Asian regional headquarters in Singapore or Hong Kong. Both countries are international business, finance and logistics hubs and have numerous strengths such as ease of access to key markets; tax breaks and various other types of government support; high-level legal, accounting and IT-related services; top-class human resources; and excellent infrastructure in terms of both doing business and living. These merits are reflected in the table below, which shows Singapore and Hong Kong toward the top of international rankings for international competitiveness and ease of doing business.

※1 : Thailand is currently levying the reduced tax rate of 20%.
※2 : https://www.doingbusiness.org/reports/global-reports/doing-business-2014
※3 : https://www.mof.go.jp/tax_policy/summary/corporation/248.htm

While companies obviously apply their own criteria in selecting between these two countries, according to the location of subsidiaries' local operations and the strategic focus and policy of the region (or proposed region) where the company is doing (or seeks to do) business, companies which emphasize Southeast Asia, India and other parts of Southern Asia, and Oceania tend to choose Singapore, while companies which place more importance on their relationship with the Chinese mainland and Taiwan but also want to do business in Southeast Asia tend to choose Hong Kong.

In addition to these two countries, many companies which prioritize the automobile and other manufacturing industrial clusters which I discussed in the last article (Toyota, Honda, Denso, etc.) have their Asian regional headquarters in Thailand, which offers the additional benefit of lower costs than Singapore and Hong Kong. In a growing number of cases, companies are also selecting Malaysia, which offers attractive cost-benefit merits as well a large English-speaking population and an ethnic diversity often described as a microcosm of Asia. Aeon and Taisho Pharmaceutical, for example, have their ASEAN regional headquarters in Malaysia, which is also where Sumitomo Mitsui Banking Corporation conducts its Asian training. Malaysia also has a strong affinity with Islamic markets—halal foods, for example, as well as the Islamic banking and insurance system which has come under the spotlight in recent years.

In any case, before companies ultimately select a location for their regional headquarters, they obviously need to fully consider the investment environment, the various conditions which governments offer (tax breaks and other incentives), and their own particular goals and needs.

These government websites provide information on investment conditions—regional headquarters included—in the four countries discussed above:

Singapore: https://www.edb.gov.sg/content/edb/en.html
Hong Kong: https://www.investhk.gov.hk/about-investhk/about-us.html
Thailand: https://www.boi.go.th/index.php?page=index
Malaysia: https://www.mida.gov.my/env3/index.php

3. Conclusion

Here we have looked at basic points in relation to regional headquarters in Asia and the current situation. Most importantly, companies need to clearly delineate their goals in establishing a regional headquarters, and then select a location and the functions to be administered by that headquarters consistent with their particular strategy and the stage of their international business development. For regional headquarters to serve as the "linking pin" organically connecting headquarters with production, sales and other local operations and boost the profitability and efficiency of the whole corporate group, companies must also consider organizational arrangements, the division of authority, and coordination mechanisms among the parent company, the regional headquarters and local operations so as to avoid work duplication and delays in decision-making.

(original article : Japanese)
(For the Japanese version of this article)

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