EU Regional Headquarters: Implications for Host Countries and Skills of Domestic Labor Force

Table of Contents

1. Abstract

2. Preface
2.1. Problem Statement
2.2. Research Questions
2.3. Structure of the Diploma Thesis

3. Literature Review
3.1. Introduction
3.2. Studies in Academic Journals
3.3. Other Publications
3.4. Lessons Learned

4. Definitions
4.1. Introduction
4.2. Transnational Corporations
4.3. Regional Headquarters
4.4. Regional Focus

5. Skills Follow Responsibilities
5.1. Introduction
5.2. Responsibilities of Regional Headquarters
5.2.1. U.S. Companies and Their European RHQs
5.2.2. Austrian RHQs and Their Subsidiaries in the CEEC
5.3. Skills
5.3.1. Introduction
5.3.2. Administration
5.3.3. Corporate Communications
5.3.4. International Experience
5.3.5. International Human Resource Management
5.3.6. Making and Implementing Decisions
5.3.7. International Marketing
5.3.8. Meetings
5.3.9. Purchasing, Logistics and Production
5.3.10. Thirst for Knowledge
5.3.11. View of the Company as a Whole
5.4. Lessons Learned

6. rhQs in Austria – Quantitative Research
6.1. Introduction
6.2. Methodology
6.2.1. The Study
6.2.2. Sample
6.2.3. Survey Design
6.3. Results
6.3.1. Section A
6.3.2. Section B
6.4. Discussion and Research Implications

7. RHQs in Austria – Qualitative Research
7.1. Introduction
7.2. Siemens Group Austria
7.2.1. Corporate Social Responsibility
7.3. Generali Holding Vienna Group
7.3.1. Training and Development
7.3.2. Corporate Social Responsibility
7.4. Discussion and Research Implications

8. Recommendations for Austria
8.1. Introduction
8.2. Regional Headquarters and the Economic Development
8.2.1. Vienna
8.2.2. Current Situation
8.2.3. Outlook
8.3. Regional Headquarters and the Labor Market
8.3.1. Positive Effects
8.3.2. Direct employment
8.3.3. Indirect Employment
8.4. Lessons Learned

9. Conclusion

10. Acknowledgements

11. appendiCES

12. bibliography

Table of Figures

Figure 1: Structure (Source: Author)

Figure 2: Number of Studies per Year of Publication (Source: Author)

Figure 3: Number of Articles on RHQs per Journal (Source: Author)

Figure 4: Location of Companies and RHQs (Source: Author)

Figure 5: Number of Studies per Research Topic (Source: Author)

Figure 6: Multinational Corporation (based on Harzing, 1998: p. 316)

Figure 7: Global Corporation (based on Harzing, 1998: p. 316)

Figure 8: Transnational Corporation (based on Harzing, 1998: p. 316)

Figure 9: Organization-Environment Fit (based on Lehrer a. Asakawa, 1999: p. 273)

Figure 10: Map of the EU (www.worldatlas.com)

Figure 11: Map of Countries (www.erdgasfahrzeuge.de)

Figure 12: Nationality of the RHQs (Source: Author)

Figure 13: Industry Type of the RHQs (Source: Author)

Figure 14: Location of Austrian RHQs (Source: Author)

Figure 15: The Standard RHQ (based on Enright a. Scott, 2000: p. 2)

Figure 16: Number of RHQs Per Country (Source: Author)

Figure 17: Market Share in Austria (based on Generali Holding Vienna Group, 2005b: p. 17)

Figure 18: Premium Income in Europe (based on Generali Holding Vienna Group, 2005b: p. 8)

Figure 19: Virtuous Cycle (Source: Author)

Index of Tables

Table 1: Studies Published in Academic Journals (Source: Author)

Table 2: Other Publications on RHQs (Source: Author)

Table 3: Member States of the European Union (based on http://europa.eu.int)

Table 4: Responsibilities (based on Daniels, 1986: p. 37 a. Stankovsky a. Wolfmayr-Schnitzer, 1996: p. 46)

Table 5: Responsibilities of Regional Managers (based on Grosse, 1981: p. 53)

Table 6: RHQs in Austria (based on Stankovsky, 2001: p. 1)

Table 7: Reasons for the Exclusion of Companies (Source: Author)

Table 8: Nationality and Industry Type of the RHQs (Source: Author)

Table 9: Number of Employees of Each of the Participating RHQs (Source: Author)

Table 10: Location of the Austrian RHQs (Source: Author)

Table 11: Austrian RHQs and Their Responsibilities in the CEEC (Source: Author)

Table 12: Reasons for Non-Response (Source: Author)

Table 13: Number of Employees Per Department (Source: Author)

Table 14: Siemens Group Austria (based on Siemens, 2005: p. 3)

Table 15: Siemens – Number of Employees (based on Siemens, 2005: p. 3)

Table 16: Siemens – Employee Structure (based on Siemens, 2005: p. 12)

Table 17: Key Data (based on Generali Holding Vienna Group, 2005a: p. 2)

Table 18: Generali – Number of Employees (based on Generali Holding Vienna Group, 2005a: p. 343)

Table 19: Ranking of Companies (based on Macharzina, 1995: p. 291)

Table 20: Labor Force by Federal State (based on Statistik Austria, 2005: p. 54)

Table 21: Services (based on Stankovsky and Wolfmayr-Schnitzer, 1996: p. 66)

LIST OF ABBREVIATIONS

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1. Abstract

The diploma thesis concentrates on regional headquarters and the effect they have on a host country's labor market and the skill level of its labor force. The first part of the thesis deals with the available literature giving an overview of the evolution of the topic and the most prominent issues and countries researched regarding regional headquarters. Moreover, definitions of transnational corporations, regional headquarters and the region of interest here are given in order to determine the scope of this thesis. The second part is empirical in nature. Based on the results of the literature review, a quantitative survey was conducted in order to examine the current situation of Austrian regional headquarters. Therefore, a questionnare was sent to all regional headquarters located in Austria. Furthermore, qualitative research appears in the form of two case studies. At the end of the thesis the results are summarized and recommendations are given for policy makers. The key results of the work are: RHQs actually have a positive effect on the domestic labor market, that is on the employment rate as well as on the level of skill.

2. Preface

2.1. Problem Statement

These days, the term globalization can confidently be called one of the most prominent ones. It brings about fierce competition which is why innovation and quality are the prerequisites for success of companies today. Certainly, it does not only involve good connotations. Daily, mass media are reporting on another company that decided to engage in offshoring for strategic purposes. This implies moving jobs from a European country to, for example, India, where labor is significantly cheaper.

However, there are several indicators which may lead to the appointment of the word regionalization, instead. Among the reasons for following a regional strategy are economic, geopolitical, strategic and organizational factors. According the economic point of view, companies have now realized that there are, in fact, limits to economies of scale since full standardization rarely makes sense.

The geopolitical perspective refers to the current division of the world into the triad blocs of the North America Free Trade Agreement (founded 1994), the European Union (since 1992) and the Asia-Pacific Economic Cooperation (founded 1989).

Furthermore, many strategic forces may be identified: companies want to enhance local responsiveness and, simultaneously, save costs by engaging in global standardization, i.e. exploiting intraregional similarities in markets, government regulations, etc.

Last but not least, organizational factors play an important role. A company may have one subsidiary in each of the 25 member states of the European Union. After establishing a regional organization, it will succeed in pooling regional resources, following a common regional strategy and benefiting from synergy effects. For instance, a synergy could be created by establishing an international human resource department on the regional level which provides services to all subsidiaries in the concerning region.

Based on this background, this diploma thesis deals with regional headquarters in general and with their impact on the (Austrian) labor market in particular.

2.2. Research Questions

The purpose of this thesis is, as the title suggests, twofold: First, it wants to identify implications for host countries which seek to be an attractive location for a company's regional headquarters (RHQ).

Second, it aims at describing consequences for the skills of the domestic workforce in the host country.

I will address these issues by focusing on one region of the triad, namely the European Union (referred to as EU in the following), and particularly on Austria.

Hence, the following key research questions will be explored:

1. What are the main responsibilities taken over by RHQs?

2. Are the skills of the Austrian labor force enhanced by the existence of RHQs?

3. How many RHQs are there in Austria?

4. Do these RHQs have a quantifiable impact on the Austrian labor market? If yes, is this effect even worth mentioning?

5. Does the EU enlargement have an impact on Austria, particularly on Vienna, as a location for RHQs?

6. Which government policies are able to retain existing and attract further RHQs?

2.3. Structure of the Diploma Thesis

The structure of this thesis is outlined in figure 1 in order to provide the reader with an overview. Each chapter is opened by a general introduction and closed by a sub-section which includes a summary and further research implications.

The reader is introduced to the topic at hand by a literature review in chapter 3. This section contains two main parts: the analysis of studies and articles published in academic journals; and the description of books and other types of publication. All authors quoted in the course of my work are already included in the review which implies that it provides the foundation of the upcoming chapters.

Chapter 4 builds the basis for the topic at hand. It defines the object of investigation, namely RHQs by using definitions provided by pervious authors. Of course, it takes a closer look at transnational companies which are the superior organization. Finally, sub-section 4.4. determines the scope of the region I chose to examine.

Section 5 identifies the most important skills RHQs demand from potential employees. In order to be able to do that, I first took a look at the different responsibilities an Austrian RHQ may assume. For this purpose, sub-section 5.2. deals with the tasks a RHQ undertakes in order to fulfill HQ's requirements and with the services a RHQ provides for its subsidiaries.

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Figure 1: Structure (Source: Author).

Chapters 6 and 7 present the empirical work of my thesis. Both analyze the RHQs currently located in Austria by using quantitative and qualitative research, respectively. The former provides a list of all Austrian RHQs, including the nationality of the parent company, the industry type they are operating in, the number of staff employed worldwide and in Austria, the location, the geographic scope of their responsibilities, the tasks they assumed and the skills demanded by their employees. Chapter 7 contains case studies of the two most prominent Austrian RHQs in terms of number of employees.

Section 8 gives recommendations for Austria and its policy makers. First, it deals with economic development in general. For this purpose, I chose Vienna as an example because most Austrian RHQs are located in the capital city. Second, it elaborates the effect RHQs have on the Austrian labor market. Based on my literature review, I provide the reader with a list of positive impacts RHQs may have. Furthermore, the topics of direct and indirect employment are dealt with under separate headings.

The final chapter contains an overall conclusion, followed by acknowledgements, appendices and a comprehensive bibliography.

3. Literature Review

3.1. Introduction

In the following, a state-of-the-art analysis of English literature on RHQs is provided. First, I will specify all studies published in academic journals currently available. Second, other types of publications are introduced to the reader.

3.2. Studies in Academic Journals

The following table provides a comprehensive list of the existing empirical literature published in academic journals in English. The studies vary from quantitative analyses to intensive and qualitative (case) studies. In order to make the outline of this thesis clearer, I will indicate the section or sub-section which presents the key findings of the respective studies in table 1. Unfortunately, I had to exclude several studies as they have had another research focus. To date, the studies on RHQs are sparse compared to literature on TNCs (Asakawa and Lehrer, 2003: p. 32). The list contains 26 publications.

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Table 1: Studies Published in Academic Journals (Source: Author).

In the following, I will take a closer look at the studies quoted above. The graph below describes the evolution of the topic at hand. Obviously, it has become more and more important over its approximately 30 years of history.

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Figure 2: Number of Studies per Year of Publication (Source: Author).

It is noteworthy that the German Management International Review (referred to as MIR in the table) is the heaviest publisher in this field, accounting for six of the 26 studies. The dominance of the MIR may result from the fact that Germany is a member state of the EU which consists of many relatively small countries. Therefore, a strong interest in regional management is not at all surprising. Figure 3 shows further journals that published more than one article on RHQs, namely Business Asia (BA), the Journal of International Business Studies (JIBS) and the Journal of World Business (JWB).

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Figure 3: Number of Articles on RHQs per Journal (Source: Author).

Furthermore, these studies differ in their geographical focus, both concerning the home country of the transnational and the host country of the RHQ. Articles where no location is indicated, simply do not focus on a particular region.

Again, the table above is shown in a more concise way in figure 4. It depicts the number of studies dealing with each continent. For this purpose, Asia and Australia are included in one column because a lot of studies have an Asia Pacific-focus.

Clearly, North America as a location for parent companies is most studied, being included in 16 articles. On the other hand, most research on RHQs is focusing on Asia and Australia, followed by Europe. This strong interest might stem from the economic upsurge of Asian countries as well as the Central and Eastern European Countries (referred to as CEEC in the following). Obviously, academics and companies recognize the seemingly endless opportunities which are linked to these markets (e.g. the huge size of the Chinese market).

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Figure 4: Location of Companies and RHQs (Source: Author).

Table 1 also gives a first impression of the main content of each study. The term IHRM indicates that the respective study deals with specific tasks an international human resource management department may have to perform in a RHQ.

A topic that attracted much more attention are decision factors. Those authors analyzed the factors headquarters (referred to as HQs in the following) consider when deciding on a location for their RHQ. Certainly, this has an influence on government's policies, provided that they are interested in the attraction of RHQs. Already in 1979, David A. Heenan from the University of Hawaii conducted the first study on this topic.

Two years later, Grosse laid the groundwork for the famous issue of: responsibilities and/or roles RHQs might take over. Obviously, this goes hand in hand with the reasons why RHQs are established. Since both topics affect employees of regional operations, chapter 5.2. has a closer look at them.

The study on internal organization asks how American companies who set up RHQs in Europe are structured internally.

The term knowledge refers to studies which deal with the creation and transfer of knowledge within organizations. Of course, their specific focus is on the contribution a RHQ can make to the worldwide company.

Some of the authors included case studies in their articles. However, only one completely relies on case studies, namely about Emerson Electric and British Telecom.

Professor Michael J. Enright is a very famous researcher in this field. Therefore, his name appears three times among the studies on RHQs. He also conducted a study on regional clusters which deals with the impact regional clusters have on foreign companies and vice versa.

Last but not least, Rugman and Verbeke compare regional and global strategies of multinational corporations of different national origin.

In order to identify the most prominent research topics, I compiled the following graph. A notable number of authors (namely eight) have investigated the issue of responsibilities and roles placed on RHQs. Another well studied topic are the decision factors (represented by seven studies). It is very obvious that only three – two of them being published very early (1976 and 1985, respectively) – studies focused on IHRM issues.

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Figure 5: Number of Studies per Research Topic (Source: Author).

3.3. Other Publications

This chapter aims to introduce English literature on RHQs. It includes all sorts of publications, except for academic journals which were already dealt with previously. Most of the issues are conceptual (e.g. Blackwell et al., 1992), thus helping to gain further insights into the topic at hand. These are termed article in the following table.

At first sight, the University of St. Gallen stands out since it seems to be the only university encouraging dissertations (abbreviated Diss. in the table) in this field.

WU refers to the Vienna University of Economics and Business Administration.

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Table 2: Other Publications on RHQs (Source: Author).

3.4. Lessons Learned

In total, I found 41 publications, in journals or others, on the topic at hand. Considering the evolution of the topic which started in 1967 with Williams' article in the Harvard Business Review, one might have expected more. Clearly, academic journals dealt with RHQs in more breadth than books. Since 2000, the former could even increase their yearly number of publications regarding regional headquarters. This was also the year when Enright first tried to formulate a more specific definition (see sub-section 4.3. in the upcoming chapter).

If the reader intends to look for future studies, he should stick with Management International Review as it provided far more articles – including a special issue in the beginning of 2005 - than others.

In terms of geography, one observes that the development of the world economy is reflected in the selection of countries. Mainly, parent countries of American origin are surveyed whereas RHQs are Asian Pacific (first place) or European (second place).

The most prominent topics are responsibilities of RHQs, decision factors regarding locations of RHQs and far behind IHRM issues.

4. Definitions

4.1. Introduction

This diploma thesis centers around transnational corporations, regional headquarters and the regional focus chosen by me. First, the reader will be provided with a definition of TNCs (transnational corporations). Since regional headquarters are part of TNCs, their definition results from the above. Also, the role RHQs play as intermediates between HQs and subsidiaries will be an issue here. Third, I will describe the respective region in detail. The regional focus of this thesis is reflected in the geographical field of responsibility of Austrian RHQs.

4.2. Transnational Corporations

The definition for transnational corporations is derived from Bartlett and Ghoshal (2004). They observed four different organizational models, namely the multinational corporation, the international corporation, the global corporation and the transnational corporation. Since Leong and Tan (1993: p. 457) concluded that the international organization does not differ significantly from the transnational, I excluded it from the following description.

According to Bartlett (1991: p. 372), these organizational models evolved over time, starting with the multinational corporation (see figure 6). It is characterized by a decentralized organization regarding assets and responsibilities (Bartlett and Ghoshal, 2004: pp. 56 and 59). In this way, local responsiveness to differing national markets and political demands becomes possible. Control by the HQ is exercised over a subsidiary's financial performance and coordination is assured by well-established informal personal relationships. Obviously, the HQ has to be ready to delegate the development of strategies and operations to foreign subsidiaries (Bartlett, 1991: p. 373). Subsidiaries primarily focus on their local markets.

The double-headed arrows in the following figure represent financial flows from the HQ to subsidiaries (e.g., capital) and vice versa (dividends).

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Figure 6: Multinational Corporation (based on Harzing, 1998: p. 316).

The global corporation is the opposite of the multinational organization as it involves centralization regarding decision making and consequently tight control of subsidiaries (Bartlett and Ghoshal, 2004: p. 59). Considering worldwide economic development, the evolution of the global corporation is quite logical: Globalization is characterized by declining trade barriers and technological advances that bring about sophisticated transportation systems and means of communication. These facts surely promote international trade but create a highly competitive environment and enable companies to expand to more and more markets (Bartlett, 1991: p. 373). Therefore, HQs spared no effort in order to benefit from cost advantages while assuring premium quality by centralizing product development, purchasing and production. This implies a management philosophy that interprets the world as a single market, ignoring any differences (e.g., economically, culturally or politically) countries may have. Assuming that consumers have the same needs and habits worldwide, enables these companies to exploit economies of scale because of selling standardized products (Bartlett and Ghoshal, 2004: p. 58).

The arrows in figure 7 show that goods and products, information and resources are mainly provided by the parent company (Bartlett, 1991: p. 375). This leaves subsidiaries with tasks like assembling, selling products, providing services and implementing of strategies formulated by the HQ. In addition, subsidiaries have to report to HQs on a regular basis.

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Figure 7: Global Corporation (based on Harzing, 1998: p. 316).

Finally, the transnational corporation is described in greater detail since it is the basis for this diploma thesis. Bartlett and Ghoshal (2004: p. 66) see this organizational type as a description of an ideal which is hard to achieve because companies have to make strong and consistent efforts in case they wish to become a TNC. The authors (2004: pp. 79 and 80) reason that

"The very nature of the transnational organization dramatically expands the number of issues that have to be integrated. But three flows are crucial. First, the company has to coordinate the flow of parts, components, and finished goods. Second, it must manage the flow of funds, skills, and other scarce resources among units. Third, it must link the flow of intelligence, ideas, and knowledge that are central to its innovation and learning capabilities."

The transnational evolved because it combines global efficiency and local responsiveness with the creation of a worldwide knowledge base (Bartlett and Ghoshal, 2004: p. 65). Thus, expertise is found not only at parent companies but also at subsidiaries because

"innovations are regarded as an outcome of a larger process of organizational learning that encompasses every member of the company" (Bartlett and Ghoshal, 2004: p. 68).

As opposed to multinational and global corporations which decentralize or centralize, TNCs make selective decisions: Whichever part of the corporation is best in performing a certain task, assumes it. For instance, some capabilities remain the HQ's responsibility (coordination of flows of components, products, resources, employees and informaton) while others are taken over by foreign operations. Therefore, the single units strongly depend on each other, either because one provides products and services the other one needs and vice versa or because cooperation among them is specifically created in order to develop a broader perspective of the company among managers (Bartlett and Ghoshal, 2004: p. 69). Figure 8 shows this integrated network.

Nowadays, companies have to deal with unpredictable and frequent changes in economic, technological, political and social environments ((Bartlett and Ghoshal, 2004: p. 71). Here, the unbeatable structure of the transnational pays off: Flexibility in sourcing, pricing, product design and strategies is crucial to achieve global competitiveness. TNCs choose a differentiation strategy only in markets where consumers demand it. Certainly, subsidiaries which operate in these markets have far more responsibilities than those which adopt a standardization strategy.

Moreover, the transnational makes worldwide learning possible (Bartlett and Ghoshal, 2004: p. 72). Knowledge is developed jointly and shared worldwide (Bartlett and Ghoshal, 2004: p. 75). This means that a regional operation may have a R & D (research & development) department in order to design a specific product for a worldwide launch (Bartlett and Ghoshal, 2004: p. 74).

Specifically, Bartlett and Ghoshal (2004: p. 76) list the following challenges managers of TNCs meet:

- Balancing the diversity of perspectives and capabilities within the organization
- Establishing flexible coordination systems
- Communicating a shared vision and personal commitment to bring individual members together which facilitates overcoming geographical distance and time as well as cultural and language differences (Bartlett and Ghoshal, 2004: p. 78)

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Figure 8: Transnational Corporation (based on Harzing, 1998: p. 316).

4.3. Regional Headquarters

Based on my analytical study of the state-of-the-art literature (please refer to chapter 3), I will define the term RHQ as it will be used for the purpose of this thesis.

First, according to Heenan (1979: p. 410), companies may maintain RHQs in order to coordinate and control multiple operations in a geographic region. More than 20 years later, Enright (2000: p. 134) used the same definition, adding the relationship between the HQ and its subsidiaries. A RHQ is

"an organization which has control over the operation of one or more other offices or subsidiaries in other countries or economies in the region and which does not need to make frequent referrals to the overseas parent headquarters or have consultations with them."

Yeung et al. (2001: p. 158) also used Heenan's definition as a basis:

"…we view regional headquarters as a business establishment that has control and management responsibilities for the operation of one ore more other subsidiaries or affiliated companies located in the same host region. This definition effectively excludes regional offices that are defined as either solely a representative office or a sole operating establishment in the region." Mori (2002: pp. 2 and 7) stated that companies expect RHQs "to carry out different roles, such as making decisions near the market, coordinating businesses in the region, developing new business, and so on...RHQs are expected to coordinate production activities in the region as well as sales and marketing activities. RHQs are also expected to provide some staff services to support subsidiaries, and to reduce total costs. Since most subsidiaries in each country are small-to-medium sized firms, it is not worth each subsidiary having all staff functions, such as information systems, personnel function, and legal services. Rather, if such functions are carried out within RHQs, the result is improved efficiency at reduced costs."

Thus, supervising a large number of subsidiaries spread over different countries is supposed to create synergy effects which in turn provide cost savings. For instance, Hong Kong is a prominent urban location for RHQs taking charge of East Asia (Yeung et al., 2001: p. 160). Likewise, a RHQ located in Vienna could be responsible for subsidiaries in Austria, the Czech Republic and Slovakia.

Second, Daniels (1986: p. 36) was the only author who explicitly included "profits" in his definition. According to him, RHQs…

"have multifunctional line responsibility over opertions and are accountable for overall profits in the area. In addition to line responsibilities, these offices usually provide staff support as well."

Third, the internal organization is often used to define RHQs. Typically, one finds a dual reporting structure in TNCs:

"…each subsidiary's general manager reports to a regional general manager who reports to an international general manager at the home office" (Grosse, 1981: p. 52).

Schütte (1996: p. 28) described this relationship as a link between the parent and the particular region.

The development of markets is the crucial factor for every TNC. Lehrer and Asakawa (1999: p. 268) argued that a regional approach is an appropriate "…compromise between global integration (efficient, but not locally flexible) and local differentiation (flexible, but not globally efficient)".

Since a RHQ is physically as well as psychologically closer to local issues, it is more flexible in terms of responding to new opportunities (e.g., a higher purchasing power) and threats (like price changes and regulations) than the HQ (Forsgren et al., 1995: p. 478). In 2004, Rugman and Verbeke (p. 4) argued that TNCs "should operate with regional headquarters in each leg of the triad in order to capitalize on commonalities within each region, at a lower cost and with more market knowledge than if corporate headquarters performed those activities."

Figure 9 depicts this intermediate level.

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Figure 9: Organization-Environment Fit (based on Lehrer a. Asakawa, 1999: p. 273).

Fifth, when implementing a regional strategy, top managers employed by the RHQ "…determine investment locations, product mix, competitive positioning and performance appraisals" for the whole region. This regional approach "…requires companies to mobilize their forces and focus their energies through the sharing of information and knowledge…" (Morrison and Ricks, 1991: p. 24).

Furthermore, it involves

"…the transfer of best practice, and the stimulation and support of local strategy initiatives in a coordinated and targeted manner across the region" as Lasserre (1996: p. 31) expressed it.

Last but not least, RHQs may perform headquarters-like functions within the region in order to provide services to the single country operations (Ondrack, 1985: p. 8 and Ho, 1998: p. 181). For instance, they might have a finance, IHRM, logistics and marketing department (Lehrer and Asakawa, 1999: p. 272).

4.4. Regional Focus

I already mentioned in the introduction that one of the main reasons for the rise of RHQs is the development of large regional blocs (Rugman, 2000: p. 1). I would like to point out that the term region in the context of this diploma thesis means supranational regions that is several nations form a region, and not sub-national regions (Enright and Roberts, 2001: p. 67).

As an European citizen and a student who will most likely seek employment within Europe, I chose to focus on RHQs located in this region. Further, in the bigger part of my chapters I relate to Austria.

Currently, the EU comprises 25 member states (a population of 455 million) on an area of 3.975.000 km² (please refer to figure 10 for a map). Compared to the United States of America (population: 295.267.686, area: 9,372,610 km²), the single countries of the EU appear rather small. Therefore, the foundation of the EU laid the groundwork for treating it as a region. The continuously growing single European market is characterized by economic unification, e.g. the removing of intraregional trade restrictions and the initiation of factor mobility. These factors are also expected to foster a trend towards greater homogeneity of consumer preferences and business methods. Consequently, establishing a RHQ within this region offers strategic benefits.

Since Bulgaria and Romania represent strategic importance for a lot of Austrian RHQs, they are included in the table below though they are not members of the EU yet. For the sake of clarity, these two countries have a grey background.

Since RHQs are mostly located in large cities, I also indicate the capital city of each country. The indication of the population is important as I will deal with labor market statistics in a later chapter.

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Table 3: Member States of the European Union (based on http://europa.eu.int).

The following map highlights the respective region. Looking at the map, one can see that Vienna is, in fact, the center of the EU: The most distant cities (Lisbon: 3000 km, Helsinki and Athens: 1800 km each) can be reached within a 4 hours flight (3 hours 30 minutes, 2 hours 45 minutes and 2 hours, respectively). Therefore, travelling to and from subsidiaries can be organized very easily. Furthermore, communicating is facilitated by a time difference of 2 hours at most.

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Figure 10: Map of the EU (www.worldatlas.com).

5. Skills Follow Responsibilities

5.1. Introduction

TNCs can have enormous effects on the labor market of a host country (Jain et al., 1998: p. 555). In 1999, Lehrer and Asakawa (p. 269) detected that European RHQs of American parent companies are indeed mostly staffed by locals (see also Daniels, 1987: p. 38). Evidently, local governments insist on the employment of domestic people in order to enhance managerial skills as well as to assure a certain degree of control over foreign companies (Youssef, 1973: p. 24).

Previous chapters already mentioned that authors have not yet intrinsically examined the effects of RHQs on the domestic labor force in respect to the employment rate as well as the level of skill. Therefore, I had to consult literature on TNCs and draw conclusions from there.

TNCs are eligible to create high-skilled as well as low-skilled (manual and non-manual) jobs. Certainly, RHQs have different consequences for both types of employment. However, highly trained professionals are mainly required and are thus the research subject of this chapter.

In a first step, I will identify the tasks RHQs might take over. As my empirical work in section 6 will show, Austria has many more RHQs of American origin than Japanese ones. Therefore, I chose Daniels' study "Approaches to European Regional Management by Large U.S. Multinational Firms" as a basis for this chapter. Though it was already published in 1986, the results correspond to those observed in recent years, e.g. Lasserre (1996) and Enright (2000). Then, since my empirical part focuses on Austrian RHQs and their subsidiaries in the CEEC, I will consult a study entitled "Austria as a Location for Regional Headquarters for the East" by Stankovsky and Wolfmayr-Schnitzer (1996).

Secondly, I will determine the skills most relevant to RHQs.

5.2. Responsibilities of Regional Headquarters

5.2.1. U.S. Companies and Their European RHQs

Daniels surveyed 16 American companies which have established RHQs in five European countries (Daniels, 1986: p. 27). His questionnaires and interviews showed that RHQs of different companies do not conform to each other regarding their responsibilities. Rather, each operation has its own individual organization which further depends on the reasons why a RHQ was established in the first place (Enright and Scott, 2000: p. 2). Lasserre (1996, p. 33) lists the following decision factors:

"the experience of the company in the region, corporate regional impetus, corporate global structure, corporate product diversity, the status and seniority of the executives in charge of the regional headquarters."

These complex relations make it difficult to determine general trends and effects, respectively.

First, RHQs may serve as coordinating and operating functions for subsidiaries in the respective region (Daniels, 1986: p. 35). This involves continuous interaction between the staff of the RHQ and country personnel of subsidiaries.

Second, the RHQ might have product responsibilities (Daniels, 1986: p. 36). It is responsible for the PLC (product life cycle) of some or all products launched in the region. Consequently, it carries out strategic planning about the introduction and phasing out of products. Also, joining forces within the region is necessary in order to sell to major customers (e.g. government agencies).

Third, it is important to mention the RHQ's possible functional responsibilities (Daniels, 1986: p. 37). These activities may include:

- International marketing
- Production
- Communications and logistics
- R & D
- External relations
- IHRM
- Finance and accounting
- General control

Referring to the 16 companies surveyed by Daniels, most RHQs are involved in the following activities:

"participation on boards of directors of the subsidiaries, financial statement currency translation, cross national production integration, government relations, internal auditing, collection of environmental information, collection of industry specific information (technical and commercial), pricing, and preparation of long range plans."

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