Relocating business activities to and from Finland: Development of a framework to explain the reasons for relocating business activities
No Thumbnail Available
School of Business | Master's thesis
AbstractCompanies have relocated business activities across borders for more than six decades and at an increasing pace. While the first relocations were almost exclusively focused on manufacturing activities, today’s technological and logistical possibilities allow for almost every business activity to be offshored. Along with these new possibilities, the reasons to relocate business activities have changed as well. Although academic literature has evolved with the business reality, it still lacks an understanding of activity-specific influences on foreign location choices. In other words, current literature is largely taking a company-centered approach, which rarely accounts for the obvious differences of relocating different types of activities. This thesis puts the activity type into the center of attention. The study develops a theoretical framework, which approaches foreign location choice from a holistic perspective. The framework visually structures the most relevant concepts and theories in the field of foreign location choice, including for instance, Dunning’s Eclectic Paradigm, Rugman and Verbeke’s FSA - CSA framework, and North’s theory of New Institutional Economics. In the following, this framework is used to evaluate Finland’s attractiveness as a destination for relocations of business activities in particular and foreign direct investment (FDI) in general. The analysis is solely based on secondary sources and finds that Finland is a high quality business location that comes at the expense of high labor costs and taxes. Utilizing the survey Finland as a Business Location 2020 Barometer which was contracted by Business Finland and Amcham Finland, this study explores the reasons to relocate business activities to and from Finland. The results suggest that factors relating to high costs and taxes or the lack of flexibility push business out of the country, while factors relating to high quality, research opportunities, or good infrastructure pull business into the country. The widely spread assumption, that a business location’s strength inevitably pulls business into the country is debunked by applying Herzberg et al.’s two-factor theory to the field of foreign location choice. It is consequently argued, that when promoting a business location as a potential destination for FDI, it is more relevant to highlight the location’s (unique) pull factors rather than its strengths. Simply put, answering why a company should choose a location as a destination for its investment is more effective than describing what that location is good at. Exploring how the type of activity influences the reasons for relocation, the study is limited due to small sample sizes. A statistical model exploring whether the type of activity significantly changes the reasons for relocation shows no correlation. Yet, when testing for each individual type of activity, evidence is found that the reasons to relocate R&D activities differ significantly from the reasons to relocate other types of activities. Among other factors, the employee skill level is observed to be significantly more relevant for relocations of R&D activities while the compensation level is shown to be significantly less relevant. Based on these findings, it is argued that more research with larger sample sizes is needed in the field of activity-specific reasons for relocations of business activities. Future researchers are encouraged to first focus on the specificities of R&D activities.
Thesis advisorSaittakari, Iiris
foreign location choice, offshoring, reshoring, Finland, relocation, activity-specificity