This Research Bulletin has been published in Environment and Planning A, 40 (1), (2008), 210-234.
Please refer to the published version when quoting the paper.
Understanding the internationalization of producer services continues to attract considerable attention in both academic and policy circles (e.g. Bryson et. al., 2004; Jones, 2005; UNCTAD, 2004). Whilst sectors like accountancy, advertising, financial, legal and management consultancy have been comprehensively examined (e.g. Beaverstock, 1996; Bagschi-Sen and Sen, 1997; Daniels, 1995; Greenwood et al, 2001; Jones, 2003; Warf, 2001), there remains a troubling void in relation to the relatively recent growth of labour-related producer services. This has partially been resolved through an examination of the internationalization of temping agencies and their role as intermediaries between employers and temporary workers in low-paid occupations (Ward, 2004; Peck and Theodore, 2001). At the opposite end of the labour market, there remain s an absence of scholarship where executive search, headhunting, producer service firms play a pivotal role in elite, professional, labour market recruitment. With the exception of Boyle et. al.’s (1996) and Cuthbertson’s (1996) analyses of the industry in the early 1990s, more than a decade has passed since academics have paid heed to the insights that this industry can provide into understanding the complexities of the internationalization of producer services in the world economy.
Emerging principally from the USA, headhunters claim to specialise in finding and recruiting the most suitable individual s for senior managerial or board level vacancies, which normally means targeting individuals that are not actually in the market for a new job (Jones, 1989). The industry has a relatively short institutional history dating back to the post-war economic boom of the 1940’s in the USA. It was b etween 1950 and 1970 that executive search firms proliferated and the ‘big four’ were established (Heidrick and Struggles , Spencer Stuart , Russell Reynolds  and Korn/Ferry ), quickly becoming leaders in the US, and later ly Europe an marketplaces (Jenn, 2005). However, this is not a simply linear history of steady growth and internationalization (Simms, 2003). Rather, it can be traced through: organic growth from the 1960s; merger and acquisition behavior from the late 1970s; and, the creation of various forms of alliances and networks made up of independent firms, associated with the growing need for the creation of transnational headhunting corporation s. This paper uses this schematic history to u nderstand why and how headhunting firms internationalize and deliver their intermediary role in spatially differentiated elite labour markets, thereby inform ing our wider understanding of the knotty, nuance-filled and constantly changing forms of internationalization in producer service firms.
Accordingly, the aim of this paper is to use the exemplar of global headhunting firms to explore the intricacies of internationalization in producer services . The case of headhunting illustrates how crucial it is to understand the tight coupling between the organisational rationale for, and the selected mode of, internationalization, as firms seek to develop different types of spatial strategy for reproducing their intermediary role in a range of geographical markets. We argue that it is necessary to couple the theoretical insights offered from theories describing why firms internationalize (Bryson et al, 2004; Dunning and Norman, 1983; 1987) to theor ies of how firms internationalize (Bartlett and Ghoshal, 1998; Nohria and Ghoshal, 1997). We do this through an analysis of headhunting firm-specific data , detailing the evolving way executive search firms justify (why) and organize (how) the reproduction of their intermediary role in elite labour recruitment. Moreover, we discuss the way international networks are used to: (a) penetrate, and most recently interconnect, marketplaces; (b) to reproduce demand for intermediary services; and (c) to develop complex spatial economies (Yeung, 2005). Therefore, following this introduction, the rest of the paper develops these ideas in five main sections. In section two, we very briefly revisit the theoretical writings which inform understandings of why firms (producer services) internationalize through a direct presence in an international market. This is followed by a focused analysis of the internationalization of headhunters in section three. In section four and five, we trace the temporal processes of growth (organic, M&A and alliances/networks) and organisation al architecture of headhunting firms in internationalization (wholly owned, network and hybrid). Finally, in section six, we conclude the paper with a discussion of how our reading of the why and how of internationalization in global headhunting firms can shed new conceptual and empirical light on the internationalization of producer service intermediaries more generally in a contemporary world economy.
2. THEORIZING INTERNATIONALIZATION IN PRODUCER SERVICES
Beginning with the ‘why internationalize?’ question, geographers have previously drawn on the seminal contribution of Dunning and Norman (1983; 1987) in the form of the ‘eclectic OLI paradigm’ to understand the internationalization of producer services (see Dicken, 2003) . This suggests that the decision to internationalize is influenced by whether key clients internationalize themselves but also by whether analysis of organizational (O), locational (L) and internalization (I) factors identifies firm-specific assets and competencies that will be best exploited by an international strategy .1 Bryson et al (2004, 204) adapted this to service industries and suggest that ownership advantage (what they call firm-specific advantage) is based on the reputation of the firm and the knowledge of its labour force. Location advantage is based on the importance of having knowledge of local market nuances and providing the service to clients face-to-face in that location. Internalisation advantages exist, according to Bryson and colleagues, in the form of : the ability to exploit firm-specific knowledge without the risk of giving away competitive insights ; the ability to use existing knowledge of a clients needs in the provision of services ; and also in the form of control over the quality of the service provided. If each of these advantages are best exploited by having overseas offices (rather than exporting the service from existing offices or ‘licensing’ service provision to an overseas firm) then an internationalization strategy should be employed.
The ‘OLI paradigm’ and ‘follow the client’ analyses are all relevant influences on the internationalization of different producer service sectors (Table 1). However, it must be noted that the strategies and vectors of internationalization are messy and complex. In relation to law firms, case study research by Beaverstock et al (1999), Faulconbridge (2005) and Warf (2001) indicates that many firms use a combination of: FDI and the creation of a global organization through organic office openings; mergers and acquisitions; and alliance/network forms simultaneously or at different times in the internationalization process. Warf (2001, 399-401) further reveals the intricacies of how US law firms have internationalized, pointing out the importance of the geographical strategy of firms that involved penetrating the London market, initially using a ‘multinational’ form, but more recently using ‘transnational’ organizational arrangements (Beaverstock et. al., 1999). However, we suggest that it is necessary to couple analysis of the rationale for internationalization with the strategy used (M&A, organic office opening or alliance/referral network) and the type of ‘network form’. Whilst it is impossible to understand the internationalization of producer services without studying the ‘push’ and ‘pull’ factors leading to the engagement in international activities, it is too simplistic to ignore the multitude of ways firms can use internationalization to engage in spatial economies and the geographical organization of business activities (Yeung, 2005).
The work of Yeung (2005) typifies such a call . He proposes a more nuanced analysis of the internationalization of firms in order to understand how the process leads to the creation of ‘spatial economies’. He defines this as the way firms “expand … [their] … organizational space and…economize on this spatial expansion” (Yeung, 2005). In effect, he suggests that we must understand how internationalization leads to new opportunities for profitability because there are advantages gained from having offices stretched across space. To date, one attempt to do this in the service sector has been by Roberts (1998) who notes how producer services firms often take a ‘stages approach’ using different organizational forms at different stages of internationalization. Penetration into international markets is initiated by exports in services through , for example , “embodied services” (e.g. report writing), “wired services” (e.g. telephone conversation) or “transhuman exports” (e.g. personnel travelling to an overseas market to present a report), and then is deepened by FDI and the establishment of an overseas presence (e.g. wholly owned subsidiary, joint-venture, franchise), which is further enhanced through intra-firm trade in services (Roberts, 1998, 74 and 76-77). However, this , nor any other work , has coupled the analysis of rationale and strategy to attempts at creating ‘spatial economies’ and, of particular relevance to headhunters, to different ways of managing the firms intermediary role. Below we suggest how this might be done.
2.1 Bringing Modes of Internationalization in to Theories of International Activity
In relation to the ‘how internationalize?’ question, the work of Bartlett and Ghoshal’s (1998) reveals that the internationalization of firms can take diverse forms leading to different types of integration and spatial economies. These forms range from those effectively creating stand-alone offices (multinational) to those allowing highly integrated organizations to emerge (transnational) (Table 2). However, Nohria and Ghoshal (1997) argue that it is too simplistic to suggest a firm operates as only one of these forms. Instead, they note that for many organizations a ‘differentiated network’ exists with the possibility that certain parts of the network exhibit transnational interconnectivity whilst other parts display multinational independence.
The example of international law firms can again be used to illustrate this point. These firms deliver three different types of international service depending on the way international networks are managed to create ‘spatial economies’ (Beaverstock et al, 1999; Trubek et al, 1994): (a) Cross-border referral services - where overseas offices recruit clients requiring legal services in an overseas (normally the international firm’s home) country; (b) Multinational lawyering – where each office provides advice to the clients in the jurisdiction they are located within but with little interaction with other offices; and (c) Transnational legal services: where the firm serves other international organizations and provides them with advice about cross-border legal matters (e.g. a merger between two firms based in different countries) based on the integration of expertise from several offices. Each of these approaches requires a different type of international network form with differing degrees of integration. It means examinations of the justifications for internationalization (e.g. Dunning and Norman, 1987) must be complemented by analyses of the modes of internationalization (e.g. Bartlett and Ghoshal, 1998) and descriptions of the types of ‘spatial economy’ and intermediary role constructed.
In the next three sections, we argue that the diverse and dynamic logics underlying the internationalization of producer services can be refined and deepened by investigating the complex ways global headhunting firms use a range of modes of internationalization to create organizational forms responsive to the type of spatial and temporal variations in the type of intermediary ‘spatial economy’ possible.
3. EXAMINING THE INTERNATIONALIZATION OF HEADHUNTERS
The executive search industry is dominated by twenty firms whose combined revenues totalled more than US$2,500m in 2004 (Table 3). Jenn (2005) estimates that the top ten of these firms alone accounted for one third of the global executive search market in 2004. These ‘top ten’ are ‘retained’ headhunting organizations: organizations selected by clients who have an executive position to fill and paid a fee (normal practice is for the fee to be 33% of the recruited candidate’s salary) to manage the search and selection of a suitably talented individual. However, whilst fundamentally all offering the same type of service, it is important to recognise that different firms have their own unique executive search cultures and styles (Jones, 1989). In particular, distinctions can be made between, on the one hand specialist boutiques that concentrate on headhunting in a limited number of sectors (e.g. Penrhyn International)) and, on the other hand, integrated ‘complete service’ corporations that offer executive search in any major industry (e.g. Korn/Ferry International) (Jenn 2005). In addition, as with all producer service firms, a long ‘wagging tail’ exists of firms that have some form of ‘international’ operation. Jenn (2005,1) estimates there are 5,000 firms worldwide claiming to be ‘retained headhunters’ and many of these have one or more overseas offices. The Association of Executive Search Consultants, the international professional body for retained headhunters, listed 231 members in 2005 ( www.aesc.org ). However, only the top twenty firms operate as genuine international organizations with offices in multiple countries that allow ‘spatial economies’ to be engaged in, and it is these firms that form the empirical focus of the rest of this paper (table 3).
3.1 Rationales for Internationalization
Three principle considerations in decision-making lead to the internationalization of global retained executive search firm:
3.1.1. Demand conditions. As with all producer services (Bagschi-Sen and Sen, 1997), demand conditions encouraging internationalization came in part from clients themselves internationalizing and requiring services in overseas locations. However, equally important for headhunters was the rise in new demand from new clients in overseas markets. After emerging in the USA during the post-war economic boom of the 1940’s, demand for executive search grew rapidly elsewhere in the World as the need for executives to steer expanding and newly emerging organizations grew (Jenn 1998; Jones, 1989). This was particularly acute in financial services where, between 1960 and 1980, the number of banks with overseas operations rocketed from around 200 to 1,400 (Dicken, 2003, 454), thus creating demand for skilled executives to lead overseas operations (or replace those leaving the USA to manage newly opened overseas branches).
Within Europe the services of headhunters became sought during the mid to late 1960’s, spurring the internationalization of the ‘big four’ US firms2 as well as the indigenous growth of new UK and European firms (e.g. Egon Zehnder from Zurich in 1964; Whitehead Mann from the UK in 1971). Reinforcing this increased European demand were three further factors. First, the decline in the belief that all employees should ‘serve their time’ and be trained to act as a suitable manager for the organization. Acknowledgement grew of the value of ‘mobile talent’: individuals bought in from outside of the firm because of their skills and expertise (see Sennett  on the demise of professional jobs for life). Second, recognition that the use of an ‘old-boy network’ to recruit senior executives, something peculiar to Europe, was inefficient and unsuitable in the ‘new’ business environment. Instead it was recognised that a more scientific and objective strategy was needed. As Jones (1989, 19) notes, “business has become too complicated, and the stakes have become too high, for a board chairman who needs executive talent to rely on his friends or his friends’ recommendations. He wants the best man, not the best man visible”. Third, the rapid growth of other producer service activities (e.g. accounting, consulting) and, more recently, new industrial activities in technology and biosciences that generated unprecedented demands for executive and ‘expert’ labour. Evidence for the growing importance of these new producer services within the executive search industry can be found in the rise of practice areas specifically targeted at pharmaceutical, life sciences and technology companies within the top twenty retained headhunting firms, adding to their more longstanding practice areas such as financial services. Korn Ferry typifies this trend with 33% of its annual revenue in 2004 coming from its health care, life sciences and technology practice areas (Jenn, 2005) .
3.1.2. Over-coming self-regulation. The need to overcome off-limits market blockages was also instrumental in driving executive search firms to internationalise. The off-limits rule in headhunting dictates that, for two years, no member of an executive search firm may approach: (a) an individual recruited for a client as part of another project; or (b) any individual working for a firm who has been a client. However, this can create a ‘blockage’ problem. Over time, a successful firm will serve several firms within one industry and, as a result, create blockages in the form of a majority of firms that cannot be used to source candidates for vacancies. This restricts their success at recruiting the most suitable individuals. Internationalisation has been used as one strategy to avoid this problem, something facilitated by the fact that headhunting as an industry is lightly regulated. Indeed, the only form of (self)regulation that does exist is provided by the Association of Executive Search Consultants (AESC). Firms, rather than individual headhunters, become members after a series of ‘good practice’ measures are met in terms of how they manage client and headhunted relationships (Jenn, 2005). These measures are not legally enforceable. Unsurprisingly then, although the ‘off limits’ rule is widely adhered to in the industry as part of ethical guidelines for executive search (Konecki, 1999), firms have looked for ways to circumvent the ‘blockage’ problems it creates. Internationalization has meant firms can operate policies that place clients off-limits only to headhunters working in the offices that served the client (Jenn, 1993, 48). This means that, for example, although the firm has worked for PriceWaterhouseCoopers in the USA, the UK office can still recruit candidates from the firm. This is a key ‘spatial economy’ (Yeung, 2005).
3.1.3. Market intermediation. Finally, the opportunity to expand the scope of the headhunters’ intermediary’s marketplace has also driven the internationalization of executive search firms. Whilst the disintermediation of many services has been reported, in particular due to the rise of the internet (Leyshon and Pollard, 2000), the executive search industry has actually entrenched its position as an essential intermediary through internationalization. To explain this phenomenon requires an understanding of the socially constructed nature of elite labour search practice (and in particular chief executive recruitment) in the contemporary business world. This has two dimensions.
First, as the candidates identified by headhunters are often already employed, frequently by one of the client’s rivals, searches are necessarily covert. It is essential that: (a) the current employer of a potential candidate does not become aware that their star is about to be poached; and (b) that candidates do not know which firm is headhunting them until they are committed to the point of being interviewed for the post. The latter point is important so that, in particular, institutional investors are prevented from gaining knowledge of the preferred candidate for board vacancies in stock exchange listed firms. Then, if the firm fails to secure one of the preferred candidates, negative analyst’s reports suggesting a ‘second choice’ candidate was recruited are avoided. This mysterious world of headhunting was alien to almost all but the US marketplace prior to the internationalization of headhunters. However, by internationalizing executive search firms introduced both the idea of ‘poaching’ the most suitable candidate when necessary and the secretive practice described above (Finlay and Coverdill, 2002). In addition, they were also able to spread the belief that, for potential candidates, an approach from an executive search firm holds more legitimacy than an approach from the firm with a vacancy itself. Both the initial anonymity of not knowing whose vacancy is being discussed and the belief that dealing with headhunters is acceptable play (whereas talking to a firm about their vacancy would be disloyal to the employer) means headhunters are more successful at attracting interest from the most suitable candidates. Khurana (2002, 140) quotes one of his interviewees as suggesting that “There is a big difference in taking a call from an executive search firm than [sic] taking a call from another firm, especially a competitor…talking to a director is a whole new ball game…and a serious one”.
Headhunters have also created themselves an intermediary’s role in the elite labour search process by promoting the idea than they are more objective that extant board members and recruiters within firms. The rhetoric which executive search firms use to sell their services is now well established:
“Our people cannot be duplicated. Each recruiter comes to us with experience in search and, most often, experience in the industry they will serve. They are the best trained in the search business. Using a fine blend art and science our recruiters find the right leaders for our clients—the art of judgment acquired during years of industry and search experience combined with the science of our process and systems” ( http://www.russellreynolds.com/2005/aboutus.asp ).
Headhunters benefited from internationalization by spreading the idea that for elite labour search, and especially chief executive search, to be legitimate, firms must employ the knowledge and skill of headhunters to guarantee the best candidate is found. As Khurana (2002, 148) notes, firms recruiting elite labour, “feel a sense of fiduciary responsibility…The signaling of legitimacy that the engagement of an ESF [executive search firm] accomplishes in an external CEO search”.
In many ways, then, headhunters resemble the intermediaries Peck and Theodore (2001) and Peck et al., (2005) identified in the form of temporary staffing agencies. By acting as intermediaries, like temping agencies, headhunters create the ability to shape their market through strategies that, in essence, allow the ‘stretching of the envelope’ and the ‘remaking of the rules’ of elite labour search. The firms are active institutional agents that, through their activities and the reproduction of the embedded ideas and rhetoric-driven norms outlined above, render involvement in global executive labour search through executive search firms unavoidable for employers and skilled individuals alike. This is a factor that cannot be accounted for within the OLI paradigm but is an important dimensions in the internationalization of headhunters, and as Peck and colleagues have shown (Peck et al., 2005) in the growth of other producer services . This is further explored and discussed in the next section of the paper.
4. THE SPATIAL ECONOMIES OF THE INTERNATIONALIZATION OF HEADHUNTERS
We can only begin to understand the guiding logic of internationalization in headhunting firms by examining the ‘spatial economies’ of internationalization, informed by the sectors ‘pure’ intermediary role in geographical, elite labour markets. Here, we are focusing on the mode of internationalization form used by headhunting firms to penetrate international markets: organic growth; merger and acquisition (M&A) activity; and involvement in networks and strategic alliances. In each of these growth phases, we pay particular attention to the range of organisational strategies and logics that emerged as headhunting firms responded to the challenges and opportunities presented through the increasingly international and global nature of the elite labour market.
4.1. Organic Growth
This first stage in the development of headhunting firms began in the 1960s and was characterised by organic growth as a response to the changing needs of expanding and newly emerging organizations. For the first time, firms were unable to fill management positions through internal labour markets. Consequently, demand for externally recruited talent increased at rates exceeding the readily available supply of executives seeking new positions (Jones, 1989). Management consultants and accountants in particular recognised the opportunity this phenomenon offered for a new type of professional service, the executive search function. Headhunting, as a complementary service function, therefore, began to emerge within existing management consultant and accounting firms. This rapidly evolved , However , as the market for executive search grew , individuals and teams began to leave their original employers to develop stand-alone executive search organizations dedicated solely to serving this newly emerging market (The Economist, 1990). For example, Henry Wardwell Howell left the hugely successful management consultancy McKinsey and Co to form Ward Howell International in 1951, a company that was subsequently re-branded as Signium International in 1998.3 As such, a virtuous circle of headhunting market-making was formed. Increased demand provided the impetus for the formation of specialist executive search firms whilst awareness of the value of the services provided by these new organizations further increased demand and, consequently, the rate of new firm start-ups.
These newly formed specialist headhunting firms relatively quickly engaged in internationalization to serve their clients overseas . They deployed a predominately multinational office structure with each office operating independently and serving the national market within which it was located. For example, Heidrick and Struggles International was formed in 1953 by Gardner Heidrick and John Struggles in Chicago and only served clients in the American Midwest until 1957. The company then expanded into the US national market by opening offices in Los Angeles, San Francisco and New York before expanding into the UK with the opening of its London office in 1968.4 In common with other firms at the time this national, and later multinational office structure, meant that technology platforms and other support functions such as accountancy and the headhunters’ own human resources were not shared between offices. Particularly in the early stages of this period, firms concentrated on building their own client base in the national jurisdictions where they had offices. In part, this strategy reflects the multinational form their producer service clients were using at the time and also the national as opposed to global spatiality of elite labour markets.
Throughout this period, the expansion of specialist US headhunting firms into Europe was common, exemplified by the opening of offices in London by the ‘big four’.5 At the firm level this can also be seen in the strategy of Spencer Stuart. The firm was founded in Chicago in 1956 but entered Europe through the opening of its Zurich office in 1958, followed by London in 1961. We can account for this activity in London in three main ways. First, this was a response to the decline in an ‘old boys’ network approach to elite labour recruitment. Second, it allowed headhunters to develop demand for their ‘intermediary’ role in new markets. The ‘big four’s’ offices in London quickly institutionalised their practice of elite labour search, something that, in particular, meant all of the City’s investment banks began to use the service of headhunters. Third, a further significant incentive to open London offices is found in the off-limits rule and the opportunity internationalization created for overcoming market blockages through ‘spatial economies’. Using the strategy described in section two means that the London office could headhunt an individual even if they worked for a previous client of the Chicago office since London was seen as a separate ’entity’ with ‘Chinese walls’ between consultants. This explicitly geographical strategy enabled executive search firms to expand their operations without contravening the industry agreed norms on ‘best practice’ but also without limiting the operations of any one office (or the profitability of the firm as a whole).
4.2. Mergers and Acquisitions in the Headhunting Industry
The expansion of headhunting firms beyond their national heartlands increased in both geographical scope and rate throughout the 1980s, 1990s and early 2000s. By 2004 the top five global headhunters had increased their office networks by 171% since 1987, with substantial absolute growth in Europe especially (Table 4). However, the majority of companies displayed a pattern of offices concentrated in their founding geographical area accompanied by one or two other regions rather than having a genuinely ‘global’ footprint. For example, Korn Ferry’s institutional biography exemplifies the addition of M&A strategy to its organic growth path by the beginning of the 1980’s. M&As started in 1977 when it entered the Latin American market through a merger with the Mexico based Hazzard and Associados, followed by a merger with Sydney based Guy Pease Associates in 1979, thereby establishing its Australasian business (Table 5). Its European business was strengthened by its merger in 1993 with the Brussels’ firm, Carre Orban who itself had an extensive office network in Scandinavia and Luxembourg (Jenn 2005). This period of rapid growth is reflected in companies’ revenue and profit figures as both the geographical marketplace served and volume of trade in each proliferated. Korn/Ferry saw fee income in the UK rise from £501,461 in 1980 to £1,761,405 in 1985 (Jones, 1989, 27) and its European offices charged over £13 million in fees alone in 1990.6
This M&A growth was vital for consolidating the multinational approach developed through initial ‘organic growth’. However, the example of Korn Ferry demonstrates how firms sought to enter new national markets in relatively low risk ways – by simply acquiring firms that already had the regionally specific knowledge necessary to complete a headhunting deal (e.g. national employment law, informal best practice methods that clients would expect from the firm). This was because of uncertainty about both the demand for headhunting and acceptance of the US style promulgated by intermediaries such as Korn Ferry in these ‘new’ markets. Once acquired however, the knowledge of the local firm could be exploited and the headhunting marketplace developed by the gradual imposition of the US style strategies used by firms like Korn Ferry. This M&A strategy allowed the development of knowledge of local labour markets, provide clients with a face-to-face service whilst simultaneously reducing their reliance on any one given economic region for their revenues and beginning the process of reproducing the type of headhunting marketplace required for success.
4.3. Transnational Firm Typologies in the Contemporary Global Headhunting Industry
As business levels grew still further, the repertoire of organizational strategies and ‘spatial economies’ adopted by global headhunting diversified significantly. In common with other producer service firms, the period from the mid 1990s onwards saw headhunting firms move increasingly from the ‘multi-national’ office towards a more ‘transnational’ form (Beaverstock et al 1999; Coe 1997; Daniels 1993; Gentle and Howells 1994; Jones 2002) characterised by cooperation between offices such that knowledge and business practices diffuse throughout the office network, rather than being defined and produced in each office, as is the case with the multinational form (Bartlett and Ghoshal 1998; Morgan and Quack 2005). For headhunting firms, the emergence of the need for transnational organizational forms can be tied to the increased global mobility of elite labour, such that the boundaries between national labour markets have become increasingly porous (Beaverstock 2005). Consequently, during the 1990s, headhunting firms saw the need to find ways to more effectively manage global elite labour flows by recruiting for a vacancy from ‘global’ labour markets. This differed from past practice of only recruiting from within the country where the vacancy existed and meant that the multinational strategy used previously was unsuitable. Coupled to this move to a transnational office form is an increasingly global office footprint by the leading headhunting firms (table 5). Particularly noteworthy is the dramatic increase in office s beyond Europe and North America in emerging markets. By this time, the leading global firms were each conducting more than 4000 global searches per annum (Executive Grapevine 2004) and global labour markets required a wide geographical reach within transnational networks.
Two further developments in the world of headhunting can be identified as also contributing to this period of strategic change in executive search firm’s strategies. First, on the client demand side, the market for elite labour has changed with the increasing importance of the rhetoric of the ‘knowledge economy’ in advanced capitalist economies. This further intensification of demand for talented individuals to fill executive and boardroom vacancies has reinforced the emergence of new international geographies of elite labour search. As Tully (1990:30) wrote:
Furthermore, Fast Company (2000:44) claimed that “it’s hard to argue with the idea that the company with the best talent wins” although it goes on to state that the search for such individuals is analogous to “finding a wedding ring in a sand dune”. Second, on the supply side, technological advances spurred the ability of headhunters to engage in transnational integrated (global) recruitment, something that considerabl y enhanced their market-making capabilities. The creation of candidate shortlists is a process that both draws on researchers and consultants’ knowledge of suitable candidates but also the complex computer database headhunters have been able to create. Such databases have always existed, previously as card file systems. However, the internationalisation of executive search has been facilitated by the development of databases that, through Internet connections, complete extensive but also intensive searches for potential candidates through the web-portals of major multinational corporations. Fast Company (2000, 44) describes the techniques of ‘X-raying’ and ‘Flipping’ that use algorithms, run through search engines such as Google, to search a wide range of firms and create lists of candidates for a range of different types of vacancy. These algorithms reveal the contents of non-public WebPages that, although being legal to access, are not normally displayed or directly accessible to the general public. It is possible, for example, to find listings of executives working on a project and their role by accessing various ‘hidden’ parts of a firm’s website. This can then be used to store the personal details, experiences and skills of individuals who could become candidates in the future. This has dramatically improved the ability of headhunters to search across borders. It is now possible to trawl any organization with an Internet fronted website for suitable talent, regardless of the separation of the potential candidates, their firm and the executive search organization. Technology advances have also been important in the internationalisation of headhunting because of the integration of offices and the collaboration on global search projects enabled through transnational project architectures (Bartlett and Ghoshal, 1998). The use of telecommunications including videoconferencing, globally accessible databases and project intranet sites, allows consultants in several offices to share knowledge of potential candidates. This has become vital as “The number of offices is not as important as the quality of interaction between the consultants…integrated firms function more efficiently for pan-European cross-border assignments” (Jenn, 1993).
5. CONTEMPORARY ARCHITECTURES OF TRANSNATIONAL HEADHUNTERS
There are a number of different ways in which global headhunting firms have switched from a multinational to a transnational organizational form. Drawing on Jenn (2005), it is possible to classify headhunting firm organizational form into three broad typologies: the wholly owned firm; the network; and the hybrid (table 3). But, these are ‘ideal types’ and many firms either deploy strategies from all three at any one time, or have moved across typologies at different stages in their institutional history.
5.1 The Wholly Owned Transnational Headhunting Firm
This is a transnational form managed by either an executive board or partnership that defines priorities and strategies for all offices (as defined by Bartlett and Ghoshal, 1998) (e.g. Heidrick & Struggles International, Spencer Stuart and Egon Zehnder International). Each office acts as a ‘branch’ of the global firm, using the organisation’s name and being tightly coupled economically, socially and culturally to other offices. For instance technology platforms, accounting systems, financial and accounting procedures and training programmes are shared between all offices within the company. Headhunters aim to foster ongoing, long-term relationships with large transnational clients so that whenever they need to use a headhunter, they automatically turn to them, rather than accepting pitches from a number of different firms. Indeed a central element of Egon Zehnder’s (2001) marketing strategy is the fact that two thirds of its assignments are sourced from existing clients.
Wholly owned firms are in a position to meet this demand through their offices located in North America, Europe and South East Asia. The fact that all offices use the same brand name and corporate culture allows clients to trust that they will receive the same level and type of service wherever their executive search is in demand. As Spencer Stuart suggests, “[We ] draw our energy and creativity from working together. As a global firm, we foster teamwork through our highly effective international practice structure, while retaining strong local capabilities in each of our 50 offices”.7 In addition, the owned firm is able to share lists of ‘headhunted’ executives between offices such that they maximise the number of people they can offer to their clients in the shortlist, colloquially known as the ‘beauty parade’. As Egon Zehnder summarise:
The key challenge to such integrated practices, as highlighted in the quotes from Spencer Stuart and Egon Zehnder, is that clients also demand nationally tailored hiring solutions. This means remote delivery is not possible. Headhunters must simultaneously maintain transnational integration in the search process but also a detailed knowledge of, for example, the employment law and tacitly held cultures of the country in question.
5.2 The Networked Transnational Headhunter
The networked transnational firm brings together several independent (normally single office non-global) headhunting firms in a strategic alliance to meet a client’s global elite labour search. Networks are not businesses in themselves but architectures to couple single country firms together into a global network of ‘best friends’ that can perform labour searches across many nations as and when needed. Firms call on other members of the network when they need an overseas search. Consequently there will often be several members of a network operating in one country and competing for the same business. As such, the network represents a corporate reincarnation of the ‘temporary teams’ Grabher’s (2002) identified within advertising agencies.
In the case of headhunting networks, these are temporary and dynamic inter-firm coalitions that grow through repetitive use. However, there is no long-term lock-in to these collaborations, thus allowing the member firms the flexibility to draw on the resources and knowledge base of the most suitable firm in the network (in terms of their database of candidates and knowledge of nationally distinct employment legalities and practices). The network also allows firms to have a toe-hold in an emerging market without exposing themselves to the full risk of establishing a new market as would be the case in the wholly owned firm. The advantages of network alliances are aptly stated by the Globe Search Group, the leading network in 2005, “[B]y combining international reach with regional excellence, the Globe Search Group expertly supplies the resources, experience and knowledge in the identification of key executives internationally.”9 Two distinctive features of the way networked firms organize to deliver internationalized headhunting can be identified. First, they tend to have a lead institution that is responsible for managing the relationships between the member firms, sets the parameters of business practice and makes decisions about new entrants into the network. For example, Globe Search Group was founded by the Chairman of the UK based Miles Partnership in 1997 and remains headquartered in London. As opposed to the owned firm, business practices are disseminated from this base rather than co-produced. However, all members of the network can choose not to implement these practices (and ultimately to leave the network). Second, the so-called ‘off limits’ problem fails to emerge in any significant way. In the network, it is possible to select a partner for a search who is not locked-out from selecting the most suitable candidates as a result of having completed searches recently for the key firms in the field. This reinforces the point made in section two about the flexibility of the regulatory practices executive search firms claim to adhere to and the ‘spatial economies’ that can be gained from different forms of internationalization.
5.3 The Hybrid Headhunting Firm
The hybrid is part of a formalised global alliance bringing initially independent firms together to trade under one corporate name but operate as independent businesses, consequently blurring the boundary between transnational and multinational organisational forms.10 Hybrids involve tighter integration than in a network with only one office in each country and shared standards and approaches existing across the alliance. However, it is not as culturally, socially or economically integrated as the wholly owned firm. Hybridity eliminates the potential for competition between different member firms operating in the same country as might be the case in the network, although it does not allow as much flexibility for the independent businesses in terms of how they actually go about the search or how they avoid off-limits issues. In each independent business, specialisms may be offered by function or sector. These specialisms are organised at the individual office level with each office having an expertise. In contrast, in the owned firm, they are organised across the transnational business as a whole with each office having members of global functional and sector practice groups. Amrop Hever summarises the advantages being a hybrid:
5.4 Blurred Typologies
Whilst it is helpful to consider a typology of different transnational repertoires, in practice, firms adopt a suite of different approaches simultaneously as they both respond to client need and build their own market. The well-developed example of this heterogeneous organisational form is found in the leading firm by revenue in 2004, Korn Ferry International. Predominately, Korn Ferry operates as a wholly owned firm (Jenn 2005), however, on closer examination, in certain geographic markets it adopts three other organisational strategies – what it terms the alliance office, the satellite office and the affiliate office. The only affiliate offices are located in Mexico City and Monterrey ( Mexico). They are reminiscent of the hybrid office structure since they trade under the Korn/Ferry name but have a greater degree of autonomy than wholly owned offices. Its satellite offices are located in Quito, Ecuador and Auckland, New Zealand. This organisational form lies between the hybrid and the network since again they operate under the Korn Ferry name but in the case of the Auckland office, it is in competition with Korn Ferry’s wholly owned office in Wellington. Finally, alliance offices resemble the network organisational form since they trade under their own name and are located in the emerging markets of headhunting. For example, in Africa , Korn Ferry runs their operation through an alliance established in 2003 with the Johannesburg company Leaders Unlimited. This limits the exposure Korn Ferry has in a comparatively new headhunting market but ensures that it is well placed to take advantage of future developments in the region.
6. DISCUSSIONS AND CONCLUSIONS
Our investigation of the proliferation of global headhunting firms in the world economy makes in-depth inroads into informing a wider understanding of the complexities of the why and how of internationalization and the different ways in which ‘spatial economies’ are created as firms intermediate in geographical market places. We can point to three major observations which shed light on the symbiotic link between internationalization and spatial economies in the headhunting industry. First, we began by outlining the ‘innovative’ spatial strategy used by executive search firms to overcome the difficulties created by the ‘off-limits’ best practice guidelines. By exploiting the existence, in principle at least, of ‘Chinese walls’ between offices, executive search firms are able to claim to follow best practice yet engage in labour recruitment from recent clients. This provides a clear example of the type of ‘spatial economy’ Yeung (2005) refers to as the ‘market blockages’ faced by executive search firms have been cleared thanks to internationalization. This is illustrated by the exponential growth of revenues of executive search firms after internationalization. We returned to this argument and noted how different approaches can be used, depending on the mode of internationalization used, and therefore the need to understand the motivations for, and various methods for creating, different types of spatial econom y.
Second, we have demonstrated the need to couple examinations of the spurs of internationalization (e.g. Dunning and Norman, 1987) with in-depth understanding of how firms internationalize. Examining the history of the internationalization of headhunting firms shows that both the spurs evolve over time, but most importantly so do the strategies used. We have shown that organic, M&A, network and hybrid strategies are used at discrete moments in the internationalization process to create new markets from scratch, to rapidly expand into existing markets and to experiment and develop risky and immature (small) marketplaces respectively. However, we stressed this is not a temporally linear process as many firms may engage in multiple modes of internationalization simultaneously reflecting the range of marketplaces they are attempting to develop. This is particularly important to headhunting firms because of their ‘intermediary’ role and the need to cultivate a ‘headhunting marketplace’ in order to be successful.
Third, as was noted earlier, headhunting is a strategy with its roots in the USA. The organic office opening in Europe during the 1960’s allowed, in particular the ‘big four’, to export their US practice to the UK to serve existing US and new European clients. At the same time they were able to cultivate the awareness of and desire for headhunting in European firms. Without the reproduction of the intermediaries marketplace they operate in , the firms would have limited business. In other markets where US firms have not flocked in such large numbers, it is necessary to either tap into existing executive search marketplaces (using M&A) or attempt to cultivate (through a network or hybrid form) such a market through the small headhunters who inevitably operate in a different style and at a different scale. This further highlights the need to understand how internationalization occurs and the reasons for choosing different strategies.
In conclusion, we have shown that we must also study the way different modes of internationalization are used to create different forms o f international integration. Whilst the transnational form now predominates, we have shown how in the early stages of internationalization firms often adopt a multinational approach, only changing when external marketplace conditions mean effective ‘spatial economies’ can be gleaned from transnational integration. However, combined, these observations demonstrate the need for messy, intricate and complex ways of theorizing internationalization, with particular focus being paid to the way international networks are used to reproduce and enable the business practice used by the firms involved. It is too simplistic to assume internationalization is simply about entering and serving extant demand in overseas marketplaces. Instead, internationalization can be seen as a spatial strategy (Yeung, 2005) that has various modes of operation in order to most effectively allow both the reproduction of marketplaces overseas but also, where relevant, their integration. The ‘eclectic paradigm’ (Dunning and Norman, 1987) and Bartlett and Ghoshal’s (1998) typology alone might not allow such complexity to be integrated into analyses. Looking to the future, the way ‘spatial economies’ are used to develop headhunting’s latest development, a form of ‘middle’ management recruiting, will be significant. The activities of Korn Ferry over recent years is representative of all headhunters (Jenn, 2005). The firm initiated a virtual organic development through the launch of its ‘Future Step’ initiative in 1998. This division concentrates on the recruiting of middle management, as opposed to the elite recruitment that has typified the executive search industry to date. As such, it represents a clear example of active market-building by Korn Ferry, using its existing knowledge of different national recruitment laws and norms, and applying them to a new sector of the labour market. It is also innovative in its reliance on electronic information transfer, as opposed to face-to-face meetings between the client and the headhunted. The way ‘spatial economies’ develop in this new form of headhunting will be intriguing and of significant importance for the recruitment of executive labour throughout the globe.
Bagchi-Sen S, Sen, J, 1997, “The current state of knowledge in international business in producer services” Environment and Planning A 29 1153-1174.
Bartlett C, Ghoshal S, 1998 Managing Across Borders: The Transnational Solution (Random House, London) 3 rd Edition
Beaverstock J V, 2005, “Transnational work: Global professional labour markets in professional service accounting firms”, in The Handbook of Service Industries Eds J R Bryson, P W Daniels (Edward Elgar, London) pp??
Beaverstock J V, 1996, “Subcontracting the accountant! Professional labour markets, migration and organisational networks in the global accountancy industry” Environment and Planning A 28 303-327.
Beaverstock J V, Smith R, Taylor P J, 1999, “The long arm of the law: The globalization of London's law firms” Environment and Planning A 31 1857-1876
Boyle M, Findlay A, Lelievre E, Paddison R, 1996, “World cities and the limits to global control: A case study of executive search firms in Europe’s leading cities” International Journal of Urban and Regional Research 20 498-517
Brock D M, Powell M J, Hinings C R, 1999, “Restructuring the professional organization. Corporates, cobwebs and cowboys”, in Restructuring the Professional Organization. Corporates, Cobwebs and Cowboys Eds D M Brock, M J Powell, C R Hinings (Routledge, London) pp215-229
Bryson J, Daniels, P W, Warf B, 2004 Service Worlds (Routledge, London)
Coe N M, 1997, “Internationalization, diversification and spatial restructuring in transnational service firms: case studies from the UK market” Geoforum 28 253-270
Cuthbertson N, 1996 The Geography of the International Headhunting Industry unpublished PhD thesis, Department of Geography, University of Bristol, Bristol
Daniels P W, 1995, “The internationalization of advertising services in a changing regulatory environment” Service Industries Journal 15 276-294
Daniels P W, 1993 Service Industries in the World Economy (Blackwell, Oxford)
Dicken P, 2003 Global Shift (Sage, London) 4 th Edition
Dunning J, 1993 The Globalization of Business: The Challenge of the 1990s (Routledge, London)
Dunning J H, Norman G, 1983, “The theory of multinational enterprise: An application of multinational office location” Environment and Planning A 15, 675-692.
Dunning J H, Norman G, 1987, “The location choice of international companies” Environment and Planning A 19 613-632.
The Economist , 1990, “Headhunting for the moneymen. In search of excellence” 6th January 78-79
Egon Zehnder 2001 Unleashing the Power of Business Leadership (Egon Zehnder International, Neidhart & Schon AG, Geneva)
Executive Grapevine, 2004 Directory of Executive Recruitment International Edition (Executiuve Grapevine International, London)
Fast Company 2000, “ The great talent caper” 38 September page 44.
Faulconbridge J, 2005 Geographies of Tacit Knowledge Production in London and New York Advertising and Law Professional Service Firms unpublished PhD thesis, Department of Geography, Loughborough University, Loughborough, UK
Finlay W, Coverdill J E, 2002 Headhunters: Matchmaking in the Labor Market (ILR Press, Cornell)
Gentle C, Howells J, 1994 “The computer services industry: Restructuring for a single market” Tijdschrift voor Econmische en Sociale Geografie 85 311-321
Grabher G, 2002, “ The project ecology of advertising: Tasks, talents and teams” Regional Studies 36 245-263
Greenwood R, Rose T, Brown J, Cooper D, Hinings B, 1999, “The global management of professional services: the example of accounting”, in Global Management Eds S R Clegg, E Ibarra-Colado, L. Bueno-Rodriquez (Sage, London) pp265-269
Jenn N, 2005 Headhunters and How to Use Them (The Economist Publications, London)
Jenn N, 1998 The Global 200Executive Recruiters (Jossey-Bass, San Francisco)
Jenn N, 1993 Executive Search in Europe (The Economist Intelligence Unit, London)
Jones S, 1989 The Headhunting Business (MacMillan, Basingstoke)
Jones A, 2005, “Truly global corporations? Theorising ‘organizational’ globalization in advanced business services” Journal of Economic Geography 5 177-200
Jones A, 2003, Management Consultancy and Banking in an Era of Globalization (Pelgrave, Basingstoke)
Jones A, 2002, “The global city misconceived: The myth of global management in transactional service firms” Geoforum 33 335-350.
Khurana R, 2002 Searching for a Corporate Savior. The Irrational Quest for Charismatic CEOs ( Princeton University Press, Princeton)
Konecki K, 1999, “The moral aspects of headhunting. The analysis of work by executive search companies in ‘competition valley’” Polish Sociological Review 4 553-568
Leyshon A, Pollard J, 2000, “ Geographies of industrial convergence: the case of retail banking” Transactions of the Institute of British Geographers NS 25 203-220
Morgan G, Quack S, 2005, “The internationalization of law firms”, paper presented at the Conference on Professional Service Firms, Said Business School, Oxford; copy available from G Morgan, Warwick Business School, Coventry, CV4 7AL, UK
Nohria N, Ghoshal S, 1997 The Differentiated Network. Organizing Multinational Corporations for Value Creation (Jossey-Bass, San Francisco)
Peck J, Theodore N, Ward K, 2005, “Constructing markets for temporary labour: employment liberalization and the internationalization of the staffing industry” Global Networks 5 3-26
Peck J, Theodore N, 2001, “Contingent Chicago: Restructuring the spaces of temporary labor” International Journal of Urban and Regional Research 25 471-496
Roberts J, 1999, “The internationalisation of business service firms: a stages approach” The Service Industries Journal 19 68-88
Sennett R, 1998 The Corrosion of Character: Personal Consequences of Work in the New Capitalism (W.W. Norton & Co., New York)
Simms J, 2003, “Unnatural selection” Director 56 70-74
Trubek D M, Dezalay Y, Buchanan R, Davis, J R, 1994, “Global restructuring and the law: studies of the internationalization of legal fields and the creation of transnational arenas” Case Western Reserve Law Review 44 407-498
Tully S, 1990, “The hunt for the global manager” Fortune May 30-36
UNCTAD, 2004 World Investment Report 2004: The Shift Towards Services (UNCTAD, Geneva)
Ward K, 2004, “Going global? Internationalization and diversification in the temporary staffing industry” Journal of Economic Geography 4 251-273
Warf B, 2001, “Global dimensions of U.S. legal services” Professional Geographer 53 398-406
Yeung H W-C, 2005, “Organizational space: a new frontier in international business strategy?” Critical Perspectives on International Business 1
1 The OLI paradigm suggests ‘multinational enterprise’ is only engaged in if profitability can be ensured based on firm-specific competitive advantages. Ownership advantages relate to the importance of the company’s ‘resources’ and how they can be leveraged in overseas markets. Location issues consider the advantage gained from being physically present in a market. Internalisation questions whether direct presence is favourable to sub-contracting or other arrangements.
2 Heidrick & Struggles opened offices in 1968, Spencer Stuart in 1961, Russell Reynolds in 1971 and Korn Ferry in 1973.
3http://www.kwpowell360.com/sites/signium/default.asp?page_id=2786&apage_id=268 , accessed 18/08/05.
5 Heidrick and Struggles opened offices in 1968, Spencer Stuart in 1961, Russell Reynolds in 1971 and Korn Ferry in 1973.
6 Amsterdam , Brussels, Budapest, Copenhagen, Frankfurt, Geneva, Madrid, Milan, Paris, Rome and Zurich (Tully (1990).
8 http://www.egonzehnderknowledge.com/knowledge/content/ourfirm/index.php , accessed 19/08/05
10 A similar strategy has also been used by law firms in the past (e.g. the now dissolved Linklaters alliance).
Table 1: Ownership, location and internalisation advantages in selected transnational producer services.
Source: adapted from Dunning (1993, 272).
Table 2: Organizational characteristics of the transnational.
Source: Bartlett and Ghoshal (1998, 75).
Table 3: The top twenty global headhunting firms (ranked by revenue), 2004
Source: Jenn, 2005
N/A. Data not available
Table 4: Office change of top five global headhunting firms by region, 1987 and 2004 (ranked by 2004 annual revenue).
Source: for 1987 company annual reports, Jenn (2005)
n/a Data not available
Table 5: Major merger & acquisitions in selected global headhunting firms
Source Jenn (2005)
Table 6: Leading 15 global executive search firms: office change by region, 1992 – 2004 (ranked by worldwide revenue)
Source: Jenn (1993, 2005).
Edited and posted on the web on 11th November 2005
Note: This Research Bulletin has been published in Environment and Planning A, 40 (1), (2008), 210-234