Busy executives know that business travel is no picnic. Direct flight options to operations in Vancouver or Toronto from headquarters in New York or Beijing save time and hassle for executives on the go. New work by Ivey researchers Kevin Boeh and Paul Beamish takes a deeper look at international firms' subsidiary location decisions and finds that successful firms consider travel time, over distance travelled, as a decisive factor. Further, their work identified a travel time tipping point, in which travel significantly affects a manager's productivity, the firms' bottom line and consequently, where they will invest.
Research
In a recent study in the Journal of International Business Studies, Boeh and Beamish measured the impact of travel time on the location and performance of nearly 1,200 Japanese companies and their U.S. subsidiaries over a 13-year period. They calculated ground transit time, wait times for connecting flights and time in the air and found that the longer it takes managers to travel between locations, the less likely the subsidiary is to be profitable. Executives reported that travel times exceeding 16 hours resulted in fatigued managers with poor operational oversight. Managers functioned at half their normal capacity, resulting in potential profit loss (at a rate of 7% per additional hour on the road) and in the long-run, lower employee satisfaction and higher management turnover at subsidiary locations.
Boeh and Beamish found that experienced international firms were locating subsidiaries where direct flights were offered and where efficient transport infrastructure close to the airport improved ground transit and reduced overall travel time for mobile managers. They found that less experienced companies, fretting over rising jet-fuel prices and airfares, were dealing with unforeseen costs derived from long-distance interaction and relocation. This implies companies that incorporate travel time metrics in governance and location decisions observe higher productivity. Thus, travel time is an important factor for policy makers to consider when attracting capital expenditure to their local economies.
Implications
For firms looking to invest, Canada offers an excellent business environment, a talented workforce and attractive living conditions. Boeh and Beamish's work suggests that provincial and municipal governments should also focus on transportation infrastructure that meets the needs of international firms considering investment in Canada. Strategically located, efficient airports and timely transfers from airports to urban centres are key to attracting and retaining foreign investment.
References
Boeh, K. and P. Beamish. (2012). "Travel Time and the Liability of Distance in Foreign Direct Investment: Location Choice and Entry Mode." Journal of International Business Studies. Issue 43: 525-535.