INSIGHT: The Changing Headquarters Landscape for Fortune Global 500 Companies

The location of headquarters for the Fortune Global 500 (FG500), the 500 largest corporations by revenue in the world, has shifted significantly in recent years. FG500 companies headquartered in the G7 (Canada, France, Germany, Italy, Japan, the U.K., and the U.S.), for example, declined from 420 in 2000 to 277 in 2018. A significant driver of the change in headquarters locations for the FG500 is the growing presence of China. Between 2000 and 2018, the number of FG500 companies with their headquarters in China grew from 10 to 111. The growth of China’s state-owned enterprises, 69 of which were in the FG500 in 2018 as compared to nine in 2000, explain much of China’s increase in FG500 companies.

Many factors can affect the choice of a company’s headquarter location, such as regional economic growth and stability, local infrastructure, a country’s regulatory environment, the availability and productivity of the labor force, transportation and other input costs, and a country’s tax policies. Given the significant changes in countries’ statutory corporate income tax rates during the 2000 to 2018 period, Table 1 compares how headquarters locations and top statutory corporate income tax rates have shifted in recent years.

Notable trends include:

• The number of FG500 companies headquartered in the U.S. declined from 179 (36 percent of FG500 companies) in 2000 to 126 (25 percent of FG500 companies) in 2018 amid a global trend of reducing statutory corporate income tax rates.
• The average statutory corporate income tax rate imposed on non-U.S.-headquartered FG500 companies declined from 39.2 percent in 2000 to 26.6 percent in 2018.
• Significant reductions to top statutory corporate income tax rates occurred in a number of large economies during the 2000 to 2018 period.
  • The top statutory corporate income tax rate was reduced by at least 10 percentage points in: Canada, Germany, Japan, the Netherlands, and the U.K.
  • Japan, which is still home to the third-highest number of FG500 companies despite years of slow economic growth, reduced its top statutory corporate income tax rate from 43.3 percent in 2000 to 29.7 percent by 2018.
• Prior to the Tax Cuts and Jobs Act (TCJA), the top U.S. statutory corporate income tax rate remained essentially unchanged near 39 percent during the period, including both the federal and a weighted average state corporate income tax rate. The TCJA reduced the top U.S. statutory corporate income tax to 25.9 percent. Because this change just occurred, it is unlikely that its effect on headquarters location would be reflected in the table.

As seen in Figure 1, a significant driver of the change in headquarters locations for the FG500 is the growing presence of China. Between 2000 and 2018, the number of FG500 companies—the company composition of which changes over time—with their headquarters in China grew from 10 to 111. The number of FG500 companies headquartered in G7 countries declined from 420 in 2000 to 277 in 2018. Similarly, the number of FG500 companies headquartered in Organization for Economic Co-operation and Development (OECD) countries declined from 480 in 2000 to 354 in 2018.

The OECD consists of Australia, Austria, Belgium, Canada, Chile, Colombia, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, South Korea, Latvia, Lithuania, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the U.K., and the U.S.

A notable share of the decline in company headquarters locations in G7 and OECD countries between 2000 and 2018 is attributable to the declines in the U.S. (53 company decline) and Japan (55 company decline). The declines in the U.S. and Japan accounted for 108 of the 143 company decline in G7 countries and 108 of the 126 company decline in OECD countries.

Industry makeup of Fortune Global 500 companies

Figure 2 compares the industry distribution of FG500 companies in 2000 and 2018. In 2018, 24 percent of FG500 companies are in the financial and professional services industry, which includes banks and insurers. This is down from 27 percent in 2000. The share of FG500 companies also declined in 2018 relative to 2000 in the following industries: retail and consumer products (three percentage points), energy, utilities and chemicals (one percentage point), industrial products (three percentage points), and other (five percentage points). Increases were seen for the share of companies in the technology, communications and entertainment (three percentage points), wholesale/trade (eight percentage points), and natural resources (five percentage points) industries.

State-owned enterprises comprise one-fifth of Fortune Global 500 companies

As seen in Figure 3, 107 of the FG500 companies are state-owned enterprises (SOEs) in 2018. This is significantly above the 27 SOEs in the FG500 in 2000. China accounts for a majority of these SOEs. In particular, Chinese SOEs account for 78 of the 107 SOEs (73 percent of SOEs) in 2018. In 2000, only nine of the 27 SOEs (33 percent of SOEs) were headquartered in China. Outside of China, SOEs in the FG500 are split between OECD (14 SOEs) and non-OECD (15 SOEs) countries. SOEs account for $6.9 trillion of the $29.8 trillion of the 2018 FG500 company revenue (23 percent of FG500 revenue).

Location of FG500 companies within the U.S.

As seen in Figure 4, 126 FG500 companies are located in the U.S. (25 percent of FG500 companies) in 2018. The U.S. states with the most FG500 headquarters are: (1) New York (19 headquarters), (2) Texas (14 headquarters), (3) California (13 headquarters), (4) Illinois (13 headquarters), (5) Minnesota (seven headquarters) and (6) Ohio (seven headquarters). These states account for 73 of the 126 of FG500 companies located in the U.S. (58 percent of U.S. FG500 companies). Of the 51 states (including the District of Columbia), 22 have no FG500 headquarters (43 percent of states), nine have one FG500 headquarters (18 percent of states) and six have two FG500 headquarters (12 percent of states).

The U.S. cities with the most FG500 headquarters are: (1) New York (16 headquarters), (2) Houston (six headquarters), (3) Atlanta (four headquarters), (4) Chicago (four headquarters), (5) Cincinnati (three headquarters), (6) Deerfield, Ill. (three headquarters) and (7) San Antonio (three headquarters). These cities account for 39 of the 126 of FG500 companies headquartered in the U.S. (31 percent of U.S. FG500 companies).

Conclusion

The location of companies’ headquarters was a focal point in the U.S. tax reform debate, in part due to the potential benefits their presence may generate within a country. And while tax and non-tax factors, as well as financial performance, play a role in the headquarters location choices of global companies, companies, industry groups and policymakers need to be aware of the trends related to companies’ headquarters locations and consider the implications that changes in U.S. tax policy may have for such decisions.

Robert Carroll is a principal, James Mackie III is an executive director, and Brandon Pizzola is a senior manager in Ernst & Young LLP’s Quantitative Economics and Statistics group.