A guide to why many companies are considering relocation to one of China's second/third tier cities
A vast number of global corporations are increasingly being drawn to China’s second and third tier cities.
The areas have been described by many as the best future source of growth and profits in the country.
Areas including Shanghai are becoming overwhelmed by investment and are therefore being viewed as too expensive in general by investors.
Major companies such as Ford and Wal-Mart are planning significant investments in emerging cities where rising incomes are creating a new consumer class who have not yet been fully exposed to Western brands and appliances.
All of this means the potential for growth is huge, with several companies relocating large portions of staff to the regions in question. Is it time you considered such a move?
“The growth is in the tier-two and tier-three cities, which are inland,” said Joseph R Hinrichs, Chairman and chief executive of Ford China. “The fundamentals of demand and economic growth are there. There are many places that people don’t even know.”
Areas such as Wuhan, Chongqing and Chengdu are exactly the type of places Hinrichs is referring to.
They are seen as broad areas filled with untapped potential and significant populations.
The annual ‘white paper’ from the American Chamber of Commerce China highlighted some interesting potential pitfalls with the plans though.
“As China’s thriving economy remains in the global spotlight, an increasing number of enterprises are shifting operations to the Southwest, where they are finding an increasingly dynamic business environment”, the white paper said.
It went on though to describe a problem regarding a “lack of infrastructure” that includes schools, and established, local workers.
Issues such as these will have to be addressed before any type of major investment could be considered as they could seriously undermine the whole process.
It is fine to invest in products and buildings that will excite local populations, but without the necessary roads for travel or required employees it could be a disastrous move.
It is clear there is vast potential in focussing on areas that have yet to be fully exposed to Western culture in China.
However, large companies will certainly have to be cautious in their movements. A comprehensive review of the areas involved and what is required will be necessary before any big plans can be drawn up for investment.
Even accounting for the complications involved, it seems that an international relocation overseas to China’s second and third tier cities could be a great idea.
