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Investment in China is shifting. It was only a matter of time before that was destined to be true. The high-tech industry's insatiable lust for finding the “next great low-cost innovation hub” — affordable cities with nearby and abundant skilled talent pools and good infrastructure — keeps companies moving around.
For a long time now, the electronics industry has been setting up operations along China's eastern and southern coastlines. Areas around Beijing, Shanghai, Shenzhen, and Guangzhou, for instance, have been sweet spots because of their port-road-logistics infrastructure and access to large markets.
As costs rise in those areas, inland places like Chengdu and Xi'an are winning more international attention and foreign investment.
The China Daily newspaper recently reported that Chengdu, which has the fourth busiest airport in the country after Beijing, Guangzhou, and Shanghai, is becoming known as a major logistics hub and is starting to be seen as a choice destination for global financial services firms and manufacturing companies.
Its popularity is also playing out in a monetary way. Chengdu is seeing a consistent increase in foreign direct investment and it is the only inland Chinese city listed in the 2011 and 2012 “Annual Top 10 Best Foreign Investment Strategy Cities in Asia and the Pacific Region” report published by FDI — a magazine published by the UK-based Financial Times, according to the newspaper. In 2013, Chengdu will be the host city for the Global Fortune Forum, a conference that draws Fortune 500 executives, industry leaders, and heads of state.
The same China Daily article also states without citing a source for this data that “The cumulative investment made by 215 Fortune 500 Global enterprises in Chengdu during the first six months of the year was 50 billion yuan ($8 billion), 28.7 billion yuan more than the same period last year.” It also says that companies in the region represent the high-tech, IT, new energy, new materials, bio-pharmaceuticals, aviation and aerospace, automobile, equipment manufacturing, and petrochemical industries.
Like other parts of China, what seems to be another appealing draw (in addition to the fact that it's probably cheaper than the more developed coastal cities) is the 50 or so educational institutions located in or around Chengdu, meaning that companies have access to a skilled workforce. The newspaper reports that “every year the city adds more than 150,000 graduates and more than 100,000 professional skilled workers to its labor pool.”
Undoubtedly, this is good news for companies charged with keeping costs down. It gives them another option as they scout out alternative sites. Going hand in hand with that, we see how potential hot-spot cities ramp up marketing efforts and offer lucrative tax incentives to get companies to move there. As China matures, we'll surely see many other inland cities trying to attract more companies.
But the question one always wonders about is how much does it cost to start a greenfield operation? Is it more cost effective to build a new site or invest in an old one? What really influences a big move? Is it all about cost or is there some formula for calculating varying factors like access to labor, entry into new markets, tax breaks, or logistics costs? Will inland China offer competitive advantages like Eastern China does?
“every year the city adds more than 150,000 graduates and more than 100,000 professional skilled workers to its labor pool.”
Seems that China is still an attractive option for foreign investors despite the fact that labour cost is increasing in most chinese traditional manufacturing areas. Competition between cities will surely maintain cost low. But I don't think that will last for long.
Thanks Anna for the article.
>> “consumer-facing industries” on the continent growing $410 billion between 2012 and 2020<<
The success achieved so far in the use of communication gadgets in 2012 only in 2 or 3 Africa nations surpassed projections for ICT penetration in the region. Although, I foresee electricity generation, distribution and supply to residentials/industries as biggest panacea to electronics in few years – may be 3 – 5 years.
As at 2008 ITU reports 300 million mobile phone subscribers with major telecommunication service firms in Africa, i.e pay as you go customers. A research conducted by an independent researcher as at May 2012, Africa has about 644 million mobile phone subscribers, factbook here.
OH AFRICA! – That is something refreshing to the mind – always reading about China, Korea,India .
Yes! Africa is a huge continent and a fast growing population but so far the Electronic Industry's view about this continent has been to treat it as a set of underdeveloped economies with people having no money to spend on the state of art products – to treat it as a dumping ground for obsolete products recovered from waste.
Anna , you have now opened doors to this new outlook to this marketplace which is ready to embrace the latest in electronics .
Education of the masses is the key to groom this market especially the younger generation.
@Wale, thank you for your contribution. Yes business is booming for Africa's technology based consumer goods market. I also share your optimism for a reliable electricity generation in Africa. It is imperative in this electronics technology growth market.
Thanks for the link. Wale, the sources of these technology based good is reported to be both global and local. Reports have shown that sizeable proportions of goods are exported by China. Large proportion of its exports worth over $60bn a year, are technology based manufactured products. For example, communications equipment and other electronics machinery accounts for 40% of china's exports to the continent. Asian companies, are also taking advantage of this market growth. They are making impressive inroads into the continent. What a transformation!
Prabhakar, Africa a onetime dumping ground for western products surplus is rapidly emerging as a valuable market for electronics technology. What's interesting is, African consumer is dictating the demands for good quality devices combined with affordable prices tailored to the continents environment. Second hand electronics market is in decline. Reports have revealed that consumer expenditure in 2010 alone was worth more than $600bn – 8% of consumer spending in the emerging markets. this is projected to increase over $1trillion by 2020. This is indeed the Rise of Africa.
Does the bulk of Africa have the necessary infrastructure and stability to support a significant consumer class? In the West we only hear of doom and gloom stories from Africa so it is refreshing to discuss the hope of Africa becoming a player on the global stage.
Since World War II, suppliers have continuously gravitated towards lower cost regions. We first experienced it in the US as suppliers moved from the Rust Belt to the South in the '50s and '60s to avoid unions. Then we watched companies move towards Mexico and the Far East and now, suppliers are moving from the first tier cities in China to second and third tier cities. The question is not will the suppliers move to Africa but when. However, electronic suppliers are skilled risk managers and until the payoff exceeds the risk, they will reluctant to make a commitment. As of today, the social, political, and economic risks in Africa remain too high to make a serious investment.
Barbara,
Your Editor's BOLG is interesting. Your comment CHINA is Selling Millions fo tablet PC's across the continent. Does't this mean counterfeit PC's or technology and designs they stole from contract manufactures that they control in there country?
Hi garyk: I don't see that reference in the above blog or my editor's note this week, but I'll try to answer your question: there are reports of Chinese knockoffs of tablets and e-readers; I've heard less about PCs. Also, many PC brands manufacture in China and that doesn't necessarily make them counterfeit. Maybe I'm misreading your questions/comment?
Barbara,
You stated NO Name Tablet. What is a NO Name Table? It has tobe a copy of some thing some one wants hidden!!!
I think Africa has just embarked on the journey of technology boom. Although, dual carriage efforts are still needed from both the governments & other stakeholders to accelerate the development and building a sustainable roadmap.