But these other spots -- especially on the far eastern tip of the Shandong Peninsula...can one get there by air?

And is the apparent cost-savings offsetting the obvious aggravation both you and your employees will experience in trying to reach your 2nd-tier HQ?

Anyone?

I got to say though... Suzhou is very expensive, especially if you locate in the Singapore Industrial Zone (SIP). Basically, Suzhou is already filled with factories. The plan for this city is to slowly convert factories into offices and “clean industry.” Together with the high-speed train and the new subways (complete in 2012), Suzhou is going to seem like a suburb of Shanghai. Wuxi is just 20 minutes more down the track. 10 minutes maybe by high-speed train. Housing and real-estate are around 25% cheaper than Shanghai…but there are probably suburbs of Shanghai that are cheaper than SIP and Suzhou New Technology Zone (SND).

The other cities you mentioned are also fairly expensive, and very difficult to get good managers. I hear that Ningbo, Wuxi, and Hangzhou are all around the same cost/development level, although each have a somewhat different industrial makeup (Hangzhou has more private enterprise Ningbo is famous for trading companies and chemicals, etc). Dalian and Chengdu are probably cheaper and they are nice cities to live in. Both have growing established tech-zones with international companies.

The critical mid-level manager-level workforce in “second tier” cities may not be any more stable than in Shanghai or Beijing. Good talent in the second tier cities know their value and have less competition, so are more likely to move around.

I guess it all depends on what you want to make. If you need talent, then Shanghai and Beijing have a lot to offer. If cost was the main factor, you can go to a lot of places. But then there are the lifestyle issues; will an expat GM wish to stay in a muddy town in the middle of nowhere? Will your R&D Director wish to travel an extra 6 hours from Shanghai to get to the small town?

Think Wuhan, Nanjing, Chengdu, Chongqing, Kunming, Nanning, Changsha, Fuzhou, Xiamen... all substantial and rapidly developing markets in their own right with a healthy spread of 2nd and 3rd tier cities around them. Access to the rest of China also easier than getting into and out of the dreaded Hongqiao airport.

In second tier cities, talent is indeed an issue (especially recruiting and retaining staff that look good to HQ). A robust internal development program and a focus on local market and operational skills rather than global punch will get you excellent people. Over time they will come along and with solid training will become even stronger and more loyal assets to your company than the fickle Shanghainese.

In the end though, your China base needs to be located for genuine business and market reasons. Cost is a factor, access to markets and so is the availability of talent. The preferred living arrangements of your expats should be the very last consideration.