The Leader - September/October 2008 - (Page 50) Y ou th IN k th eY’r e h ot, B u t the Y’ re No t: to p -10 o v e rrate D I Nv e s tme Nt De s tI NatI o Ns F IG. 3 top-10 IN v e s t m e N t saturateD m a N u f a c t u r I N G locatIoNs Manufacturing Rank 1 2 3 4 5 6 7 8 9 10 FDI Destination shanghai guangzhou suzhou tianjin beijing pune wuhan st. petersburg changchun nanjing manufacturing worker here can earn a loaded monthly salary of RMB 1,828 (US$263), while skilled manufacturing workers bring in an average of RMB 3,280 (US$646.50) monthly. Our data suggest that investors began to be aware of the saturation of Guangzhou’s labor market as far back as early 2007, when there was a precipitous decline in capital investment in the city; 2003 to 2006 saw more than US$3.4 billion invested in the four types of manufacturing projects we analyzed, whereas in 2007 only US$52 million flowed into these types of projects in Guangzhou. Partly as a result of this influx of investment, prime office rental rates rose 3.7 percent quarter-on-quarter in the first three months of 2008, reaching US$20.10/sq. m./month. Russia’s cultural capital, St. Petersburg, ranked higher than any other European city on our list of the hottest destinations for manufacturing FDI. With a steady inflow of projects from 2003 to 2007, St. Petersburg attracted just under US$2 billion and over 10,000 jobs during this period. Though the relatively smooth political transition in March of this year bodes well for the country’s political stability, investors in this overheated locale will still be challenged by underdeveloped infrastructure and a severe labor shortage. Though the government is planning to address the infrastructure problem by building a 600km high-speed freeway connecting St. Petersburg to Moscow and a tunnel to provide easier access from St. Petersburg’s city center to districts across the Neva River, these plans could actually hurt investors in the short term. As the government requires more workers to complete these infrastructure projects, manufacturing entities will find it increasingly difficult to find the required labor. The director of St. Petersburg’s International Business Association called the city government to action, saying it will be “pointless to build new plants in St. Petersburg” if the labor shortage isn’t addressed, according to the St. Petersburg Times. However, the labor situation is likely only to worsen in the near future, with General Motors’ US$300 million factory and Nissan’s US$200 million plant scheduled to begin production by late 2008 and early 2009, respectively. In order to combat infrastructure concerns and labor shortage constraints, the government instituted its largest tax incentive yet in January of 2007. This incentive, designed to attract investors in large manufacturing projects, offers investments of at least RUB3 billion (US$126 million) in production assets an extension of the corporate income tax holiday and a complete exemption from property tax. the top teN up-aND-comING INvestmeNt DestINatIoNs WorlDWIDe Now that we’ve told you where investment ought not to go, the question remains: where should it go? selectIoN process Of course, the process of identifying the ideal investment destination is highly company- and sector-dependent, but, drawing on our decades of experience executing site selection projects for multinationals across all industries, we have used the criteria shown in Figure 6 to select the cities we consider the most attractive emerging locations for the manufacturing and IT/KPO/BPO sectors. In general, these cities are secondto fourth-tier metro areas, all of which are decidedly smaller than the discovered (or “hot but not”) cities, which are often the country’s capital and/or its commercial center. We have avoided ranking these cities for two primary reasons. First, we have identified these cities precisely because they have the infrastructure and human resources to support investment by multinationals, but have not yet attracted significant investment. Were we to try to rank these cities, it would seem that the tenth-ranked city (least known) would be more attractive than the top-ranked city (most known). 2 0 0 8 th e le aDe r 50 septemBer / octoBer
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