Second, Third-Tier Cities New Hotspots for Corporate Development: Report
- May 16, 2008
Second-, and even third-tier cities, should be on corporations’ radar screens. They are good places to locate new manufacturing plants, call centers and IT hubs, a study on corporate development hot spots has concluded.The study, released at the CoreNet Global Summit in May, found that rising labor shortages, and high employee turnover, plague cities such as Bangalore and Shanghai. The study concluded that corporate investment dollars can be put to better use in some lesser-known locations. Wadley-Donovan-Gutshaw Consulting co-authored the study, along with Tractus Asia Ltd. and Buck Consultants Intl. Dennis Donovan, principal at Wadley-Donovan-Gutshaw, recently discussed some of the study’s key findings.CPN: You say in your report that Northern Ireland, Vietnam and Slovakia are development hot spots. Why are these markets emerging?Donovan: What’s going on is that we are seeing more corporations adopting a global deployment strategy, and developing a global footprint. About 60 percent of these corporations do this because they want to sell their products in a certain market. Another 30 percent do it to reduce labor costs, while 10 percent locate in a country to take advantage of the labor force, a highly educated labor force. Many corporations also look to expand in the U.S., as part of their global strategy. Many corporations want to have an IT facility in Bangalore, which means that competition for labor increases and turnover rises. CPN: What are the characteristics of emerging global development hot spots? Donovan: There are relatively underutilized locations, which should be attractive to corporations, locations that have a large, English-speaking population, have a good infrastructure and may offer a foreign-trade-zone.We’re also seeing more of a trend of “near-shoring,” for example, U.S. companies having a manufacturing facility in this hemisphere. The ‘maquiladora’ sector is well-known. But there is a trend of having manufacturing and business process outsourcing plants in Central America, that are in the same time zone [as the U.S. firm] that offers a favorable labor market, at low cost. That’s a definite trend. Putting an IT or customer service facility in Buenos Aires can be 20 to 30 percent more costly than putting it in a second or third tier city in Argentina, such as Rosario or Cordoba. The same kind of savings can be gained by having a facility in Curitiba or Recife, in Brazil, rather than in Sao Paulo. CPN: You mention two emerging U.S. locations, Elmira, NY. and Madera, Calif. Please talk about these two cities. Donovan: Elmira is a rust-best city, which has an under-utilized workforce, and is close to a large population base in the Northeast. It is very important for corporations to be represented in California, but there are high costs, such as labor. Madera is a lower cost alternative, with a good location, in the central part of the state.