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China Looks to Second-tier Cities for Tech Talent

A recent promotional swing through Silicon Valley by representatives of the Xi'an municipal government called attention to some of China's second-tier technology cities. Although Beijing remains the first choice for technology talent, rising costs for personnel and real estate have led many companies to consider other locations in the country. Here is a look at five prominent up-and-coming Chinese technology hubs.

Hangzhou -- Forbes Magazine has named Hangzhou the best commercial city in China for five consecutive years, beating out bigger rivals like Beijing and Shanghai.

Two hours southwest of Shanghai by rail or road, the capital of Zhejiang is built around the West Lake, one of China's most famous scenic attractions. Hangzhou is a model of Chinese urban planning. From a small city in a beautiful setting, it has grown into a modern provincial center.

The city is one of 10 national software bases. Tata Consultancy Services, India's largest IT company, first opened a Hangzhou office in 2002 as one of its own outsourcing bases in China, with some of its 800 consultants split between there and Shanghai. It also operates an outsourcing center for General Electric there. Hangzhou is also home to Alibaba Group, China's largest Internet company.

"Hangzhou has become the center for e-commerce in China. We are lucky that Alibaba was started in Hangzhou, and not in Beijing or Shanghai. If it had grown up in those cities, it might have evolved to serve big corporations. Instead, it serves entrepreneurs and small businesses. Zhejiang is a hothouse of the private sector and entrepreneurship," said Jack Ma, Alibaba Group's chairman and CEO, the city's best-known technology ambassador.

Xi'an -- Once China's capital during the Tang Dynasty (618-907 AD) and best known as the home of China's terracotta warrior army, this city in the central province of Shaanxi is a tech center in part thanks to its large number of universities which turn out a regular supply of talent.

The city has government approval to build China's largest software base, one of 10 around the nation. Such software parks that can offer tax breaks and other incentives to attract domestic and international corporations to set up shop there. In 2000, it launched the Digital Xi'an project, designed to make the city a technology hub in terms of infrastructure, software development and technology education. It also declared itself "China's outsourcing capital" in 2006.

"Xi'an is a good bet. It is the third higher-education city in China, immediately after Beijing and Shanghai. What Xi'an needs is renewed and further government promotions to attract companies there," said Cyrill Eltschinger, CEO of outsourcer Softtek China and author of "Source Code China. However, he added, "the drawback of Xi'an is that the airport is way out of town!" Xi'an Xianyang International Airport is over an hour's drive from the city center.

Dalian -- The location of this coastal city in the northeastern province of Liaoning has given it an edge in attracting business from Japan and Korea. Although not a major university city, Dalian's quality of life helps to attract talent from around China's northeast, and offers a far lower cost structure than Beijing.

The city has international experience few of its neighbors can boast -- within the last century or so, it has been held by Russia and Japan before finally being returned to China -- and is one of China's leading destinations for foreign investment. It has also been gifted with great management and promotion -- former Minister of Commerce Bo Xilai cut his teeth as the city's mayor before being promoted to the ministry level. It leads the rest of the nation in attracting outsourcing work from Japan, still China's leading customer for BPO (business process outsourcing) and ITO (information technology outsourcing). It once ran a short-lived marketing campaign dubbing it "the Bangalore of China."

However, the city is now facing some of the challenges that the Indian city it sought to emulate encounters. "Dalian has done a good job initially at promoting itself as an outsourcing city, initially with a focus on the Japan market, but now everyone goes there for any market. They are getting caught in the 'too many companies planted there' while talent is limited and can be leveraged primarily from the north of China only." Eltschinger said. "As a result, rates in Dalian are up, and the turnover, job-hopping game has begun there."

Chengdu -- This city in southwestern China's Sichuan province was shaken badly but ultimately received minimal damage from the May 12 earthquake that killed 70,000 people in nearby Wenchuan. Although some operations were knocked offline by the quake, business in this pleasant and livable city have returned to normal.

Despite its inland location, Chengdu is one of southwest China's largest cities and infrastructure hubs. It boasts international air connections throughout Asia and domestic and international train routes, and its Hi-Tech Zone is home to 28 Fortune 500 companies.

Intel is one of them. The company responded to the Chinese government's "Go West" strategy, promulgated to attract investment to poorer, less-developed inland provinces, not just to coastal areas that have traditional received the most attention from overseas businesses. An Intel spokesperson said that the city met all its criteria: availability, pricing and reliability of utilities; availability of the right kind of talent, especially high-end technical talent; and a government that's interested in working with Intel and offers the right incentives. Since the announcement of its testing and assembly plant in 2003, Intel has invested US$525 million [m] there and employs 2000 people, the company said.

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