By Frank Mulligan

The push to get out of high-cost offices, factories and warehouses in city center locations, continues at a pace in China. A combination of rising real-estate prices for Grade A buildings, 18% average salary increases year-on-year, and a push for a cost-down corporate strategy, ensures that there are few other choices. The China Plus 1 strategy takes you only so far because the strategy always includes at least one location in China.The cost of renting a new office or factory in a suburban location in any city in China is generally lower, but the cost of staff attrition has to be factored in to any move. Staff losses can be very high, but when you consider that the move may be inevitable, the cost of these losses has to be accepted as part of the normal cost of doing business.

Changing Jobs

A common result of a move to the suburbs is a high percentage of disgruntled employees who are upset because their company has decided, willy-nilly in their opinion, to move from a perfectly good location in the central business district of their city, way out to the suburbs of that city.

You need to think about this before the move because employees will be more than just frustrated. They will often be outright furious. For some, the commute to the new office or factory will add up to 2 hours of travel time per day. Employees will be both angry that this is happening, and incredulous at the blindness to the fact that a resignation letter will be in HR’s office just as soon as they can find a new job; back in the city.

Low income staff is particularly susceptible to the job-change scenario. They are forced to move from a metropolitan area, with high job availability, to an area where job accessibility is markedly decreased. The kinds of jobs that are open to them in the suburban location are much lower paid, and their normally limited options suddenly seem very limited. Professional staff will often go along with the move because of the career potential in the new location.

In contrast, the cost of commuting is a high percentage of income for low income workers, and after the move this cost is sometimes the straw that breaks the camel’s back. Low-income, low-skills workers have fewer options but they do have options. 

Right Country, Wrong Location

There are multiple reasons why companies found themselves in the wrong location. The first is that many came to China early, when cities were much smaller, and many factories were still located in central business districts. The speed at which Chinese cities have grown is no less than phenomenal, and hard to fathom if you have not been here long enough.
Some stayed put until cost pressures became intolerable. This took some time to pan out, especially for those who chose to locate in older buildings. Prices in these buildings were slower to rise. In the end the building was often torn down, and replaced by a better, more expensive one.

Another reason is that for many companies it was just easier to stay put, even when costs rose. Moving would have meant having to face the prospect of losing many staff, and for smaller companies or service partnerships, this could prove fatal. 

In a good many cases, companies that invested in Representative Offices in China were not necessarily as committed to the market as they might have appeared. The Representative Office model allowed them to test out the market, with a minimum investment in a small office in the city centre. Eventually that model ran out of steam and they had to bite the bullet. As the legal situation in China improved, there came a time for many companies when an investment in a plant or R&D centre made sense. This usually coincided with a change in the laws covering their industry.

A newer reason for moving out to the suburbs is a very positive one. Companies that have done well in the China market, and who have a strong R&D component, have decided to go the whole hog and shift to a campus model. This model offers many benefits to employees, not least of which is the lesser pollution and the slower pace of life.

It’s particularly good for new graduate hires because the campus model is who they think they are, and where they deserve to work. The lifestyle fit is good because most universities in China tend to be located in the suburbs anyway. New graduate employees have an easier transition to the world of work.

The pressure of a city commute is not necessarily a welcome burden when you have spent the previous 10-15 years walking from home to school or university.

Frank Mulligan, Talent Software