?nlike many other Chinese cities, Suzhou has been able to attract multinational enterprises focused on research and development (R&D). The garden city two hours from Shanghai has been aggressive in seeking research-oriented investment which uses land more efficiently than heavy manufacturing.
Multinationals like Siemens, Microsoft and Panasonic have all located major R&D operations in Suzhou.
China's central government identifies the city as a technology center, a designation which comes with an annual subsidy from Beijing worth US$7.81 million. The cash is spent on infrastructure and incentives given to investors.
A sign of the city's intent is the fact that its two principal industrial zones, the Suzhou Industrial Park (SIP) and Suzhou New District, no longer accept investments from textile and chemical companies, which are deemed to be too dirty and too low on the value chain.
Strict asset-to-investment ratios (the amount invested divided by the amount of land requested) shuts out land-intensive projects. High-tech companies, on the other hand, are offered one-time subsidies of US$26,000-65,000.
Depending on the deal they cut, firms often get the first year or two of operation rent-free in city industrial parks.
Friend to business
Suzhou's top-rate infrastructure and pro-business government have proved decisive in attracting smart technology-driven companies, says Tay Eng Kiat, chief executive of China operations at Ascendas, a Singaporean real estate developer (and subsidiary of the Singapore state-owned conglomerate JTC), which runs SIP in a joint venture with Suzhou's government.
"The SIP was born through the collaborative idea of the Chinese and Singaporean governments," he said. "We started the SIP 12 years ago on farmland. There was uncertainty and an inflationary climate then, so many foreign companies still saw China as high-risk."
Foreign investors keen for a quick start in China were drawn to Suzhou by the concept of ready-built facilities (RBF), which Ascendas piloted in the city.
"[The park] is one of the best- planned, administered and well-supported in China," said Tay, whose company manages several properties and industrial parks around the country. "In terms of incentives, policies and infrastructure – it is one of the best and the government officials are pro-business and well-trained."
American telecommunications equipment maker Andrew Inc reached the same conclusion after looking at a number of production sites around China.
"We saw a real sense of energy from the government," said Stan Catey, group vice-president. "They really wanted to partner with us."
For Andrew, its relationship with the Suzhou authorities has been a lasting one. The company recently marked its tenth year in the SIP by adding a R&D center for telephone antennae to its plant, which accounts for 2,500 of the company's 3,500 employees in China.
Investors visiting the SIP are greeted by English-speaking staff, many of them Singaporeans trained in the island-state's civil service. Talented Chinese officials were recruited and trained in Singapore to help in administering the park. SIP service teams of Singaporeans and Chinese communicate with authorities to help customers get licenses, customs certificates and even assist with recruitment.
"They know very well how to address and adapt to Western sensibilities within an Asian context," said William Dodson, chief executive of Silk Road Advisors, a consultancy advising foreign business on choosing locations in China. "For its small size, Suzhou is a unique city in China when it comes to meeting Western expectations for accommodation, professionalism and transparency."
Aside from attracting high-value foreign investment, Suzhou also wants to encourage more contract R&D work, where local companies are hired to come up with the innovative add-ons for larger firms' products.
Dodson recalled a Suzhou government official boasting to him that a local contract R&D center had participated in the design of two cars displayed at the 2007 Shanghai Automobile Exhibition.
"The Suzhou government believes that ultimately R&D will be able to employ more educated individuals than manufacturing," Dodson said.
Although the majority shareholder in the joint venture that operates SIP, the local government lets cosmopolitan Singaporeans get on with the job of enticing Western investors.
It does not neglect the needs of other foreign investors, though.
The city has smartly balanced the cultural requirements of investors from different continents. According to Dodson, bakeries, bars and outdoor cafes offer comfort to the predominantly Western business set in the SIP, while hot-pot restaurants and karaoke bars dominate Suzhou New District, which caters more to Asian investors.
"The way the park has grown makes it self sufficient," Catey said.
Supermarkets, schools, restaurants, even a university – the University of Liverpool opened its China campus here – on-site in the SIP mean that commuting to Shanghai is no longer a requirement.
"Shanghai is useful from a logistics point of view but given that China continues to be an expanding market we can administer our sales operations out of Suzhou." Catey said.
A good home
Suzhou's creature comforts have also helped it attract and retain talented workers. Labor costs are up, says Catey, but more experienced personnel have come in. Andrew has recently faced challenges in filling positions as it increasingly geared its Suzhou operations for R&D work, but stayed on because of what it saw as government eagerness to understand and match the skills requirements.
The local government organized field trips to universities in Xi'an, Wuhan and Shenyang, allowing Suzhou-based firms to recruit graduates there. Feeder programs with universities in other cities also channel quality graduates to Suzhou.
"[The local government] wanted to understand what skills we needed," Catey said. "They're really focused on building a good perception of Suzhou as a place for graduates."
Another plus point for Suzhou is that it is more affordable to investors and young professionals than the likes of Shanghai. To entice young talent to power its high-tech industries, Suzhou city authorities price serviced apartments at US$78 a month.
Masters degree holders are currently eligible for subsidies worth up to US$13,000 to buy a home locally, while a housing fund in the SIP makes it easy for out-of-town employees to own homes in a large residential development the park is currently building.
Suzhou-based employees who own homes in the city have a reason to stick around and contribute skills and cash to the city's long-term growth.
As well as pushing for more green R&D operations, the city is also working to sharpen an edge in information technology and the back-office work known as business process outsourcing (BPO). If successful, it will mean tens of thousands of workers processing insurance claims and doing human resources administration, much like India's giant BPO firms.
"The government sees that talent attracted to service-oriented sectors is on average better educated and potentially more affluent than assembly line workers," Dodson said.
The city doesn't lack ambition, and has a track record to prove that its policies pay off. But there are formidable obstacles on the way to emulating Bangalore, the self-contained outsourcing hub that has driven India's IT strength. BPO, like the contract R&D and IT outsourcing industries, is only in its infancy in China.
Although there is evidence of companies in Suzhou linking up with established Indian players to share customers and know-how, Indian IT and BPO outsourcing companies built up a strong lead when they handled the huge volume of menial work necessary to make computer systems for Western companies "Y2K compliant" in 2000.
Then, Western companies were terrified of the "millennium bug" – the phenomenon where computers could not accurately count past the year 1999, making their systems go haywire – a fear Indian IT outsourcing companies took advantage of. China has not had such a windfall to boost its IT industry.
"China wasn't involved [in 2000] and will have to develop its industry from scratch," Dodson said.
Ahead of the pack
Others believe Suzhou's cosmopolitan ambience and smart incentives for investors and talent will bring the high-tech, services-driven business it seeks. Tay, for example, thinks Suzhou's best days are still ahead. After nearly two decades in China, the company's SIP-based operation remains its flagship project here.
"We intend to grow and expand our investment in Suzhou," he said.
And what of the competition? Suzhou may be fortuitously located – in the center of comparatively wealthy Jiangsu province and near Shanghai's market and port – but other Jiangsu cities like Wuxi, Changzhou and Nantong are well-positioned to grab high-tech investment. They can offer similar incentives – such as a tax rate of 15% for a company's first two profit-making years.
For now, Suzhou's comforts and Western-savvy mindset will keep it on top. In Dodson's view, it's all down to what he calls the "Starbucks factor."
"The number of Starbucks' in town is a good reflection of how serious local government is about courting foreign investment through good living standards," he said.
"Similar-sized cities don't have Starbucks or much of anything to support an affluent population given to international affectations. Suzhou is the kind of city in which foreigners can see themselves living for several years at least."