It Enterprise location: Beijing, Shanghai, or Wuhan, Chongqing?

Today, I saw reports of Zhaopin moving to lower rents because of losses, which made me think about the location of IT companies again.

The first time this issue caught my attention is that the last two years, for research needs, tracked two of the two IT companies operating similar businesses. Both are doing web site management, one is located in Chongqing, a Beijing. Two years ago, the scale of 100 employees around the market share is quite, are the industry's largest. At first, the family in Chongqing was able to preserve capital, while the Beijing family was at a loss due to high rents and staff costs. But the next year, as Chongqing's businesses can preserve capital, and the largely recruited employees generate income to feed themselves, they begin to expand, so the business is growing. And so far, Beijing's companies to cut the size of 50 people to preserve capital, Chongqing, the company's staff grew by 50%, and achieved a very substantial profit. In terms of market share, Chongqing's company currently has a market share of more than three times times that of Beijing company. For Beijing, this is a very dangerous signal that the monopoly of corporate oligopoly in Chongqing is forming.

This case is of great significance to entrepreneurial it enterprises. How do IT companies choose to site?

After a general review of recent years of important relevant research, found that so far has not been dedicated to the location of IT companies specialized research, then had to choose from a number of similar company location research, and combined with their relevant experience to analyze the location of IT companies.

The first is to look at the location of labor-intensive enterprises. A Unu-wider study has made comprehensive statistics on the location of companies in three similar countries, China, India and Brazil. The similarity between China and India was found to be very high. Labor-intensive enterprises generally consider the cost of integrated production in order to select small or medium-sized cities or less developed areas for more. Many export-oriented enterprises must choose large cities for many. It is hard to call it a labor-intensive enterprise in general. The average labor-intensive enterprise has at least thousands of employees, and IT companies have a handful of companies with more than 200 employees, and few IT companies can exceed 1000 employees. But this judgment condition is not suitable for China's national conditions. China is a developing country, especially the government has a lot of policies for local leading High-tech enterprises have a clear bias. For example, although Tencent and Huawei have a large number of employees, but to achieve such large-scale it enterprises are generally the High-tech industry leader, will receive strong support from local governments. So although they are labour intensive, the preferential treatment of local governments is not costly because they are in big cities. So in China, this big it enterprise can not consider the cost of moving away from the big cities. Then small and medium-sized enterprises are different. For example, the above case mentioned two companies, according to their current size, it is impossible to receive strong support from the government, so their operating costs will be based on market conditions to decide. Therefore, for small and medium-sized it enterprises, in the first-tier cities, there will be operating costs competitive disadvantage. Of course, for small IT companies, such as it companies with less than 10 employees, the cost of the business is difficult to analyze, and depends on how much of the venture capital to decide.

The second is to look at the enterprise's independent research and development capabilities or innovative capabilities. For a long time, investment banks look at the future investment value of a technology enterprise, or the potential for appreciation, the most core and accurate indicators are: R&D investment return (research and development ROI). Because it enterprises generally do not have the traditional industry barrier (barrier), the ability to maintain innovation is an IT enterprise can continue to survive the necessary conditions. Alcácer and Chung (Management Science, May 2007) have done a research on enterprise innovation ability and enterprise location. They believe that companies in the first tier of cities will be better able to learn from other companies ' information, thereby improving their competitiveness. Their research gives a strong conclusion: for innovative companies, the main consideration should be to choose places where academic innovation is good, and for companies that are weak in innovation, they should consider choosing places that are suitable for learning other companies and that are easy to spread their information. In other words, for the research and development of strong IT companies, should consider the university or scientific research institutions of dense places, but for the weak research and development of IT companies, should choose the same industry IT companies more places, that is, the so-called crowding. So the guiding significance of this conclusion is: for the development of strong IT companies, not necessarily to stay in the first-tier cities, Wuhan and Chongqing or some satellite towns is also a good choice. And those who do not have strong research and development capabilities of enterprises, it is still stay in Beijing, Shanghai or Shenzhen.

The development or innovation capability of an enterprise does not depend on the scale of the enterprise, but mainly on the strength of the core research and development team. Comprehensive consideration of the above two elements, for entrepreneurial it enterprises, if the core technology is strong, then to Wuhan and Chongqing will retain the advantages of innovation, but also have the cost advantage. But for a good idea, and no long-term continuous development of new products, entrepreneurial it enterprises, stay in Beijing, Shanghai, Shenzhen more appropriate, but at the same time will need to have a higher start-up capital requirements. Maybe some people say that with enough money, you can choose anywhere. Fact。 Once the enterprise is more successful, it will increase the manpower investment, increase the scale economy, until the balance of payments, this is the inevitable law of enterprise bigger. This time, the cost advantage will become very important. It is also considered that the big IT companies in the United States are basically in small cities, such as Google in Mountain View city, Aweber in rural areas and so on.

Finally, also consider the future of China's regional development pattern changes. China is now the world's first automobile production and consumption power. According to the latest survey: 3.8% of the country now have cars, 70% of people in the next three years have a car purchase plan. This data is extremely shocking. In the 50 's, the United States was transformed from a highly centralized country into a satellite-dominated country by the frenzied expansion of the auto industry. So it is foreseeable that the same changes will take place in China in the near future. This development is more recommended for large IT companies should stay in satellite cities, similar to Google's Mountain view of this place. So, in the near future, Chongqing, Wuhan, Chengdu and other relatively low costs, and the labor force and scientific research institutions are relatively dense, is a good choice. More desirable places will be increasingly biased towards satellite cities around Shanghai. First, the Yangtze River Delta is currently the largest urban belt in China, and the coastal, scientific research institutions, and Su-tin often (Suzhou, Wuxi, Changzhou), Nanjing and other cities, the rise of the speed is quite fast, and distance from Shanghai is greatly shortened, and labor costs are relatively low. Wuxi, in particular, has attracted thousands of overseas returnees in recent years under the impetus of the 530 project promoted by the Wuxi municipal government. From the geographical location, talent distribution, policy conditions, entrepreneurial humanities and other aspects of the environment, Wuxi is more and more like the United States Silicon Valley. Beijing and Shenzhen will gradually lose their edge, although the two major cities are still the most concentrated places for Chinese it talents.