A good list of factors for firms to consider where to do FDI: cheap labor is just one of them. Others include consumer market size, infrastructure, other investment, safety, economy of scale…
But according to surveys of almost 1,800 U.S. firms working in China, urban infrastructure such as internet access and spending on things like roads and police protection are more important than wages in choosing where to locate factories within China.
Between 2000 and 2010, China grew from the 14th-most important destination for U.S. investment in manufacturing to the fifth-most important, the research shows, and that investment more than quadrupled during that period, from $7 billion to nearly $29.5 billion.
Companies in nearly all the categories placed a premium on communications, physical infrastructure and amenities such as fire protection. In addition, makers of more sophisticated goods such as electrical machinery and transportation equipment chose larger cities and those with a high percentage of university students. Wages, the size of the local population and the city’s gross domestic product were also considered.
But there’s also a huge market for goods there. The auto manufacturers making cars there have a huge market for the cars right there. You can get cheap labor in other places, for instance in Africa, but you don’t have access to the markets there that you do in China. And third, China has access to natural resources, raw materials such as heavy metals.”