You may never have heard of Chengdu, a city of 4.1 million people in central China. But you will soon. The Chinese government has invested billions of dollars to entice U.S. companies to start doing business in Chengdu and in a dozen other second-tier cities.
As commercial capitals like Moscow, Mumbai, and São Paolo become increasingly saturated and costly, governments in developing countries are investing in cities they previously ignored, upgrading infrastructure and establishing free trade zones.
Many large companies have already moved their factories, R&D, or back offices into these locales to bask in tax holidays and pull from less competitive labor markets. These smaller spots also tend to boast better urban planning and less polluted environments. So brush up on your geography -- here are nine up-and-comers vying to be the global economy's next big thing.
1. Ahmedabad, India
Population: 5.1 million
Hot industries: Information technology, construction
What's new: India's western state of Gujarat prides itself on being a state of entrepreneurs, many of whom gravitate to Ahmedabad, its commercial capital. Although the first wave of India's IT boom passed Gujarat by, the state and its capital have become more aggressive about recruiting businesses. Ahmedabad isn't plagued by frequent blackouts like Hyderabad or traffic jams like Mumbai. And the city has room to grow, as well as several special economic zones.
Who's doing business here: Software developers and IT firms, as well as suppliers for the growing construction industry. "Ahmedabad has a good supply of fresh talent who prefer to stay close to family," which keeps attrition low, says Lakshmikant Goenka, co-founder of Dolcera, a research and consulting start-up. The company is based in San Mateo, California, and has an Ahmedabad office.
2. Kolkata, India
Population: 14.3 million
Hot industries: Information technology, construction
What's new: Until the mid-1990s, Kolkata (formerly Calcutta) was synonymous with militant trade unions, strikes, and lockouts. In recent years, however, city officials have become staunchly pro-business. Kolkata, capital of the Communist-led state of West Bengal, is cutting red tape and investing in infrastructure, including a deep sea port modeled after Shanghai's. Kolkata's IT sector is growing 70 percent a year, twice the national average. And Rajarat, a veritable IT township in the city's suburbs, is emerging as a computer-engineering hub similar to Bangalore.
Who's doing business here: IBM has four offices here. Quaker Chemicals, based in Conshohocken, Pennsylvania, has a Kolkata office as well.
3. Yekaterinburg, Russia
Population: 1.3 million
Hot industries: Financial services, construction
What's new: For decades, Yekaterinburg's economy has been fueled by oil, natural gas, and metals--Boeing, for example, sources titanium from the region. In recent years, income levels have tripled, and the economy has diversified as a result of the new wealth. Now Yekaterinburg is home to a financial services industry and construction, as well as companies manufacturing forestry products like furniture. Spending to upgrade roads and railways is growing in tandem with the city's construction spurt.
Who's doing business here: The Aston Group has been constructing residential buildings in Yekaterinburg since 2004. The company was founded by Andy Welch, an American who bypassed Moscow for Yekaterinburg on the advice of his lawyer, a Russian immigrant.
4. Poznan, Poland
Hot industries: Technology, pharmaceuticals, manufacturing
What's new: Since Poland joined the European Union in 2004, Poznan has emerged as competition for cities like Kraków and Wroclaw, which foreign companies have traditionally preferred. Located midway between Berlin and Warsaw, Poznan will be a central stop on Poland's new east-west highway once construction is finished in 2010. Poznan offers tax breaks and subsidies in its special economic zones. Recent upgrades to the city's international airport are also attracting new companies to the area.
Who's doing business here: Microsoft and GlaxoSmithKline both have R&D centers in Poznan; they recruit from the city's 42 science and research institutions and 25 colleges.
5. Chengdu, China
Population: 4.1 million
Hot industries: Manufacturing, telecommunications
What's new: Chengdu is a fierce competitor to Chongqing, a much-hyped megalopolis nestled on the Yangtze River. Much has been made of the Three Gorges Dam, which opened Chongqing to larger ships. But Chengdu has a better quality of life, stellar universities, and well-regarded industrial parks--not to mention a huge international airport.
"Which city in central China is more likely to create a Silicon Valley-type environment? My bet would be on Chengdu," says Alexander Pan, an international tax partner for PricewaterhouseCoopers. Nevertheless, both cities benefit from China's "Go West" program, a multibillion-dollar effort to drive growth into the country's interior. Note, too, that the considerable tax breaks China has afforded foreign companies will be revoked in 2008--everywhere but the western and central regions, including Chengdu and Chongqing.
Who's doing business here: Manufacturers, particularly those making telecom components. Intel has operations in Chengdu.
6. Suzhou, China
Population: 1.6 million
Hot industries: Biotech, manufacturing
What's new: China's recent upgrades to its rail system, which has bullet trains that travel at 155 miles per hour, cut the transit time between Suzhou and Shanghai in half, to 45 minutes. Solid infrastructure is another draw; in a recent report, the World Bank praised the city's first-class power grid, identifying Suzhou as one of six Chinese "golden cities" because of its strong property protection, educated work force, and swift clearance for imports and exports.
Who's doing business here: Companies requiring a highly skilled work force. ChonTech PharmaChem Technology, a biotech firm founded in Waterford, Connecticut, moved its headquarters here--and even added "Suzhou" to the beginning of its name.
7. Belo Horizonte, Brazil
Population: 5.3 million
Hot industries: Mining, agribusiness, technology
What's new: Unlike bursting-at-the-seams São Paulo, Belo has room to grow, not to mention a popular pro-business governor. The state government has spent billions recently to upgrade highways, rails, and the electric grid, which has attracted manufacturers and suppliers to the local mining industry. Belo's top universities have drawn companies like Google, which has an R&D lab here.
Who's doing business here: Manufacturers that need a skilled work force. Gibbs Die Casting, a Henderson, Kentucky-based manufacturer, has a plant in Belo, supplying to South American manufacturers.
8. Ras Al Khaimah, United Arab Emirates
Hot industries: Tourism, back office services
What's new: A port city 45 minutes from Dubai, Ras Al Khaimah is attracting 200 businesses a month to its free trade zone, perhaps because companies in the zone pay zero corporate taxes. It's easy to get started here; foreign companies can get a license, an office, an Internet connection, and a phone line within 24 hours. The customs process has also been streamlined. Says Oussama El Omari, CEO of the zone: "We can get your container cleared before it even backs into the port."
Who's doing business here: Companies use it as an alternative to traffic-clogged Dubai for their Middle East logistics hub or back office center. B2 Technology & Consulting Services, a technology consultancy based in Falls Church, Virginia, has an office in the RAK free trade zone.
9. Aguascalientes, Mexico
Hot industries: Automotive, manufacturing, consulting
What's new: American companies often look to Mexico's northern border, but this year the World Bank ranked Aguascalientes No. 1 in the country for its ease of doing business. Since 2005, real estate taxes have been cut by 70 percent, and the time it takes to open a company has been cut from 45 days to 12 days. Construction licenses can be procured in less than a day, compared with five months in some places in Mexico.
Who's doing business here: Pounce Consulting, a software consultancy in Corona del Mar, California, has an office here. Cleveland-based E.C. Kitzel & Sons supplies to the city's auto manufacturers.