Offering an alternative lifestyle to Shanghai and Beijing, Dalian is a vibrant student city with an easier pace of life. You might not have heard of it but this is one of the world’s biggest outsourcing centres.
The manicured lawns, wooded hillsides and turreted towers of the Neusoft Institute of Information are so reminiscent of a Disney film that it would not surprise you if Cinderella emerged from the round grey brick building in its centre.
Hundreds of young Chinese students swarm across the campus to move between classes in graphic design, computer science, Japanese or English. Everything looks so clean and well ordered that it’s hard to believe this is a university in China.
The private university is funded by computer technology company Neusoft, which in recent years has also become China’s largest outsourcing company. It has chosen the northeastern Chinese city of Dalian as its base. Unlike most of the country’s cities, Dalian really works. The air is breathable, there are plenty of parks, there is so little traffic that it is only a 20-minute drive from the airport into the centre of town, rents are low and thousands of bright young graduates emerge from the city’s 22 universities every year.
“When I’ve been away, I love getting back to Dalian. It’s clean and green and the citizens take a real pride in the place. They don’t throw rubbish,” says Sam Chambers, who moved to the northeastern city from Hong Kong and set up the consulting company Asia Scribbler.
Fifteen years ago, Dalian was much like many rustbelt northeastern cities, weighed down with moribund state-owned factories producing goods no-one wanted to buy anymore. Then, in 1993, Dalian got a new mayor, Bo Xilai (see box below), who had a vision for the future that few would have believed possible. He wanted to turn the city into a software development hub that would be attractive to talent from across the globe.
In just over a decade, Dalian has become the Bangalore of north Asia, handling everything from call centres to secure computer systems and back-office operations for Japanese and Korean companies. The city now ranks as the fifth largest for computer outsourcing in the world, according to International Data Corp.
Dalian’s colonial history partially explains its openness to outside influence. The city was first a Russian colony and then run by the Japanese from 1905 to 1945. It was the Japanese who were the first foreign investors to arrive in force 50 years later. “Lots of people from Japanese head offices don’t like to travel but they don’t mind coming to Dalian because it is safe, it’s a short trip and the food is to Japanese taste,” says Tomoharu Kiyonari, managing director at NTT Data, which bought a 60 per cent stake in Panasonic’s mobile phone company last year. Panasonic was the first Japanese company to set up shop in the Dalian Software Park in 1998 and since then 430 firms have come to the park to do business.
The bitter legacy of the Japanese occupation of northeast China, then known as Manchuria, during the Second World War has left a legacy of anti-Japanese feeling in many Chinese cities. But, loosely speaking, in Dalian the anti-Japanese sentiment is not so strong and lots of Chinese people speak Japanese. That’s because most businesses here are trading with the Japanese market and a quarter of all non-Chinese companies in the city are Japanese.
“Two-thirds of China’s outsourcing market serves the Japanese market but Chinese firms want to expand to the US and European market,” says Yue Xuefeng, corporate planning manager at Dalian Hi-Think Computer Technology, one of biggest outsourcing firms in the city.
While Bangalore and Mumbai can capitalise on having lots of English speakers, in Dalian the outsourcing business centres on solving computer problems rather than answering queries about lost credit cards. “Japanese is not a mother-tongue for most Chinese. So most of the people who work for us are bilingual university graduates with high-level computer skills. It wouldn’t be cost effective for Japanese companies to run simple call centres here [using such highly qualified graduates] so the business is more hi-tech than what you would see in India,” says Mr Yue.
Hi-Think, which began running an outsourcing centre with Japan’s NEC in 1998, now runs offshore services for Hitachi, NTT Data and other clients ranging from Japanese schools, banks, and government departments, to the Uzbekistan National Railway Company.
Many Chinese cities have business parks with preferential tax policies but what differentiates Dalian is a local government that is set up to attract foreign business, with the mayor and other officials leading biannual trips to Japan to drum up business and develop an awareness of what foreign companies are looking for. “Companies here know that you have to build pleasant offices, plant trees and make room for green space or you will not attract top talent from overseas,” says Mr Yue.
Dr Jeff Zhu, who previously lived in the US for 18 years and worked for Microsoft before heading back to China, now works for Neusoft in Dalian. He is one of the many expats who have been lured by the city’s many charms.
“I went to many Chinese cities when I decided to come back to China – Beijing, Shanghai, Shenyang – but when I got to Dalian, oh boy, it was a big surprise,” he says. The dynamism of the local businesses, the clean air and the great seafood were all a big draw for him. Situated on the Bohai Gulf, Dalian has a much milder climate than the rest of northeastern China and a cuisine that is influenced by Japan and Korea with fresh seafood, and lots of salads and warming winter stews cooked with soy and ginger.
Dr Zhu now runs the International Software and Services division at Neusoft, which has grown from 6,300 people in 2005 to 15,000 today, which means as well as being Dalian’s biggest IT firm, it’s China’s largest outsourcing company. Computer companies are not the only ones to thrive in the city which is a deepwater port with a large shipbuilding industry, and is fast drawing entrepreneurs who want a base in China that is clean and convenient but has easy access to Beijing and Shanghai.
Frédéric Choux, a wine importer who moved to Dalian in 2004, chose the city because he wanted to build a business at his own pace in a smaller city without having to fight for market share in Beijing or Shanghai. Now, DCT wines, which he set up with his wife Barbara, is one of the biggest importers of French wines in China, supplying the growing domestic wine market as well as the likes of President Sarkozy and other French dignitaries who visit the Chinese capital.
Now 40 per cent of his business is in Shanghai, a third in Beijing and the remainder in Dalian and other cities, but, he professes, he would not want to relocate elsewhere. “Dalian is out of the craziness in Beijing and Shanghai. I go to those cities to meet people and I come back here to get work done,” he says. Dalian’s consumers have become more sophisticated over the last few years, according to Choux.
A few blocks away is the Riviera Restaurant, Dalian’s first European restaurant that isn’t inside a five-star hotel and catering to foreign tastes. The owner Jennifer Prescott says that on Valentine’s Day most of the couples dining at the restaurant, which serves Mediterranean cuisine, are Chinese. A Russian maitre d’ takes guests’ coats while a Chinese woman mixes cocktails at the bar. Behind a wooden screen, diners sit under huge marble lights imported from Spain, but the place has just enough gilt and bling to appeal to Chinese customers who have a taste for glitz.
“Lots of people said a restaurant like this wouldn’t work here but they are just followers,” says the Australian restaurateur, who sources many of her ingredients from neighbouring Shandong province. “You have to create your own benchmark for excellence,” she says.
Bo Xilai, the mayor who oversaw Dalian’s metamorphosis, is one of China’s princelings (the offspring of communist party veterans who survived the war against Taiwan’s Kuomintang in the 1930s).
Bo knocked down many buildings to create parkland and set up colleges to train IT graduates. “Not all the locals want to acknowledge what he did in Dalian, but he had the vision to change the city,” says Neusoft’s Dr Zhu.
He is now in the city of Chongqing, where this time he’s cleaning up by slamming gangsters behind bars and sacking corrupt police officers.
Expats living in Dalian all agree they get more work done there than in Beijing, Shanghai or Hong Kong. There’s plenty to do however: the woodland hills around the city are great for hiking and there are numerous Japanese, Korean and Taiwanese restaurants as well as a growing number of western establishments. The city is full of smart new apartment blocks, some with manicured gardens, and while locals complain rents are going up, for anyone moving here from Japan, Korea, or Beijing and Shanghai, rents seem cheap.
Set up a one-stop shop for foreign-owned small business registration.
Dalian still has some beautiful old colonial buildings, which give a sense of the city’s history. Stop knocking them down.
Encourage use of public transport. Dalian’s roads are getting clogged.
Create a climate for artists and designers to start businesses. Dalian lacks the lively art scene of Beijing, Shanghai or Chengdu.
The launch of a Dalian-based airline, rumoured to be happening in 2010, would mean better flight connections around China.
Dalian is a short hop and a jump from most places you would need to go in north Asia. There are daily flights to Hong Kong, which take two hours, or the cheaper alternative of the Chinese border city of Shenzhen. An hour by plane will take you to Beijing, while in two hours you can get to Seoul, or an overnight boat will take you to Incheon.
Connections to Japan are frequent with twice weekly flights to Osaka and Hiroshima and thrice weekly flights to Fukuoka and 22 flights a week to Tokyo. Trains are not so convenient as Dalian is at the end of a long peninsula, so while it is easy to get to cities in northeast China such as Changchun and Harbin, travellers need to change in Beijing to reach the rest of the country.