Full Question
I hear the costs along the cost of China are on the rise, why would "Toys R Us" open a sourcing office in Shenzhen?

Answer
I have been based in Shenzhen for almost 13 years now and I have some ideas why they are located in SZ.

You are right, there has been a lot of talk in past few months about how the costs in coastal Chinese cities are making it harder and harder to source. I think the discussion may be missing a few key points. Yes, costs in coastal cities are on the rise, but

1. Manufacturing is at a national level and overall costs are still very reasonable for most industries if you look at China as a whole. (Low-end textiles being one exception where a China + 1 strategy needs to be considered for sourcing).
2. It may be silly to plan to have all your manufacturers in Shenzhen (SZ), but a city like SZ is still a sourcing hot spot where companies like Toys R Us set up sourcing offices, because (despite higher labor costs and much higher office rents):
   1. SZ has access to skilled middle management (I looked in places like Hunan/ Anhui to move my shop, and couldn't easily find the Sr. managers with the skill set I need)
   2. Coastal cities have access to the ports, so the goods are going to move thru these cities anyway. (I think the Pearl River Delta ports of Shenzhen, Hong Kong and Guangzhou are all in the top 10 world ports in terms of units moved per annum). This is a great place to set up an assembly center or inspection point to private label the goods and check quality before shipping out (By the way, that is the line of work that brought me to China at www.PSSchina.com).
   3. Nice to have HK in the backyard for banking/logistics/services/education/rule of law.

In summary, if you want to set up an office in China and are buying 1 product from 1 vendor, then perhaps you go where the source is, and that could be along the coast or more commonly, look inland. But if you are setting up a sourcing office to manage multiple vendors then Pearl River Delta and SZ in particular are excellent options to explore.