Is San Diego User Friendly? High-Tech Giants Saying No : City Could Do More to Sell Itself, Leaders Agree

It’s called the high-tech sweepstakes--the fierce, ongoing nationwide competition for high-technology industries and the wizards behind them.

One of those wizards, the head of a major San Diego biotechnology firm, was explaining recently where the county stands in the race to entice firms that symbolize the nation’s economic future.

San Diego clearly has a leg up in the recruiting of a new company or scientist by showcasing its pleasant climate, its miles of beaches and its multitude of recreation opportunities, David Hale, president of Hybritech Inc., said.

What’s more, he added, the area’s young but prestigious UC San Diego campus anchors a panoply of internationally known researchers who serve as a talent reservoir for new companies requiring top scientists.

But those blue-chip advantages are more than offset by the high costs of housing and energy and a lingering, pervasive image of San Diego as only a tourist and military town despite significant economic changes spanning more than a decade.

“In the case of selling San Diego, seeing is believing, and we’ve got to do more,” Hale said.

In the wake of San Diego’s loss last month to Fairfax County, Va., of a multicompany consortium designed to create advanced software for government defense systems, that sales effort now faces revision by the region’s economic development officials.

The Software Productivity Consortium (SPC) decided to locate in Virginia, just outside Washington, even though San Diego officials were confident--until the last minute--that they had the edge in the competition.

The episode brought back memories of the city’s 1983 loss of a large multifirm computer research group to Austin, Tex., at the conclusion of the nation’s first large consortium competition.

The losses together have triggered questions over just where San Diego ranks among the numerous regions of the country that compete--and compete heavily--for new companies. Given recent events, San Diegans may be overconfident that the area’s sun and surf prove an unbeatable edge in garnering the nation’s technology wizards.

“On balance, I think we are a key player in the (sweepstakes) game,” said Dan Pegg, executive director of the San Diego Economic Development Corp. As evidence, Pegg cites the significant number of biotechnology firms that have gathered around UC San Diego, including spinoff companies from those originally attracted to San Diego.

But there are not enough home-grown firms as yet to sustain sufficient growth without bidding for companies outside the area, Pegg said. “And while in a way we have been sitting back, saying we’ve got this great place, the competition has been saying, ‘Yeah, OK, San Diego is a great place, but so are we.’ Those areas have taken their product and enhanced it to where we are being beaten at the game.”

Compounding the problem, San Diego today often finds itself in competition not only with other cities but also with states. That factor has triggered criticism both from San Diegans and from state officials such as Lt. Gov. Leo McCarthy who say California can no longer assume that the state’s traditional superiority in education and business environment will continue to be an irresistible magnet.

The competition has grown far beyond Silicon Valley in the San Francisco Bay Area and the so-called Route 128 beltway around Boston, the original centers of high-technology companies.

While San Diego has geared up to offer itself as a hospitable high-tech center today, so have Austin; Colorado Springs, Colo.; Portland, Ore.; Dayton, Ohio, and the Research Triangle Park in North Carolina, to name only a few.

While attention has focused on the competition for consortia, Pegg and others involved in the sweepstakes say they are not totally convinced that a consortium per se, as compared with a series of individual firms, brings as many specific economic benefits as its boosters claim.

Yet as a symbol of success, a consortium can have great image value. As Mark Kilduff, Virginia’s deputy director for industrial development, put it, “We’ve long thought that northern Virginia was a true high-tech center. Winning SPC confirms that and puts our star on the map.”

San Diego’s problems and potentials are encapsulated in a question posed by Mary L. Walshok, dean of UCSD’s Extension Division.

“You can ask: ‘If we’re so good, then why don’t more people know of us and come here?’ ” said Walshok, the principal mover behind a new program to bring together business and academic leaders in San Diego and boost the region’s high-tech profile.

“Well, we’re like the entrepreneur in a garage, who has all these great ideas but is still learning how to translate them into products known on a wider level,” Walshok said.

San Diego has made a considerable effort to attract technology-driven industries, in large part because they are seen to offer jobs without bringing the pollution associated with traditional heavy manufacturing.

The program led by the Economic Development Corp. began in earnest in the early 1970s. For a while, there was an emphasis on attracting Japanese electronics companies looking to set up American subsidiaries, in addition to bolstering local industries. More recently, the effort has capitalized on the heavy scientific research at UCSD--the campus ranks fifth in the nation and first among UC campuses in federal research dollars received--as well as the area’s reputation for a relaxed life style.

“It’s hard to define high tech,” Pegg said, “but essentially, we’ll take anything that doesn’t compromise the environment, whether biotech, electronics or software. We don’t care.”

High tech does have an elastic definition, said Harry Foden, a vice president at the Arthur D. Little Inc. consulting firm in Cambridge, Mass.

“When people talk high tech, they really like to think of research and development (R&D;) but most end up with light manufacturing plants,” he said. “Of course, there are fewer jobs in R&D.; The idea is somehow to get both.”

San Diego receives high marks in certain areas from industrial economic planners around the nation. At the same time, they caution that the county should not fall victim to its own hyperbole about the attractiveness of its sun and surf.

“San Diego is seen as a comer in high tech, but it isn’t there yet,” said Quentin Hoch, vice president of Fantus, a large New Jersey-based consulting firm used by companies looking to relocate offices or open branches.

Hoch explained that in the field of advanced electronics and computers, San Diego does not hold a candle to Silicon Valley or to Route 128. “Even places like Austin and Colorado Springs are much more advanced (in those fields),” he said.

And while San Diego is “state of the art” in biotechnology, the competition for new companies in that field is intense, both nationally and internationally, Hoch said.

Still, Foden said San Diego has enough attributes to make the initial list of regions for companies to consider.

“It’s got a good reputation for undertaking first-class developments, it has a good climate, lots of recreation--in general, a good quality of life,” Foden said. “The West Coast will always end up high on lists for that reason, but Silicon Valley tends to overshadow San Diego.”

Economists say that, given the number of competitors today, future concentrations of high-tech industry will not approach those in the Silicon Valley and Boston, where immediately after World War II hundreds of companies proliferated and remained there because there was nowhere else to go.

For that reason, Foden said that San Diego must pursue consortia like MCC and SPC when they come along, because of the clustering of companies that often follows the prestige the centers bring.

But he and other economists note that a consortium alone is by no means enough to sustain an area’s growth, and they caution against placing too great an emphasis upon them. Developing and assisting home-grown industries should be the overriding goal, they say.

“Texas obviously felt that if Austin did not get the MCC, the loss might set them back quite a bit,” Foden said. “But it’s too early to know if the consortia will bring the benefits advertised.”

Economist Richard Carlson, a founder of QED Research Inc. in Palo Alto, said the ability of San Diego to nurture companies that spin off from established firms, similar to what has happened in Palo Alto and Boston, will be the key to the county’s future.

In all cases, planners say that a region’s overall success is affected by inherent limitations, most importantly the quality of its educational institutions, economic considerations and environmental factors.

“Strong development usually takes place around very high quality educational bodies, in large part because those places in themselves attract high quality people and promote clustering,” Foden said.

San Diego’s educational lineup has UCSD, the Salk Institute, and the Scripps Clinic and Research Foundation as a strong nucleus.

However, the high cost of housing, which makes it particularly difficult for young families to get started with a home of their own, means that many companies must offer subsidies to employees, said Scott McClendon, general manager of Hewlett-Packard’s San Diego plant. To offset that, the Economic Development Corp. attempts to arrange lower mortgages for employees of new companies by working with mortgage lenders.

In addition, San Diego lacks an assured water supply that is critical for certain types of electronics manufacturing. For example, a new joint venture--between the RCA Corp. of New York and the Sharp Corp. of Osaka, Japan--is eyeing San Diego as a site for a state-of-the-art semiconductor facility. San Diego’s inability to guarantee a long-term water supply is working against its sales pitch.

“Despite all the assurances from the state water people that there are enough supplies, a clear-thinking businessman knows that (getting more water for Southern California) is coming down to a political decision,” said Pegg of the San Diego Economic Development Corp. “And while the probability of a future cut-off is low, someone with a $250-million investment is exposing his company unnecessarily should rationing take place.”

So in this case San Diego is up against “a location like Portland, which has energy costs one-fifth ours, plus an abundance of cheap water and the capability of disposing it. We can say: ‘Well, we’ll have it for you for six months anyway.’ ”

As a consequence, Pegg is not optimistic about landing the joint venture, although its officials have expressed pleasure with the area’s academic environment and the existing Japanese community, which would help make the transition to American life easier for Sharp engineers who will be relocated from Japan.

Pegg said that San Diego should not wring its hands over the probable loss of RCA-Sharp, because there is nothing it can do on its own to change the water and housing situation.

“But we should be concerned about enhancing those things we can improve to make San Diego more attractive to the next group that comes along that doesn’t have high energy demands or water requirements,” Pegg said.

That’s what the UCSD Extension program is being designed to do.

The program’s creators want to focus the nation’s attention on San Diego so that high-tech planners will not habitually think first of Harvard-MIT around Route 128 or Stanford in Silicon Valley. By encouraging ancillary industries--companies that supply legal and marketing help, money and support services such as packaging and the like--the program expects to fashion a more fertile environment for the establishment of new companies here.

The Program in Technology and Entrepreneurship has grown out of an idea that Pegg took to UCSD two years ago, after the well-publicized loss of the Microelectronics & Computer Technology Corp. consortium to Austin, home of the University of Texas. At the time, MCC officials cited the closer relationships between academia and industry offered by Texas as a major reason for its decision to bypass San Diego. Soon after, a report by the University of California system criticized the lack of strong ties between California industry and academia as hurting the state’s ability to compete with other states.

The new UCSD program, in Pegg’s view, “will create a free-standing entity to let private enterprise and academia become more comfortable with each other.”

The program appears to answer criticism that San Diego has not sufficiently integrated UCSD into the business community.

“If there’s more cooperation within the county, UCSD has an excellent chance to become a (national) leader,” said Frank Druding, head of Ford Aerospace and Communications Corp.’s Palo Alto laboratories. Druding headed site selection for the Software Productivity Consortium.

UCSD officials already are planning specific efforts along these lines.

“For example, we are looking at improved ways to get banks--those who have the money--in touch with those at the university who have the ideas but don’t know how to go about developing them,” Walshok said.

UCSD Chancellor Richard Atkinson said: “The Signal Cos. (an electronics and aerospace manufacturer whose headquarters relocated to San Diego in 1980) are few and far between. We want to see companies that are home-grown flourish here.”

As Hybritech’s Hale pointed out: “One of the problems of high-tech firms here is that we don’t have accounting and legal firms in the area with a lot of experience in helping entrepreneurs get started.”

One key element of the program will be to bring corporate executives to San Diego, where they will be treated to presentations on the area’s assets.

“There are still a lot of people who hardly know about San Diego,” Walshok said. She mentioned a small group of executives--including some from the 3M Corp., Eastman Kodak Corp. and General Electric Corp.--who recently attended a technology seminar at UCSD.

“They were surprised how beautiful and how large San Diego is, and told us how much more communication we should do with industry, and how in particular we should be corresponding with them regularly concerning (UCSD) research,” Walshok said.

One member of the program’s board of advisers, Hybritech’s Hale, said he finds that people he wants to recruit still harbor misconceptions about San Diego. “Once we get them out here and show them the area, you can dispel that image, or myth, if you will,” he said.

Earlier this year, UCSD together with GA Technologies of San Diego, a major nuclear technology research facility, landed one of four government-financed supercomputer centers. While not a consortium or job magnet itself, the center will draw attention to the campus’ growing engineering and computer divisions--and benefit other area colleges as well. Already, San Diego State University, one of several universities that will use the supercomputer, has recruited two physics professors eager to use the facility for their research.

“It’s all part of an expanding effort,” Atkinson said. “We see technology going off in a lot of directions, and while we will win some and lose some, we’re in the game now. Ten years ago, we weren’t even in the league with places like North Carolina or Massachusetts.”

To stay and win in that league, however, will require efforts by the state beyond those that San Diego can improve on its own, as a state study said two years ago.

In that report, David A. Wilson, executive assistant to the University of California president, wrote, “California must be more aggressive in dealing with incentives and disincentives for the recruitment and retention of high-technology firms in the localities of the state.”

Druding of Ford Aerospace said that Virginia directed its efforts on landing SPC from the governor’s office and noted that, “In contrast, San Diego only represented itself and there was no one really active at the state level.

“Although Gov. George Deukmejian did call the principal members involved, there was not the same level of programs and dedication to bringing in new high-tech operations in California as there was in Virginia and Maryland. It was clear that we were wanted more in the East and that they reached further to accommodate us, to do things that were of value to us.”

Fantus’ Hoch said, “California has been pretty smug, and given the new level of competition, it isn’t enough just to say, ‘We want you.’ You’ve got to offer up things.”

But Kirk West, Deukmejian’s Cabinet officer who oversees the state’s economic development, is angered by those characterizations.

“I think San Diego had a realistic chance of landing those things absent our doing things we can’t, like handing out money (to firms),” West said. “Hopefully, not lost in all of this (commiserating) is the fact that California leads by a 2-to-1 margin all other states in garnering new plants.

“Far from being complacent or resting on our laurels, we have vigorously pursued high-tech expansion in California and, with the exception of these well-publicized MCC and SPCs, we’ve been successful.”

West added that San Diego should be spending more time looking at its successes, as part of the overall state picture, rather than lamenting a couple of losses.

But Mike Dunigan, a vice president of the Koll Co., which offered to subsidize property in its Carlsbad Industrial Park for the SPC, said that a stronger unified state commitment would have changed the picture on consortiums.

“Things have to come direct from the governor’s office,” Dunigan said. “California and San Diego are a little too splintered. The business community, the political community, the academic community, all have to set their egos aside and back San Diego, or San Francisco, or whomever, after a choice has been whittled down.

“So that next time it is not San Diego versus Virginia but California versus Virginia.”

MONDAY: San Diego should look to the Silicon Valley for lessons--both good and bad--about high technology growth.