The Japanese in Orange County

Orange County will soon join Dallas in the limelight of a television series.

The success of the new series, however, will not be measured in Nielsen ratings but in the yen it can attract; the show is targeted for Japanese businessmen.

The three-hour, three-part series portraying Orange County’s business and investment potential is scheduled to air early this summer in Los Angeles on Channel 18’s Japan News Magazine and later on two major networks in Japan. Sponsors of the show include some of the estimated 200 companies with ownership links to Japan that are already in Orange County.

The program is the latest evidence of the “second wave” of Japanese investment in America that is being spurred by the strengthened buying power of the yen in the United States and limited economic opportunities in Japan.

Just a decade ago, Japanese companies generally preferred to establish their American bases in Carson, Torrance and Gardena to be closer to Los Angeles and Long Beach harbors and to Japanese banks in Los Angeles.

But today, they are looking south to Orange

County for room to expand and a more pleasant and safer working environment. That search goes on even with the growing trade tensions, underscored by the tariffs imposed on Japanese goods Friday.

Japanese companies--including such giants as Toshiba, Hitachi, Canon, Mazda and Kawasaki--are also increasingly attracted by Orange County’s relatively lower land prices and by its growing reputation as an important center for high-technology manufacturing and research and development in the areas of computers, electronics, medical instruments and pharmaceuticals.

“Orange County is the fastest-growing area in California for Japanese investment and company locations,” said Hiroshi Matsuoka, executive director of the Japan Business Assn. of Southern California.

The Japanese are bringing to Orange County thousands of new jobs and a different corporate personality. Unaccustomed to the American business style, Japanese firms have been slow to join local chambers of commerce and other American networking and charitable organizations.

Instead they have banded together in their own Orange County branch of the Japan Business Assn., which has burgeoned to 114 member firms from 68 since 1981, adding 13 firms in just the last year.

Heading the march into Orange County are the Japanese banks.

“In the Japanese scheme of things, the banks lead the way for business expansion,” said Ed Carpenter, a Los Angeles-based national banking consulting firm. Of 13 full-service Japanese banks in California, six have branches in Orange County--Mitsubishi, California First, Golden State Sanwa, Sumitomo, Mitsui and Tokai.

“Every major Japanese bank will have a regional corporate banking group in the county within the next three years,” Carpenter predicted.

Although Dai Ichi Kangyo Bank of California, a U.S. subsidiary of the world’s largest bank, has no branch in the county, it has also become active in Orange County in the last two years. The Japanese-owned bank has guaranteed $69.5 million in bond financing to provide streets, flood control and other community improvements for the new Irvine community of Westpark and a $155-million bond issue to finance roads, sewers and other improvements for the mammoth Irvine Spectrum industrial and commercial park under development by the Irvine Co.

“A growing number of Japanese firms realize that (Orange County) is a strategically important place.” said Hisao Kobayashi, chairman and president of Dai Ichi Kangyo Bank of California.

Value Has Soared

While no total figure on Japanese investment is available for Orange County, the state Department of Commerce reports that the value of property, plants and equipment owned by Japanese companies in California more than tripled from $1.2 billion in 1980 to $3.8 billion in 1984, the last year such information was tallied. About 60% of that investment has been made in the greater Los Angeles area, which includes Orange County.

Three years ago Canada was the largest foreign investor in California with $5.2 billion, but Japan had advanced to only a nose behind the United Kingdom, which had a $3.9-billion investment. “Japan is quickly overtaking the United Kingdom, and I think it will be second soon,” said Janet Turner, the Commerce Department’s deputy director of economic research.

She said because of the higher value of the yen in relation to the dollar, Japanese want to increase their investment in American real estate. They are establishing more manufacturing plants in the United States and reducing their imports from Japan both to stay price-competitive and to “stem protectionist fever” in the United States, Turner said.

To take advantage of the Japanese investment potential, the Irvine Co. and Koll Co., two of Orange County’s largest developers, have launched “Pacific Rim” marketing campaigns. They have hired consultants to teach them Japanese business customs and have distributed hundreds of business cards, real estate brochures and video presentations in the Japanese language.

The courtship of Japanese businesses and investors generally has been excruciatingly slow to produce deals. Richard King, a consultant to the Irvine Co. on Japanese business, said: “Doing business with the Japanese is establishing one’s credibility and personal and professional relationships. You need patience for that.”

Ron Rardin, a Seattle-based consultant to Japanese companies and a former consultant to the Koll Co., said that in many instances visitors from Japan have been “very impressed” by Orange County “but they have trouble convincing their senior people and board of directors that it is better to invest in little-known Orange County than in New York and Los Angeles.”

Despite the initial confusion in identity and geography--”Disneyland is construed to be in downtown Los Angeles by most Japanese,” Rardin said--Pacific Rim specialists say there is plenty of evidence that Japanese investors are starting to place their bets on Orange County.

Investment by Shuwa

Leading the way, Shuwa Investments Corp. has invested $230 million in Orange County real estate since 1979. Most of that investment was made within the last year when Shuwa purchased a high-rise office building at 1900 MacArthur Blvd. in Newport Beach for $40 million, the Downey Savings & Loan Assn. building in Costa Mesa for $28 million and the Taco Bell headquarters building at Koll Center in Irvine for $64 million. If other properties now in escrow or under discussion are eventually acquired, Shuwa’s total investment in the county may rise to $300 million, according to Shuwa’s president, Takaji Kobayashi.

Tobishima Development Co. has acquired about 22 acres of the 46-acre Hutton Centre Commercial Park in Santa Ana, including an eight-story office building and two restaurants, for $26 million and is currently erecting another 10-story office building on the site. Tobishima also owns 40% of the Hutton Development Co., which is buying and building office and retail projects to hold.

Chris Felix, president of Hutton Development Co., said “we are actively looking for investments for Tobishima and others they represent,” including such diverse companies as hotel chains, life insurance companies, tourism concerns and banks.

“Pacific Rim companies have a lot of cash, and the return on investment in Tokyo is very small. So they can be very aggressive in the U.S. marketplace,” said Leon E. Baird, vice president of Irvine-based La Solana Corp., a subsidiary of Sumitomo Realty & Development Group.

Japanese manufacturing companies, as well as Japanese investment firms, are buying and developing land in Orange County. It is customary for Japanese firms to own, rather than rent, their facilities as a sign of business stability. Many, until recently, have enjoyed explosive growth, requiring them to move to increasingly larger quarters.

A number of Japanese electronics companies that originally settled in the Los Angeles area--including Hitachi Consumer Products of America Inc., Mitsubishi Electric Sales America Inc., Sony Corp. of America and Panasonic--have gradually shifted some operations to the north Orange County cities of Anaheim and Cypress when they needed more room.

Among the reasons for moving to Orange County were lower land prices and attractive, campus-like office and industrial parks.

Safety Was Concern

Kenji (Ken) Kitamura, president of Mitsubishi Electric Sales America, said the company moved its sales office two years ago from Compton to Cypress--where it already had established a television manufacturing plant--because company officials were worried about the safety of their workers in Compton, which he said was beset with crime.

Noevir Inc., a U.S. subsidiary of a major Japanese cosmetics firm, selected Irvine as its national headquarters because the company’s executives were looking for “someplace clean and beautiful,” said Wesley Miyahara, executive vice president. It is also close to John Wayne Airport, where the company keeps its corporate jet.

Mitsubishi Motor Sales of America had a slightly different reason for becoming the first Japanese car manufacturer to establish U.S. headquarters in Orange County when it moved here in 1981. The company’s strategy was to try to recruit employees from other Japanese automobile companies who were tired of fighting freeway traffic to commute to Los Angeles from their homes in Orange County, according to Mitsubishi Motor Sales vice president Dan MacNamara.

The strategy worked, he added.

While the falling value of the dollar against the yen makes investment in these U.S.-based operations a bargain, the changing exchange rate is also taking its toll on sales of Japanese products.

Dollar Decline Has Hurt

Many Japanese companies in Orange County are reaping slimmer profit margins and even losses. As a result of the dollar’s decline, products imported from Japan are more expensive on the U.S. market and their sales have dropped.

But even that trend could lead to more investment in U.S.-based facilities.

Susumu Ikari, president of Buena Park-based U.S. Amada Co. Ltd., said that although his company expects to report a loss in its current fiscal year, he is not contemplating layoffs. “It is not the Japanese way,” he said. But he said “managers on up” have agreed to take pay cuts of 3% to 7%.

As one tactic for adjusting to the currency exchange upheaval, Amada, a producer of metalworking machinery, has started to act as a trading company by selling American-made machinery to Japan. Also, in reaction to import restrictions levied on Amada’s main product, the company has increased its manufacturing in Southern California.

Rather than cutting staff, many Orange County-based Japanese firms in the county are expanding their domestic manufacturing and boosting research and development in an effort to remain competitive in the U.S. market.

Hitachi, for instance, last June established in Anaheim the first plant in the United States to manufacture videocassette recorders.

Tatsuo Sato, director of the business planning office for Toshiba Industrial Electronics, said “Devaluation of the dollar hurt us a lot but we are trying to keep competitive. We are not giving up. We need to survive here.”

Two years ago, Toshiba started doing research and development on telephone systems in Orange County to take advantage of the superiority of American engineers in that field. And earlier this year, Sato said, the company began manufacturing telephone systems at its new plant in the Irvine Spectrum development.

That type of business expansion in Orange County translates into more jobs for American residents, since typically less than 10% of those employed by Japanese firms in the county are Japanese.

For instance, Jim Klein, personnel director of Kawasaki, said about 20 of the 280 employees at the company’s Irvine headquarters are from Japan. They include the president and chairman, half the vice presidents and some of the managers. Generally, he said, Japanese head departments that communicate with the parent corporation in Japan, while the sales and marketing departments, which must deal with consumers and U.S. dealers, are dominated by Americans.

The clash of languages and cultures in Japanese firms poses unusual management challenges. At Irvine-based Maruchan Inc., which makes Oriental noodles, all the managers, engineers and technicians are Japanese, and most of the factory workers are Latino. So the company has hired several workers, including a Korean, who speak both Spanish and Japanese to help coordinate the operations.

Keeping a Low Profile

Within the larger business community, Japanese executives have kept a low profile--too low in the opinion of some consultants who contend that the executives must contribute more to the community to overcome feelings of resentment stemming from their success and the resulting trade deficit.

Some predict that Japanese investments in some of the most prime American real estate will only increase the existing friction.

Although the Japan Business Assn. and Japan External Trade Organization (Jetro) are encouraging their members to mix more with American businesses, few have joined local chambers and similar business organizations.

Only 10 Japanese companies have joined the World Trade Assn. of Orange County, and no Japanese executives sit on the organization’s board of directors.

“We invited the executives of several major companies (to join the board), but they declined, saying they are busy making business happen, which they are,” said Susan Lentz, the association’s executive director.

Nonetheless, the Japan Business Assn. and its women’s auxiliary have raised money for charities and sponsored programs with local public school districts to acquaint teachers and students with Japanese culture. And Jetro is working with the World Trade Assn. to send a trade mission of Orange County firms to Japan.

But Masatoshi Hayase, deputy director general of Jetro, said he would like to see more Japanese firms and executives contribute their time as well as money to community projects.

One barrier to the involvement of Japanese companies in community affairs, Hayase said, is that most of the firms are run by Japanese executives who spend only a few years in the United States and are preoccupied with orienting their families to a foreign country.

“Japanese have to understand that even if they come and go, the companies are American,” Hayase said.

An exception to rapid executive turnover is U.S. Amada, where Ikari has been president for nearly 15 years and his two vice presidents have been in the United States for 10 and 14 years.

Ikari said the company’s policy is to keep its Japanese executives in the United States so they can get acquainted with customers, learn their market and promote the company’s public relations. Next fall the company plans to give about $9 million worth of computerized sheet metal working machinery to a vocational class at Cerritos College.

Ikari said he believes that eventually more Japanese firms will learn how to be good American corporate citizens. “People in Japan are studying very hard to know the country,” he said.

As the Japanese increase their presence in Orange County, some economic experts are cautioning that rising real estate prices in the county may start chasing Japanese firms to southeastern states or south of the border into Mexico. In recognition of the interest in Georgia of Japanese companies, Japan Air Lines recently inaugurated regular air service between Japan and Atlanta.

“What originally made Orange County an attractive place to relocate (land costs) now is making it less attractive,” said Ed Jusino, regional manager for the state Department of Commerce’s office of business development in Los Angeles.

But Orange County still has the advantage of being near a major import/export harbor, close to suppliers, within the closest time zone to Japan and within easy reach of high-tech expertise.

Dan Curtis of Costa Mesa-based Curtis & Associates, who was employed as an exclusive agent for the Toshiba America Industrial Electronics division in its search for a new headquarters, said the Irvine Spectrum won out over property at half the price in Riverside and San Bernardino. “Orange County continues to hold its own,” he concluded.

RECENT ACQUISITIONS BY JAPANESE FIRMS

Shuwa Investments Corp. bought the Taco Bell headquarters building in the Koll Center, Irvine, for $64 million in 1987.

Shuwa Investments Corp. bought the Downey Savings & Loan Assn. building in Costa Mesa for $28 million in 1986.

Shuwa Investments Corp. bought a high-rise office building at 1900 MacArthur Blvd., Irvine, for $40 million in 1986.

Chuo Mitsui Associates, a California general partnership including Mitsui Real Estate Sales USA and Chuo Tochi USA, paid $13 million and assumed half of a $27-million loan for a 50% ownership in the Burlington Air Express building in Koll Center, Irvine, in 1986.

Tobishima Development Co. bought about 22 acres of the 46-acre Hutton Centre, including an eight-story office building and two restaurants, in two stages in 1985 and 1986 for total of $26 million.

Toshiba America Industrial Electronics Business Sector paid more than $10 million for 26 acres for its national headquarters in the Irvine Spectrum development in 1985.

Canon USA Inc. paid $11.6 million for 22 acres in for its western regional headquarters in the Irvine Spectrum development in 1986.

JAPANESE FIRMS IN ORANGE COUNTY 1. Calsonic Inc., Irvine, founded 1976, $150 million annual sales, 293 local employees and 7 employees from Japan.

2. Toshiba Industrial Electronics Business Sector, Irvine, founded 1981, $700 million annual sales, 480 local employees and 20 employees from Japan.

3. Mitsubishi Electric Sales America, Inc., Cypress, founded May 22, 1974, $1 billion annual sales, 346 local employees and 20 employees from Japan.

4. Mitsubishi Motor Sales of America, Inc., Fountain Valley, established Dec. 8 1981, $684 million annual sales, 270 local employees and 12 employees from Japan.

5. Kawasaki Motors Corp., USA, Irvine, established March 1, 1966, $400 million annual sales, 235 local employees and 15 employees from Japan.

6. Mitsubishi Consumer Electronics America, Inc., Santa Ana, established Jan. 1 1980, $195 million annual sales, 542 local employees and 8 employees from Japan.

7. Hitachi Consumer Products of America, Anaheim, established May 1979, $110 million annual sales, 250 local employees and 6 employees from Japan.

8. Ricoh Electronics, Inc., Santa Ana, established Jan. 30, 1973, $120 million annual sales, 775 local employees and 25 employees from Japan.

9. Mazda (North America) Inc., Irvine, founded April 1981, annual sales of $138.9 million, 102 local employees and 65 employees from Japan.

10. U.S. Amada, Ltd., Buena Park, annual sales of $135 million, 122 local employees and 28 employees from Japan.