County’s Many Export-Oriented Firms Cash In on a Weak Dollar
Several years back, Life Cycles Inc. had high hopes of cashing in on a growing overseas fitness craze by selling its line of high-tech exercise bicycles in Japan. But no matter how fast Life Cycle pedaled, its sales wouldn’t budge.
The problem was that Japanese rivals were selling comparable equipment at prices 30% to 40% lower than Life Cycles, said company President Augie Nieto. A strong U.S. dollar made Life Cycles’ products less affordable to Japanese customers.
Today, however, “it’s a whole new ballgame,” Nieto said. “We’re now in a competitive position that we weren’t in before. We’re head-to-head with them.”
Aided by a weakened U.S. dollar, Life Cycles’ sales in Japan and Europe have more than doubled in the past two years and now make up 15% of the fitness equipment maker’s annual business.
A similar story is being told in corporate offices throughout Orange County.
Foreign trade--already an important part of the local economy--is on an upswing. And that trade activity is expected to accelerate in the 1990s as the county’s relatively young firms look to overseas markets to fuel future growth, experts said.
“We see foreign trade as the future engine of economic growth in Orange County that will keep the county growing more rapidly than other parts of the nation,” said James Doti, dean of Chapman College’s School of Business Administration.
Chapman College researchers forecast that 10% to 15% of the 1988 gross county product--estimated at $53 billion--will be directly related to trade. The gross county product measures the total goods and services produced in the county.
Doti predicts that the next decade will bring a “trade boom” to Orange County, fueled by a lower dollar and growth in export and import activity.
There are signs that an export boom may already be at hand. Exports soared 19% in Los Angeles and Orange counties in 1987, following a meager 2% gain in 1986. Exports of computers and other electronic and electrical equipment accounted for more than a quarter of the 1987 total. Export statistics for Orange County only are not available.
In Orange County, trade activity is being led by high-tech, biomedical and aerospace firms. Japanese manufacturers are expected to account for a growing portion of the county’s foreign trade by making products here for sale abroad. Service companies are also expected to get into the act.
One sign of the county’s growing role in overseas trade is a decision by the U.S. Commerce Department to open the first regional export office in the nation later this month at John Wayne Airport. The Orange County site was chosen because the area extending south from Long Beach to northern San Diego County has one of the highest concentrations of export licenses in the nation, surpassing even Silicon Valley.
In Orange County alone, 2,600 export licenses for goods valued at $1.7 billion were issued last year. Technology firms were granted the major share of those licenses. Export licenses are required for shipments of sensitive technology to specified countries.
Trade Group Growth
Another indicator of export activity is the swelling membership of trade-oriented organizations.
The phones have been ringing off the hook at the World Trade Center Assn. of Orange County, according to Susan T. Lentz, executive director. The group’s membership has grown to 250, a 55% increase from a year ago.
“People are beginning to see that international trade isn’t just the icing on the cake,” Lentz said, “but is an essential part of your business.”
Robin Day Glenn, a Newport Beach attorney specializing in international and franchise law, said that more companies are seeking help in doing business overseas. “It’s a visible and very pronounced trend,” she said.
Some of Orange County’s largest firms already count on foreign sales for a big chunk of their business. In 1987, international business accounted for half the sales of Irvine-based Western Digital, 55% of Tustin-based MAI Basic Four’s sales and 18% of Fluor Corp.'s current backlog of orders.
Although Europe remains the largest overseas market for Orange County exporters, according to a recent survey, companies are increasingly turning their attention toward the booming economies of Pacific Rim nations.
Pacific Rim Prospects
Orange County’s location and its abundance of young, entrepreneurial companies capable of reacting quickly to changing markets should help local firms tap into Pacific Rim trade.
“It’s hot; it’s where things are going to be happening,” said Jeff M. Thompson, president of Western Orient Trading Co., a Mission Viejo exporter of agricultural products. “The Pacific Rim is a very dynamic area right now. If anybody is willing to get in there and work hard, I think they’re going to have some success.”
A number of county firms report that overseas sales are helping to take up the slack from a soft domestic business.
American National Water Mattress Corp., an Anaheim water bed manufacturer, has taken a soaking at home because of low-cost products from Taiwanese competitors. In fact, chief executive Craig Miller claims his company has been selling water beds at cost in the U.S. market to retain market share. The company has had to rely on growing sales in Japan and Scandinavian countries to earn a profit, Miller said.
But some corporate executives believe that doing business overseas is more trouble than it’s worth.
“I’m very content to stay out of it,” said Ron E. Hanson, president of United Syatt America Corp., an automotive supply company in Santa Ana. “The U.S. businessman has to compete with both the businessman and the government of the foreign nation he deals with.”
And some trade analysts warn that a strengthening of the dollar in the future could erase some of the gains made by Orange County exporters. Particularly vulnerable are companies--such as those marketing consumer products--whose success overseas is closely related to fluctuations in the dollar.
“Just as Orange County is in an enviable position to benefit from trade,” said Chapman College’s Doti, “anything that jeopardizes trade flows would have a negative impact.”
REGIONAL EXPORTS Exports out of the Los Angeles/Long Beach/Orange County Customs District Exports year-by-year
Year Amount (billions) 1983 $17.1 1984 18.4 1985 19.5 1986 19.9 1987 23.7
Top Five Destinations
Country Amount (billions) Japan $5.7 South Korea 2.4 Australia 2.1 Taiwan 1.6 U.K. 1.2
Top Five Export Products (1987)
Product Amount (billions) Electrical Machinery $3.7 Computers and office machines 3.0 Aircraft and spacecraft 2.7 Non-electrical motors and boilers 1.2 Cotton 0.8
Source: Applied Management Systems, South Pasadena