Orange County Firms Home In on Markets Abroad

If you travel abroad next summer, don’t automatically assume that the man sporting the Lakers cap in Australia is necessarily from Los Angeles, or that the woman in the Tigers cap in France is from Detroit.

Starting soon, Sports Specialties Inc. in Irvine, a major manufacturer of high-quality caps, will be marketing and selling its popular Pro brand caps to consumers around the world. The firm is joining a flood of Orange County companies that hope to cash in on a devalued dollar by selling their wares overseas.

Sports Specialties President James H. Warsaw is betting that caps bearing the monikers of American professional and collegiate teams will sell in foreign lands, maybe even the Soviet Union after USC and Illinois play football next September in the “ Glasnost Bowl” in Moscow.

“I was not thinking of international sales a couple of years ago,” Warsaw said. “Then my wife and I went to London in 1987 to see the exhibition football game between the Rams and the Broncos. We saw Wembley Stadium filled to capacity, and everybody was going wild. And they were buying souvenirs.”

The firm sells 6 million to 7 million caps a year, and about 2% of its revenue this year was from overseas sales. Next year, Warsaw hopes to boost that to 10%.

It’s not just the lower value of the dollar that is prompting county firms to push their products in foreign lands. International demand for goods made by Orange County companies has also helped to fuel the export boom.

“International trade is the major engine of change in Orange County,” said economist James Doti, a Chapman College School of Business and Management professor.

Orange County is the fastest-growing export area in the nation for high-technology products, said Michael Liikala, director of the U.S. Commerce Department’s western region of the Bureau of Export Administration in Newport Beach.

One Big Marketplace

The devalued dollar and strong overseas demand for U.S. products have brought out new players in the international trade arena: small and medium-size firms. And they are viewing the world as one big marketplace.

“Five of our six major competitors are foreign companies trying to be active in our market,” said James Kiehl, marketing manager for Micro Motors in Santa Ana. “We came to the realization that markets no longer stop at the oceans. The world has shrunk.”

Last year, exports of the firm’s miniature air motors for dental use accounted for less than 1% of the privately held company’s revenue. This year, exports made up nearly 6% of the firm’s revenue, and Kiehl expects foreign sales to grow next year.

Small firms are being helped by bankers who are offering them the same sophisticated financing techniques initially developed for major exporters, said Donald A. Miller, who heads the Santa Ana export finance operation for National Bank of Long Beach.

“There’s a real window of opportunity, and we’re seeing smaller firms taking advantage of that opportunity,” said Peter Knudson, vice president and manager of the international division of Citizens Holdings, a Newport Beach bank holding company.

International trade statistics for Orange County or even Southern California are hard to come by. Recent import figures, especially, are impossible to break down by county or region, trade specialists say.

So they look to other weather vanes to see which way the local trade winds are blowing.

- International trade accounts for 10% of the gross county product, Doti estimates, and trade will propel the county’s economy into the 21st Century. This year, exports increased a healthy 13.1% in real terms and accounted for an additional 9,500 jobs--nearly a third of all new jobs created, he estimated.

- The value of exports that require federal licenses leaped 94.1% in Orange County this year, Liikala said. He estimated that half to two-thirds of county exports--primarily high-technology and biotechnology products--require licenses. “Our office serves 10 western states and 40% of our telephone calls come from Orange County firms,” he said.

- The state’s 3-year-old program to guarantee financing for capital-short exporters has nearly doubled the number of guarantees this year over the previous 2 years combined, and 13% of those guarantees have gone to Orange County firms, said Thomas Hodge, marketing consultant for the export finance office of the California State World Trade Commission.

- Membership in the World Trade Center Assn. of Orange County has climbed 40% this year to include 773 executives, said Susan T. Lentz, the group’s executive director. Members include not only high-tech firms but manufacturers of consumer goods and California-style products, such as clothing, specialty produce and even doghouses in the shape of igloos.

On the import side of international trade, companies are bringing in primarily automobiles and components for a variety of goods manufactured or assembled in the United States.

Imports often mean fewer jobs, but that may not be the case in Orange County and Southern California in general.

“Probably because the county is located at a strategic point on the coast, imports are distributed from warehouses in the county, and that means more jobs here,” Doti said. “So even imports, which have a negative impact on economies elsewhere, have a good effect on Orange County.”

Stability of Dollar

Some trade specialists like Lentz worry that a rising value of the dollar overseas will knock small and medium-size companies out of the international market. For more than 3 years, the Reagan Administration has been encouraging dollar devaluation to spur exports and reduce the huge trade deficit.

“If the dollar goes up, we’ll see if there really is a commitment to export or if companies will start pulling out,” she said.

But corporate executives and other trade specialists are betting that most county firms moving into international trade now are making long-term plans to sell overseas, regardless of whether the dollar increases in value.

Many companies like Sports Specialties, Western Digital and AST Research are major manufacturers whose products are in demand worldwide. Others, like Carl Karcher Enterprises, have responded to demand from particular markets by mapping out plans for the next 5 to 20 years.

“We expect to have 50 Carl’s Jr. stores in Japan by mid-1994. We are actively pursuing other Pacific Rim countries in the next 10 to 15 years,” said Steven Kishi, director of Karcher’s international development operation. “We’re in it for the long run.”

That is a strong commitment, he said, from a firm whose first overseas store is only in the design stage now.

Role of Banks

The increase in exports and the addition of smaller firms to international trade has prompted a few independent banks to enter the arena of international trade financing. Smaller firms often bank with the community banks, which usually try to offer better service than the major banks.

In Orange County, only three community banking firms--CommerceBank and Citizens Holdings, both in Newport Beach, and the Santa Ana office of National Bank of Long Beach--have started trade financing operations.

CommerceBank has the longest track record--only 2 years--and executives there figure the growth in their trade financing business is coming more from their penetration of the new market than from the fact that the market itself is growing. More than 5% of the bank’s net income is from trade financing, President Clyde Gossert said.

Citizens Holdings, which owns Citizens Bank of Costa Mesa and El Camino Bank in Anaheim, is owned by an Australian industrialist who also owns a banking operation in Hong Kong. And the Long Beach bank is owned by a Danish firm, which also has international banking interests.

“A trade finance operation doesn’t require a lot of people or a lot of capital,” Gossert said. “So it can be profitable quickly for a bank.”

Trade specialists believe publicity about America’s trade deficit and opportunities for exporting have raised the sights of many companies, especially in Southern California. And some executives, like William P. Conlin, president of CalComp Inc. in Anaheim, are unabashed advocates of exporting.

For the past few years, the country and the state have been importing twice as much as they export, Conlin said in a speech in August at a local World Trade Center Assn. meeting.

“We’ll regain our standard of living as a nation when we start to export more than we import,” he said. “It’s that simple. There’s no other solution.”

EXPORTS BY SMALL BUSINESSES IN ORANGE COUNTY Thirty-seven percent of surveyed executives at county-based small businesses said their companies derive revenue from exports, compared to 28% nationwide. About 500 executives in the county participated in the 1988 Arthur Andersen Small Business Survey.

All % of Revenue Local Companies From Exports Companies Surveyed None 62% 72% Up to 5% 21% 17% 6% to 10% 7% 5% 11% to 25% 5% 3% More than 25% 4% 3%

Source: 1988 Arthur Andersen Small Business Survey