The Likely Scenarios in Key Areas

The 1990s appear to be shaping up as a pretty good decade overall for Orange County’s economy, but the road will be filled with potholes and detours for many segments of the business community.

The following sketches of what is likely to happen within the major business sectors in the county over the next decade were pulled together from interviews with nearly 50 business leaders, economists and consultants.

Aerospace

The county’s aerospace industry, which provided the first burst of jobs here in the 1950s, will be hit hard by the changes of the ‘90s. Major cuts in national defense spending will result in the loss of as many as 10,000 aerospace jobs in the county during the decade.

But many of the companies have seen the future and moved to cope with it, diversifying into production of non-military electronics and hardware. Hughes Aircraft Ground Systems Group in Fullerton, the county’s largest employer with 16,000 workers, recently landed a $325-million contract to install air traffic control systems at several Canadian airports. And McDonnell Douglas Space Systems in Huntington Beach has been aggressively selling its Delta rockets as launch vehicles for private satellites as well as for use in NASA and military programs.

The myriad small subcontractors that make up much of the county’s manufacturing base will also be hurt by the defense budget cuts, but many will be able to switch to new products with minimal disruption. Additionally, as the aerospace giants slim down, they will turn more and more to subcontractors for parts and systems they now build themselves.

Banking

The financial industry in Orange County will try to put the major upheavals--failures of some big thrifts and banks--behind in the ‘90s. The decade ahead looks to be a time of consolidation and strengthening. The bank and savings and loan industries will merge by the middle of the decade, with banks emerging as the surviving entity. But the bank will be a hybrid, offering all the traditional services plus a wide array of new ones, including insurance, mortgage and investment banking and even securities trading.

Because the county’s economic base is made up of tens of thousands of small businesses, smaller specialty banks will continue to find the climate here hospitable and profitable. While the number of banks in other areas will diminish through mergers, Orange County will be particularly attractive to the out-of-state banks that will be allowed into California in 1992. Thus, the number of banks in the county could remain stable at 80 or so institutions.

Biotechnology

The county’s leadership in the burgeoning biotechnology and biomedical fields will continue in the ‘90s. The growth will be fueled by an increasing use of outpatient procedures made possible by new technologies and microscopic surgical techniques and an increase in major surgical procedures such as organ transplants.

The increasing liberalization of Eastern Europe and formation of a single market system in Western Europe in 1992 will open huge new marketplaces for the advanced drugs, medical instruments and artificial heart valves made by Orange County companies.

Microsurgery will be dominant in the early ‘90s and Orange County companies will be deeply involved in developing products to help automate medical procedures.

Orange County firms such as Allergan, a nationwide leader in eye care products; Beckman Instruments, a major manufacturer of medical and scientific instruments, and Nichols Institute, which develops highly specialized diagnostic tests and operates as a centralized testing lab for hundreds of physicians and hospitals throughout the country, will be major beneficiaries of the changes.

High Technology

Orange County rose to prominence as one of the nation’s high-tech centers during the 1980s with the spectacular growth of dozens of companies, including a handful that that count their annual sales in the hundreds of millions of dollars.

But the business is volatile and while the number of computer-related companies is likely to continue growing, the fortunes of some of the larger ones in the county will depend on their ability to react quickly to changes in their markets, both domestically and internationally.

Local computer firms will continue looking for business opportunities overseas. Companies will try to grow by selling more products to the Pacific Rim, Europe, Latin America and in other international markets. But the hope for more sales abroad is tempered by the threat of increased competition from Japan and other foreign competitors.

While computer and computer-related businesses will remain strong in the county during the ‘90s, they will not repeat the growth of the ‘80s.

Real Estate

With the average price of a new single-family home in Orange County hovering around $350,000 and the median resale price of a detached home at $253,000, more and more people will live in apartments for longer and longer periods--spurring a boom in apartment construction. Except for resales in older parts of the county, the detached single-family home will be out of the price range of all but the wealthiest.

Many of the county’s home builders will do most of their work in Riverside and San Bernardino counties, where lower land prices make housing more affordable and have created the same kind of boom-town atmosphere that drew people to Orange County from Los Angeles and elsewhere in previous decades.

Commercial builders will continue favoring luxury high-rise structures, and increasingly will add small service-oriented retail centers to their developments.

Industrial buildings will be smaller and more sophisticated, built to make use of the automated assembly and materials handling systems that progressive manufacturers will demand. Flexible interiors and lots of windows and attached office space will reflect the change in the county from heavy manufacturing to light high-tech research and development.

And as companies move from older industrial complexes into new facilities, the high price of land and demand for office space in the county will make it worthwhile for developers to buy up existing industrial complexes, tear them down and build high-rise offices in their place.

Retailing

As personal income continues climbing in the county through the ‘90s, retail sales will continue to grow. One estimate is that dollar volume will increase an average of 10% a year--even in the middle of the decade, when the county is most likely to feel a recessionary crunch.

The face of retailing will change somewhat, however, with the disappearance of many of the department stores caught in the rash of late 1980s mergers. Contributing to the demise of the something-for-everyone store will be the Orange County shopper’s growing insistance on distinct styles and specialized merchandise.

With 13 major shopping malls already open and doing business, it is unlikely that many more will be built here in the ‘90s. Rather, developers will build and market themed shopping centers, in which all stores serve a unified market. Home improvement malls, women’s fashion centers, food courts and auto repair complexes will replace the traditional neighborhood supermarket-liquor store-doughnut shop-video outlet-card shop type of development.

Tourism

The county’s tourist industry is looking to the ‘90s as a growth period. The two major amusement parks--Disneyland and Knott’s Berry Farm--will continue to add new attractions to lure visitors, and exclusive resort hotels are likely to rise along the South County coast.

The industry should benefit from increasing overseas tourism--particularly as Eastern European nations open their borders for the first time in more than four decades--and from rising local incomes. In addition, more two-worker families in Southern California will take shorter but more frequent vacations and turn to destinations closer to home.

Additionally, the county’s booming business climate means an increase in business travelers, who use the hotels and restaurants just as much as tourists do, and an increase in convention business.