Many of Region’s High-Tech Plants May Close, Move

A survey of 100 high-technology companies in Southern California, the majority in Orange County, has found that more than half plan to reduce their manufacturing operations or move production out of the area within five years.

According to the survey released Thursday by the KPMG Peat Marwick accounting firm, 53% of the chief executives said their firms plan to reduce manufacturing in the Southland. The CEOs cited high labor costs, expensive real estate and tough environmental rules as the main reasons.

Nonetheless, 83% of the companies expect their employment to increase in Southern California in the next five years, in part because the companies expect to keep headquarters, marketing, finance and research and development operations here.

Among the companies planning to move, 64% said they would remain in the United States, 12% would go to Mexico, 10% to Asia, 7% to Ireland, 2% to Puerto Rico and 5% elsewhere. Those expecting to stay in the United States said they are considering moving operations to Texas or Northern California.

About 80% of the respondents were top executives at Orange County high-tech companies. The industries surveyed included computer systems and peripherals, medical equipment and laboratory devices, software, aerospace and defense, electronic components and communications.

In a panel discussion on the survey, some county high-tech executives argued that the reason many companies are looking to move is not high labor and related costs but the increasing globalization of their markets.

With growing worldwide competition, it is important for manufacturers to be close to their customers and be assured of access to overseas markets, they said.

Roger W. Johnson, chairman and chief executive of Western Digital Corp. in Irvine, said his computer components company has plants worldwide because it needs to be close to customers and be certain that it can sell its products in such markets as Europe and the Far East.

“I don’t think it’s an issue of Orange County versus other manufacturing,” Johnson said. “Competition is no longer defined by geographic borders. Labor costs do not enter into the factors at all. And factors like capital costs and taxes come into play when we’re choosing where to build a factory that we’ve already decided will be overseas.”

Gene Lu, chairman and chief executive of computer maker Advanced Logic Research Inc., said his firm would most likely manufacture in Orange County to keep its computer designers in touch with production. But he noted that the company must also stay in touch with customers, so it makes some products in Singapore, and someday the firm will consider opening a plant in Europe.

Lu said ALR plans to open a sales office in Germany soon.

In other findings, the survey found that 75% of respondents believe that they will increase spending for information technology in the next decade. About 42% of respondents have implemented just-in-time inventory management systems to improve productivity.

Howard Lewis, chairman and chief executive of Archive Corp. in Costa Mesa, said his firm, which manufactures storage products, started a just-in-time program that improved overall productivity by 24%.

The survey also said 41% of survey participants said they had merger plans for 1991. About two-thirds said they prefer banks for primary financing. Just 12% of the companies surveyed said they would probably obtain funding through a public offering.

“The lack of credit is what I worry about most in the country,” Western Digital’s Johnson said. “It has slowed everything in the economy, from housing to our business.”

Robert Quest, another panelist and president of Advanced Controls Inc. in Irvine, a manufacturer of drilling and routing systems, said the Gulf War has cut into his company’s business by affecting the capital budgets of customers.

“It cleared up some uncertainty when the war started, but it’s still easy for our customers to hold back,” he said.

Besides Peat Marwick, Regis McKenna Inc., a high-tech marketing firm, and the Pittiglio Rubin Todd & McGrath law firm assisted in the survey.

The panel discussion was sponsored by Peat Marwick and the Orange County Register.