REGIONAL REPORT : Mexico Leads Firms’ List of New Plant Sites : Economy: NAFTA and low-cost labor are big draws for companies planning to relocate or expand outside the Southland, a survey finds.

More than a third of the Southland’s largest employers expect to relocate their facilities or expand at new sites within the next two years--and of those, one in four say that the new location will be outside of Southern California, according to a new survey.

For those looking to move out of the area, Mexico is the most popular destination, selected by 12% who say they will go outside Los Angeles County, 9% looking outside San Diego County and 8% looking outside Orange County. Making that nation so attractive are its inexpensive labor and a belief that the North American Free Trade Agreement soon will pass, pollster Dan Stephan said.

The survey, conducted in July by California Business Intelligence Service in Palo Alto, queried executives at 1,450 companies statewide, including nearly 1,000 in the Southland.

Some business representatives in Southern California question whether companies are truly going to leave in such high numbers.

Other recent surveys have shown that more and more businesses are staying or expanding near home, said Susan Pasternak, a spokeswoman for the Los Angeles Area Chamber of Commerce. “Certainly businesses have left, but there have been new businesses starting here,” she said.

New reforms, particularly workers’ compensation changes, have driven down costs so business leaders may have answered the Palo Alto group’s survey before the reforms were passed. “A survey is really a snapshot in time,” she said.

The reason for moving most often cited by respondents--in Southern California and statewide--was to cut operating costs, said Stephan, a partner in the business information company.

“This is quite a shift from the past,” he said, “when most California interviewees mentioned the need for good, skilled people as the primary reason for relocating.”

Stephan called the shift “ominous . . . for the skilled labor force.” Many respondents voiced a preference for moving to Mexico, he said, “which has labor costs at 10% or less of what you see” in Southern California.

Most respondents, Stephan said, assume that NAFTA will be approved, opening up relatively unrestricted business exchanges between the United States and Mexico.

“The consensus here in the Hispanic business community is that not only will NAFTA go through, but it had better go through if we’re going to survive in Southern California,” said Raul Ferreira of the Orange County Hispanic Chamber of Commerce. “Latin America is a pot of gold for us.”

This side of the border, anybody working in a production plant--be it manufacturing, boxing or assembling--should be concerned by the results of the survey, Stephan said: “Everyone who works in the plant is at risk, including the plant manager.”

High-technology companies, such as computer makers, are not immune. Stephan pointed to Apple Computers, which is moving its Macintosh final assembly facility from Freemont to the Colorado Springs area and to sites offshore.

Medical-device makers, a stalwart of the Orange County economy, are also considering leaving, according to a separate survey Stephan did of 20 such employers there. Four of the 20 said they are in the process of moving: three to Mexico and one to Dallas.

“It’s a reasonable assumption that 8% of (Orange County) businesses are thinking of Mexico, but I don’t think it’s a good assumption that those companies are only thinking of Mexico,” said Fred Mickelson, head of the business division of the Orange County Chamber of Commerce.

Among other competitors for Orange County businesses are a “double handful” of states, including Arizona, Nevada, Oregon, Utah, Texas, South Carolina and Georgia, Mickelson said. He said those states offer lower labor costs, deferred taxes and a trained work force.

Second to Mexico as a choice for companies considering relocation was other states, according to the survey; 7% of respondents from Los Angeles County gave that answer, as did 5% from Orange County and 2% from San Diego County.

Those who said they will open new facilities within the next two years--regardless of location--accounted for 41% in Los Angeles County, 36% in Orange County and 31% in San Diego County. A much smaller number said they intend to expand or move within their respective counties: 14% in Orange County, 9% in Los Angeles County and 7% in San Diego County.

Economists say the survey generally validates their own findings that, though conditions are improving in Southern California, some companies plan to leave the region anyway.

“I think the report is not surprising, but hopefully some of these companies will reconsider their situations,” said Lynn Reaser, chief economist for First Interstate Bank in Los Angeles.

The region’s well-educated work force, declining rents and mortgage costs, and reforms in the workers’ compensation system are gradually improving the business climate, Reaser said.

She acknowledged, however, that “in some cases, California cannot compete with labor or housing costs” in some other states or countries.

California Business Intelligence Service, which was formed in 1988, contracts with other companies to find them relocation sites. It also helps public entities--such as the Portland Development Commission in Oregon and the city of Marina, Calif.--attract new businesses.

Civic and political leaders concerned about the possible loss of jobs, particularly manufacturing jobs, need to be aware of the interest by many businesses in moving to Mexico, Stephan said.

“Don’t pretend that this problem will go away as free market forces work us back to prosperity,” he said.

Esmael Adibi, director of the Center for Economic Research at Chapman University in Orange, said higher labor costs and the expense of complying with California regulations are continuing to drive business expansion out of the state.

“We are still relatively expensive compared to the rest of the country,” Adibi said. Employee benefits, for example, add as much as 40% to cost of hiring Southland workers, he said, an expense that can be slashed by moving a business to Mexico.

Times staff writers Chris Woodyard and Pradyna Joshi contributed to this report.

Relocation Plans

More than a third of Southern California employers expect to expand or relocate over the next two years, according to a July survey. Businesses say they plan to relocate because of lower costs; mergers and acquisitions, and special financial incentives. Here’s where the businesses that plan to expand or relocate will go:

Mexico:

Los Angeles: 12%

Orange: 8%

San Diego: 9%

Another foreign country:

Los Angeles: 3%

Orange: 3%

San Diego: 4%

Another state:

Los Angeles: 7%

Orange: 5%

San Diego: 2%

Another California county:

Los Angeles: 9%

Orange: 6%

San Diego: 9%

Elsewhere in same county:

Los Angeles: 9%

Orange: 14%

San Diego: 7%

Source: California Business Intelligence Service

Why Businesses Would Leave

Among Southern California’s larger employers who expect to relocate or expand elsewhere, lower labor and operating costs is the leading reason.

Lower labor/ Merger or Special financial/ operating costs acquisition other incentives Orange County 58% 15% 12% Los Angeles County 55% 17% 8% San Diego County 53% 19% 10%

Other reasons Orange County 15% Los Angeles County 20% San Diego County 18%

Source: California Business Intelligence Service; Researched by JANICE L. JONES / Los Angeles Times