San Antonio is Hot. Austin is Hotter. They’re Selling Salsa to Mexico and Stealing Jobs from Silicon Valley. So it’s Little Wonder that... : The Eyes of California are on Texas

Even the label on a long-neck bottle of Lone Star beer, this town’s home-grown libation, is a declaration of independence of the kind peculiar to Texans: It claims the brew is “The National Beer of Texas.”

Well, if Texas were a sovereign nation--as it was from 1836 to 1845--then this part of the state would certainly be its version of California, at least as far as the emerging economic base.

Mexican-flavored San Antonio and cosmopolitan Austin, its neighbor only 80 miles away, have formed a fast-growing part of south-central Texas that is part Silicon Valley, part Hollywood and part Anaheim. It’s an area where government and business officials have worked closely together to attract new business using the region’s strongest assets as a draw.

Indeed, some economists argue that the two cities’ burgeoning economies--based on high-tech, entertainment, tourism, health care and biomedicine--represent the future of Texas; Dallas and Houston--with their oil, banks and real estate--represent its troubled past.

The grim--and all too familiar--news is that the region’s growth is coming largely at the expense of California as a part of a reverse migration that has picked up speed as the Golden State’s business climate has deteriorated.

Firms fleeing California’s traffic, high housing costs, onerous regulations and personal income tax have flocked to Austin: At least 21 Silicon Valley computer companies have either moved to or expanded in Austin since 1986.

Motorola last month announced that it would bolster its Austin operations by building a new laboratory and semiconductor plant that will create 700 new jobs and cost as much as $1 billion.

The companies are attracted by the region’s low taxes; cheap land and labor costs; skilled work force; respected university and research infrastructure; hospitable business climate and pleasant lifestyle. This year, American Airlines even began nonstop service between San Jose and Austin.

“If you spend the next 20 years to grow a company, and you ask yourself, ‘Where do you want to be?’ It’s Austin,” said John D. Price, vice president of marketing at Trilogy Development Group, which moved from Palo Alto to Austin last year.

Even the eyes of Hollywood are upon this area, with more movies than ever filming on location here. The latest: “A Perfect World,” directed by Clint Eastwood and starring Kevin Costner, now shooting in and around Austin.

The flight of businesses has not escaped the attention of Silicon Valley. Last November--at the same time Advanced Micro Devices announced that it would build a $700 million, 1,000-employee plant in Austin--a delegation of San Jose business leaders flew to the Texas capital to check out the competition.

Meanwhile, a consortium of Silicon Valley companies commissioned a report entitled “An Economy At Risk,” in part to examine what Austin has that San Jose does not.

The answers were not encouraging.

“In Austin, you have the university, the city government and the chamber of commerce,” says Steve Tedesco, president of the San Jose Metropolitan Chamber of Commerce, who was part of the entourage that traveled to Texas. “Up here, we’ve got 15 chambers, 15 cities, three major universities, all kinds of organizations . . . For us to try to duplicate them is not practical.”

Make no mistake: the economies of Austin and San Antonio, with a combined metropolitan population of 2.2 million, are dwarfed by that of California.

Moreover, neither city escaped the economic collapse that sank the oil, real estate and banking industries in Texas in the mid-1980s. Austin especially was known for a downtown filled with vacant “see-through” skyscrapers, and prices in San Antonio’s housing market have only recently begun to rebound.

But the two cities have definitely recovered. In the last decade, Austin’s total employment grew more than three times as fast as that of the state. San Antonio’s grew nearly twice as fast as the state’s.

With its rolling green hills, lakes, music clubs and vital intellectual life, Austin is the favorite city of many Texans. High-tech is the most robust segment of the local economy, the result of an unusually close collaboration of government, private industry and academia.

While Silicon Valley has UC Berkeley and Stanford, Austin has the University of Texas and two private research consortia--Sematech and the Microelectronics and Computer Technology Corp., known as MCC.

And while Silicon Valley has Apple, AMD, Cypress Semiconductor and hundreds of other high-tech firms, Austin’s “Silicon Prairie” has all those, plus 370 software companies of its own, not to mention home-grown firms like Dell Computer Corp.

Austin’s early beginnings as a computer center to rival Silicon Valley came in 1967, when IBM chose it after a national search as the site for an electric typewriter plant. But the real push came in the 1980s, when Sematech and MCC selected Austin as their home.

Their presence sent “signals to the industry that Texas is putting out the welcome mat and is serious about its intent to make Texas another center for technology,” said Amy Glasmeier, a former professor at the University of Texas at Austin.

Business officials are not content with letting Austin remain simply a branch-plant city. For the future, the city wants to replicate the experience of a local business hero: 28-year-old Michael Dell, the one-time University of Texas student who started a mail-order personal computer company out of his dorm room and turned it into a $890-million firm.

(Dell’s company has fallen on hard times lately, however, because of stiff competition in the personal computer market.)

To encourage new entrepreneurs, the city and university have created a technology incubator and think-tanks like the UT-affiliated IC2 Institute. About the only thing Austin lacks in abundance--compared with high-tech centers in California, Massachusetts and North Carolina--is home-grown capital.

But that hasn’t hampered firms such as Trilogy Development Group, a fast-growing software company that is typical of the new generation of entrepreneurial concerns.

In the company’s spacious new offices, the atmosphere is decidedly post-graduate: women in jeans and men with ponytails work at computers in offices that are sparsely decorated except for the occasional electric guitar or lava lamp.

In 1989, Trilogy was founded in Palo Alto by five Stanford University graduates. Rapid acceptance of its principal product--a business software package called SalesBuilder--rocketed the company to 75 employees and more than $10 million in sales last year.

During that period of growth, President Joseph A. Liemandt, a Texas native, saw that the company needed to find a new headquarters and started a national search.

Austin officials fell all over themselves to lure the company. In quick succession, the company heard from the mayor, the Chamber of Commerce and George Kozmetsky, the co-founder of Teledyne in Los Angeles, former dean of the University of Texas Graduate School of Business and one of the prime movers behind the creation of the Austin “technopolis.”

Impressed by the attention and attracted by the city’s skilled work force, pliant leaders and low costs, the firm selected Austin over several other cities. Trilogy now pays rent on a 10,000-square-foot office at $14 a square foot, compared with the $44 it paid in California, Price said.

“The only detrimental thing is that more and more people are coming, and prices are already creeping up,” Price said.

Indeed, as growth overtakes Austin, the attendant problems are following. Residents complain more and more about traffic. Even a casual observer can’t ignore the highway construction surrounding the city.

Environmental concerns are top of mind in a city where residents often gather at sunset on the banks of Town Lake to observe the evening sorties of the nation’s largest urban bat colony from beneath the Congress Avenue bridge.

Fears that development would degrade the city’s green areas, particularly around the Barton Creek watershed, have divided Austin for years. Slow-growth sentiment led to the passage of a referendum last year limiting some types of development in the area--and to the election this year of strong environmentalists to the city council.

If Austin is Texas’ Silicon Valley with a touch of Hollywood, then San Antonio is more like the rest of Los Angeles and Orange County. While Los Angeles has international trade with Asia, San Antonio boasts strong ties to Mexico. And where Orange County has Disneyland, San Antonio has Fiesta Texas and the Riverwalk, a historic two-mile downtown stretch of the San Antonio River lined with hotels, cafes and boutiques.

Its economy traditionally based on five surrounding military installations, San Antonio is striving to become a center for tourism, biomedical industries and Mexican trade. (Not that there’s an imminent danger of defense cuts: perhaps as a testament to Texas’s influence in Washington, all five bases--employing more than 38,000--escaped the budget ax in the latest round of federal base closings.)

With the Alamo and bushels of Old Mexico charm, San Antonio is a potent tourist draw. In the last decade, city leaders--especially charismatic onetime Mayor Henry G. Cisneros, now secretary of Housing and Urban Development--worked overtime to turn the laid-back town into more of a major attraction, on a par with country music mecca Branson, Mo., or even Orlando, Fla.

The most recent project: Fiesta Texas, a $100-million musical theme park built last year in an old rock quarry outside town. A joint venture between Opryland USA and San Antonio-based insurance company USAA, Fiesta Texas is the second major theme park in the city, after Sea World.

Still, tourism is an iffy industry. Though officials say the theme parks are doing well and tourism should increase this year, others express concerns that a stagnant national recovery and bad weather might keep visitors away. Overall, tourism has remained steady since 1988, at about 10 million visitors a year.

In any case, city leaders argue that Mexican trade is the brightest prospect for San Antonio, where the proposed North American Free Trade Agreement was initialed by the leaders of the United States, Canada and Mexico. Residents note that San Antonio, where half the population is Latino, retains strong ties south of the border.

The city sits on the northern end of the Interstate 35-Highway 85 corridor connecting the U.S. with Monterrey, northern Mexico’s chief industrial city. Under NAFTA, both Monterrey and San Antonio could fall within a border free-trade zone.

“We’re never really going to be a port of entry, but we do see ourselves as a major point for logistics and distribution,” said Conrad True, executive director of the World Trade Center of South Texas.

San Antonio scored a coup in positioning itself as a trade center when Southwestern Bell moved its headquarters here last year from St. Louis. The Baby Bell--part of an international consortium that bought a controlling interest in the Mexican national telephone company in 1990--has pegged much of its future growth on that market.

Some aggressive San Antonio companies are not waiting for final approval of NAFTA.

Blair Labatt Jr., who runs a major food distribution company in town, has entered into a joint venture with a Mexican company to set up what he said he believes is the first centralized food distribution warehouse in Mexico City--interestingly, on the site of the ancient Aztec marketplace of Tlatelolco.

Distribution is one thing Americans are particularly skilled at, Labatt said. In Mexico, manufacturers typically make their own deliveries direct to customers; a given hotel might take 80 deliveries in a single day.

Rod Sands, president and chief operating officer of Pace Foods here, is finding that U.S. companies can even carry the culinary equivalent of coals to Newcastle.

The nation’s largest maker of salsa, Pace went to Mexico City in 1989 to shoot commercials aimed at Spanish-speaking U.S. customers. The company brought about 100 cases of sauce as props to line the shelves of a Mexican market, then left them with the grocer because it would have cost more to ship them back.

“About two months later, the guy calls and says, ‘I need more,’ ” Sands recalls. “He sold it all.”

As a result, Pace took a second look at Mexico as a potential export market.

“For a long time, we had convinced ourselves that selling picante sauce in Mexico would have been like trying to sell ice cream in Alaska,” Sands said. The company is now test marketing the product in Monterrey and Guadalajara.

Like Austin, San Antonio is facing the consequences of its growth. There is concern that residents of San Antonio’s impoverished inner-city neighborhoods may fail to benefit from the city’s growth.

The emblem of misguided growth is Fiesta Plaza, a shopping center that is part of the troubled Vista Verde South project shepherded by Cisneros and built during the 1980s in part with nearly $19 million in federal grants.

Intended to revitalize the poor neighborhood west of downtown, the plaza failed to attract either tenants or customers. It was torn down this summer and the land donated to the University of Texas. All that remains is a lot strewn with rubble.

“That was poor planning and easy money,” Mayor Nelson Wolff said in an interview. He also admitted that past growth has left poorer people behind: “They didn’t rise with the tide. . . . I think with some of the industries we’re developing, there will be a better opportunity for them than before.”

San Antonio also faces its own environmental problems. As in California, water is a prime concern--but not because there’s too little of it. On the contrary, San Antonio relies for all of its drinking water on the massive underground Edwards Aquifer.

Ruling last February in a suit brought by the Sierra Club, a federal judge said pumping from the aquifer might have to be halted if it impeded the flow of water into two nearby springs that support four endangered species of plants and fish.

That threw the city into turmoil, with the prospect that water supplies could fall as much as 60% in times of drought. This spring, the immediate crisis was resolved when the state legislature passed a law creating a water management authority that for the first time would regulate water use.

But the issue of water remains touchy, and it’s unclear whether the water problems are resolved.

“It depends on how the law is implemented,” says Pete Emerson, senior economist at the Environmental Defense Fund in Austin. “We’re sitting on a real potential problem here.”

Still, the future is generally bright in both Austin and San Antonio--a circumstance that Californians used to take for granted.

“It’s a real nice environment here,” says Don Hoyte, regional economist with the State Office of the Comptroller in Austin. “We’re footloose. The area’s attractive; the weather’s moderate, and the University of Texas is here, which supplies the kind of people that they’re looking for in the work force. And we’re cheap.”

Texas Jobs

In the last decade, Austin and San Antonio have seen total employment grow rapidly.

Austin (thousands):

1981: 259.3

1992: 407.1

*

San Antonio (thousands):

1981: 414.6

1992: 547.6

Source: Texas Comptroller of Public Accounts