AST recently announced it is shifting a portion of its Orange County manufacturing and telephone support jobs to Texas, in part due to the high costs of doing business in California. Whenever large companies make these type of announcements, there is often a cause for alarm. However, in the wake of these actions, AST remains bullish on the future of business in California and the many strengths the state possesses in attracting and growing small- and medium-sized companies--and here's why.
Historically, California has been a haven for entrepreneurs. Over the past 15 years, the state has emerged as the nation's foremost environment for high-tech ventures.
In addition to AST, other firms, including Hewlett-Packard, Apple, Intel and Western Digital, began here as start-up companies and have grown to become large enterprises that provide thousands of jobs within the state. Each has taken advantage of the unequaled characteristics that enable small businesses in emerging technologies to prosper.
The unique aspects of California--including its climate, culture, diversity and environment--are vital elements that have contributed to the success of start-up ventures. These factors, coupled with the state's depth of universities that provide access to a large pool of highly educated personnel, create an attractive environment that allows these types of companies to flourish.
California's challenge is to remain focused on attracting and retaining an abundant number of small and medium-sized businesses that can grow and create jobs by taking full advantage of the state's numerous resources.
In addition, programs must be developed that provide incentives to keep companies within California once they become large corporations. In looking at what California can do to continue job creation, it is important to examine the strengths the state offers to growing businesses and why jobs leave California.
High costs of labor, housing, transportation and other cost-of-living expenses are among the reasons companies cite when moving jobs from California. In addition, the large volume of government regulations that businesses must comply with add support for the decision to leave.
Using AST as an example, and exploring the decision we made recently to shift 500 manufacturing and telephone support jobs from Orange County to Ft. Worth, provides insight into the issues that face many large companies doing business in California.
AST repositioned itself in the PC marketplace following the acquisition of Tandy Corp.'s PC manufacturing operations. Factors such as utilization of the purchased facilities and their geographic location also needed to be weighed into the final decision.
AST has not abandoned California. After the relocation of jobs is implemented, AST will still remain one of Orange County's largest employers with a work force of more than 1,000.
We believe in the state's future as a leader in growing technology-based companies and have centralized our engineering, marketing and administrative departments in Irvine, while maintaining a manufacturing facility for mobile computing in Fountain Valley.
Comparing costs of doing business in Ft. Worth helps to illustrate why large companies consider moving positions out of California. Salaries and utility costs are up to 22% less, while the same employee benefits are approximately 7% cheaper. For a company with 2,000 employees, benefit savings alone can amount to more than $600,000 annually.
Lease rates in Southern California and the Irvine Spectrum average $5 and $14 per square foot, respectively, whereas in Ft. Worth, rates range from 35 cents to $2.50. California's corporate tax is 9.3%, while in Texas the rate is 4.5%. In addition, Texas employees pay no personal state income tax.
Businesses must also weigh other issues when considering whether to keep their operations in California. Government regulations for operating here are higher than most, as are housing prices and other cost-of-living elements. In addition, Texas and several other states provide "one-stop shopping" services that make it easier for business to comply with the numerous permits and other regulations stipulated by federal, state and local governments.
In California, no such bureau exists, forcing each business to contact and deal with every department and agency individually.
Though not an easy choice, shifting a portion of jobs to Ft. Worth is vital to the long-term growth of our operations and will enable the company to remain globally competitive and increase manufacturing capacity. Because of the PC industry price wars, when customers purchase a desktop personal computer, the fact that it is made in California does not carry enough value to command a higher price that offsets lower costs achieved elsewhere.
California cannot be everything to everybody. To succeed at expanding jobs in the state, we need to specialize and focus on our strengths in fostering development of small and medium-sized businesses, especially in the fields of biotechnology, health care and health and information sciences.
Orange County and other regions throughout the state represent fertile ground for these types of companies to prosper.
For California to continue its premier position as an incubator for small and medium-sized firms, business and government must collaborate to create an environment to leverage every unique feature we have.
We must promote the state as pro-business, while doing everything possible to make it easy for businesses to operate and comply with our laws and regulations.
To keep a step ahead of other states, changes must be considered to some government programs for small to medium-sized businesses which will enable them to be competitive and grow to become large corporations.
Incentives need to be established for companies to expand and stay in California. For example, the state should consider establishing a single agency that guides businesses through the myriad of government rules and regulations.
With the passage of the North American Free Trade Agreement and recent discussions by the Clinton Administration at the Asian-Pacific economic forum, work must continue in promoting the state as the gateway to the Pacific Rim and Mexico, for both importers and exporters. NAFTA will lock in more than 150,000 jobs already generated by trade with Mexico.
In addition, the deep-water ports of Los Angeles and San Diego represent key transportation centers for goods entering and leaving the state; that fosters additional employment in California.
By business and government working together, California can remain attractive for business. While laws and regulations may be well intentioned, they do not automatically adjust to economic factors and take time to be changed. Therefore, in the short term, California should focus on its current strengths of growing and nurturing start-up ventures by offering incentives and less bureaucracy.
Yes, some large companies may shift a portion of jobs overseas or out of state from time to time. However, by leveraging its attraction as a haven for start-ups, while implementing programs that enable businesses to stay small and medium-sized companies, California can continue to boost job development. As these start-ups blossom and are transformed into hundreds and thousands of jobs, as AST has, our state will be preserved as a new frontier for business.