Between free trade, deregulation and the first signs of recovery, Southland executives see 1994 as a year of brighter prospects

The last three years have extracted a huge toll from Southern California businesses.

Job losses have been staggering. Declines in two of the region’s principal industries--real estate and aerospace--have been debilitating. And, perhaps more importantly, the Southland’s once giddy, effervescent outlook has given way to sobered expectations for 1994 and beyond.

From bankers to computer makers to telecommunications providers, Southern California business leaders are adapting to a radically changed environment--both on their home turf and internationally, under the two new global trade agreements signed recently.

“Businesses and residents alike are finally settling in on what is the new reality. And that’s good,” says Larry Kimbell, director of the UCLA Business Forecast. “A realistic view is the basis for a more lasting return of confidence.”

Kimbell is predicting that by the end of 1994, Southern California should see some of the same early signs of economic recovery now evident in other sections of the country. Still, he--like area business leaders--caution that the recovery will not restore the region’s former heady optimism and limitless enthusiasm.

“It’s a matter of surviving, not thriving,” he says. “Expectations have been changed.”

That view is echoed by five Southern California business executives whom The Times asked to offer their outlooks for the coming year.

Barbara Rodstein, founder and president of Harden Industries, a Los Angeles manufacturer of specialty brass plumbing fixtures .

With residential construction throughout the United States hovering at near-record lows for the last two years and home remodeling hampered by tight family purse strings, Harden Industries has been forced to find new markets for its brass faucets, shower heads and bathtub handles.

So Harden went global with its lines of American Classics, Bel Air and All Brass fixtures.

Though still relatively small--annual revenues approach $25 million--the 11-year-old company now sells its products in 46 countries and operates a factory in Taiwan. International sales are still less than 25% of Harden’s total business, but represent its fastest growing segment.

Rodstein expects the North American Free Trade Agreement to spur Harden’s sales on this continent--particularly in Mexico, where the company’s performance recently has shown considerable improvement. Canada, she says, is already the company’s best performing international operation.

But despite Harden’s sales growth in NAFTA territory, Rodstein worries that the trade pact could ultimately hurt the firm by forcing it to compete with lower-wage manufacturing plants operated by competitors in Mexico.

“So long as you’re not the cannon fodder, you can afford to think NAFTA is wonderful,” Rodstein says. “NAFTA is going to be very difficult for me . . . . Mexican manufacturers don’t . . . (face the same issues) that I do here.”

On the home front, Rodstein isn’t counting on 1994 to bring a spectacular recovery to the residential real estate market--especially in California, where Harden has supplied top-of-the-line, one-of-a-kind designer plumbing fixtures to the luxury home market. (Barbra Streisand, Rodstein says, uses fern green porcelain and brass Harden fixtures in all her homes.)

However, Rodstein notes that some areas of the country are already showing a modest real estate rebound, and Harden is experimenting in those markets with a new push at the budget-conscious, do-it-yourself market.

In New England, the company is courting the amateur decorator/plumber market with elaborate electronic video displays that allow customers to custom design their fixtures on a screen and then automatically order them from the factory.

“This is what we have to do for now,” Rodstein says. “New home construction won’t kick back into high gear again until at least 1995.”

Safi Qureshey, founder and chairman of AST Research, an Irvine personal computer maker.

AST Research, the nation’s No. 4 manufacturer of PCs, expanded its operations internationally several years ago. Earlier this year, it acquired the PC manufacturing operations of Tandy Corp. to solidify its market position.

Next year, the company will fine tune itself with a major shuffling of jobs and manufacturing--out of Orange County and California.

By the end of 1994, about 600 jobs currently in Irvine and Fountain Valley and another 50 in the San Francisco Bay Area will be transferred to Ft. Worth, Tex., where AST now operates a Tandy manufacturing plant.

The savings, Qureshey says, were too good to pass up.

AST purchased land in Texas for 11 cents per square foot. By contrast, the company paid $14 per square foot in Irvine for its corporate headquarters’ land. While comparisons of energy, health care, housing and labor costs are not as dramatic, Qureshey says all nevertheless favor Texas.

When the reengineering is over, just one-third of AST’s 4,500 employees will remain in Orange County.

In addition to shifting jobs out of California, Qureshey expects to expand distribution in China and open a new plant in Ireland, AST’s first foray into Europe. “Of all the large personal computer players, only AST didn’t have an European base of operations,” he says.

AST also will be joining the crowd of computer makers offering laptop and tiny, palm-sized PCs next year. Qureshey expects these models to become more popular as they add features that make them more than high-tech gadgets for electronics buffs.

PC prices--which have been driven down in the intense competition among big-name players--should stabilize in the coming year, Qureshey says. However, he predicts that while prices will stay constant, customers still will get better deals as manufacturers compete by loading extra features into their machines.

“The key price points of $595, $995 and $1,495 will stay the same. But what you get for that money will continue to increase,” he says. “Our industry won’t go through the steep price decline that the VCR industry did because we can continue to improve our product.”

Bernard Howroyd, founder and chairman of Appleone Employment Services Ltd., a job placement agency based in Burbank.

Appleone Employment Services is an unintended--but delighted--beneficiary of corporate America’s ongoing downsizing.

As blue-chip businesses slash tens of thousands of jobs from their payrolls, they turn to employment services like Howroyd’s for temporary workers to fill critical work force gaps.

“More and more businesses want employees that they don’t have to hire,” says Howroyd, whose 80-office operation is generating revenues of $150 million this year. “They want a flexible work force, a lean work force. Our business has never been better.”

However, he acknowledges that customers are “very price conscious” in hiring from among Appleone’s 7,000 temporary workers, placed from offices in California, Nevada, Arizona, Colorado and Toronto.

Further, Howroyd says he expects dramatic changes in his industry if and when legislation is passed restricting employers from using temporary workers--who receive no health care and other benefits--in place of regular payroll workers.

If, as the conventional wisdom holds, employment agencies are a barometer of where the economy is heading, Howroyd says his business indicates a slow recovery next year. Permanent jobs now account for about 5% of all placements, up slightly from the 3% level earlier this year and throughout 1992.

In the boom years of the 1980s, permanent placements accounted for about 20% of the business.

Howroyd says he expects hiring of permanent workers to increase in 1994, but almost exclusively among small businesses and start-up ventures. Big businesses, he believes, still will be cutting their bloated staffs, as many have been for the last two or three years.

“It’s the entrepreneurs who will be carrying this economy back,” he says.

Larry Sparrow, president of Thousand Oaks-based GTE West (a territory encompassing California, Hawaii, Alaska, Washington and Oregon) .

Even before the crushing recession, a massive overhaul was underway in the telecommunications industry. For the last few years, consumers have been bombarded with a smorgasbord of new voice, data and video services from an exploding array of businesses anxious to gain a foothold on the “information superhighway.”

In the coming year, Sparrow says, the rate of these changes will accelerate--particularly in California, where GTE serves about 3.1 million customers.

Within the next few months, the state Public Utilities Commission is expected to give final approval to a complete overhaul of the phone rates charged by GTE and Pacific Bell in their respective California service territories. At the same time, the PUC will open the local toll call market--now a monopoly service of GTE and Pacific Bell--to competition from long distance carriers such as American Telephone & Telegraph, MCI Communications and Sprint.

The new rate plan is expected to be a big boon for business, which traditionally makes the greatest number of toll calls. Business should also benefit from a variety of new services scheduled for roll out next year: faster networks for data transfer, improvements to such voice-related phone services as “voice mail” and video transmission over what once were traditional phone lines.

“The basic building blocks are in place to continue the growth toward the electronic information highway,” Sparrow says.

Sparrow is also looking forward to a relaxation next year of state and federal regulations that restrain the two major industry groups developing the new information networks: telephone and cable companies.

“In a few years, we will look more like a cable TV company,” he predicts. “The changes coming over the next two to four years are more dramatic than any of us might have imagined even just six months ago. It is going to be very hectic.”

Li-Pei Wu, chairman and president of General Bank, a Los Angeles bank primarily serving the Taiwanese and Chinese immigrant communities.

The fortunes of General Bank swelled as thousands of Asian immigrants poured into Southern California over the last decade, turning the 13-year-old thrift into one of the best performing and fastest growing in the region.

But as the local economy soured and the rate of Asian immigration slowed, General Bank changed its business strategy, a process it intends to accelerate in 1994.

Finding a bank to acquire, branching into Northern California and offering merchant banking services to Silicon Valley’s high-technology companies are among the 1994 goals of General Bank chairman Li-Pei Wu as he attempts to diversify from the bank’s traditional reliance on foreign investment and immigrant-business lending.

“We think the economy has stabilized, but we are still a long way from recovery, especially here in Southern California,” Wu says. “We want to get into areas that are recovering and where the growth is going.”

Wu says the bank will open five branches in Northern California in the coming year and will try to become the lender of choice to Silicon Valley high-technology start-ups looking to expand beyond their initial venture capital funding.

At the same time, Wu says General Bank will continue to be a primary lender to small businesses, particularly those opened by Asian immigrants. The bank also will back selected residential builders, primarily those constructing lower-cost housing for first-time buyers.

Wu notes that the recent approval of NAFTA and the successful expansion of the General Agreement on Tariffs and Trade should provide many international opportunities in the near future for local merchants and manufacturers, generating additional business for General Bank.

But for 1994 Wu is determined to expand beyond his traditional Southern California base, an uncertain step that underscores his disenchantment with business prospects in the region.

Noting that he spent much of his 25-year banking career in Alaska, Wu said Southern California’s economic recession is far worse than Alaska’s post-pipeline crash and oil shock in the mid-1970s.

“I have never seen a situation as bad as this one,” he says.