Bankruptcy Threatens to Thwart O.C. Upturn : Outlook: Survey finds that smaller firms, especially now, see county as less attractive. Expected post-recession spurt could stall.
Orange County’s bankruptcy has dealt a stunning blow to small companies that were just beginning to recover from the recession, and it threatens to stall what could have been a growth spurt, according to a UCI survey released Tuesday.
Particularly for small, privately held firms such as construction companies and retailers, Orange County is now considered a less attractive area in which to do business, UCI’s annual Orange County Executive Survey found.
Before December’s bankruptcy filing, 30% of the small companies surveyed said the county’s business climate was getting worse. Now, 53% say the outlook is worse than in years past, and 57% express dissatisfaction with the county as a base of operations.
“The bankruptcy will stop construction of schools and infrastructure,” said Clay Higuchi, general manager of Standard Concrete Products Inc. in Santa Ana. “We are hoping there will continue to be work for us in the private sector.”
Many small enterprises rely heavily on government agencies as buyers of their goods or services, and they are now scrambling for new customers, Higuchi and others said. Also clouding their prospects is the possibility that local governments might levy higher taxes to get them out of their financial difficulties.
“I have thought of the possibility that they may raise sales taxes, and I don’t like it,” said John Campbell, owner of Campbell Automotive Group, a Santa Ana car dealership. “It would impact us more than others because a slight increase makes a noticeable difference in the price of a car.”
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The survey has been done annually since 1986 by UCI’s Center for Research on Information Technology and Organizations. This year’s poll questioned the chief executives of 280 companies ranging from large international concerns, such as Beckman Instruments Inc., to tiny firms with only a handful of workers. The survey defines a small company as one with fewer than 100 employees.
Orange County companies overall said in the survey that they made small gains during 1994, and more than half said they are better off now than a year ago. Most said they are cautious but still hopeful that the worst of the county’s financial crisis has passed and that the local recession is on the wane. Dennis Aigner, dean of the UCI Graduate School of Management, said one of the best bits of news disclosed by the survey is that most companies expect no layoffs.
“Employment will probably remain static,” Aigner said. “Companies are saying they can achieve sales growth without cutting jobs.”
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Large companies still see greener pastures elsewhere, though in decreasing numbers. This year, only 25% said they are likely to move all or part of their operations out of Orange County in the next five years. In 1994, 38% said they were seriously considering relocating.
A new relocation trend surfaced as a result of the survey, Aigner said. Many small professional businesses, a full 41% of those surveyed, said they were considering moving out of the state.
But of those who plan to stay, most are cautiously optimistic, such as Harold Schultz, managing partner of the Newport Beach office of Coopers & Lybrand. Business in the Orange County office of the Big Six accounting firm has been flat for the last few years but is picking up.
“We started to see some new businesses, mostly biomedical and software companies, already this year,” Schultz said. There is enough new business coming in that the office said it is probably going to increase its 92-person staff by 5%.
Smaller businesses are not as confident. Phil Crowley, general manager of the Five Crowns Restaurant in Corona del Mar, said he expects yet another year of generally flat sales because of the economy and uncertainty related to the bankruptcy.
“Until there is more certainty (about the bankruptcy) we expect to see people go back into that conservative psychological mode,” he said, “meaning they won’t spend as much money.”
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Bankruptcy Scares Small Firms
Executives are somewhat more bullish this year than last about Orange County’s attractiveness as a place to do business. But the bankruptcy has sullied that view, particularly among small-firm leaders.
* Do you feel Orange County is becoming more attractive, less attractive or is it about the same for your company?
More Same Less 1990 23% 38% 39% 1991 21 44 35 1992 6 37 57 1993 10 48 42 1994 16 43 41 1995 20 58 22
Large firms**
More Same Less Before bankruptcy 23% 54% 22% After bankruptcy 13 66 21
Small firms**
More Same Less Before bankruptcy 23% 47% 30% After bankruptcy 13 34 53
Hiring Outlook Static, Relocation Picture Improved
Hiring expectations are not substantially different from last year, and the bulk of those executives reporting they expect to do more hiring say it will be on a modest rather than substantial basis. And corporate relocations out of the county look much less likely now than they did in 1994:
* Would you say that by the end of 1995 the number of full-time equivalent employees would be substantially fewer, modestly fewer, about the same, modestly more or substantially more?
More Same Fewer 1990 51% 38% 12% 1991 29 50 21 1992 33 46 21 1993 25 51 24 1994 33 51 17 1995 36 46 18
* How likely is it that your firm would relocate either portions of the firm or the entire firm outside Orange County in the next five years?
Not Somewhat Very likely likely likely 1990 71% 15% 13% 1991 75 16 9 1992 80 13 7 1993 70 17 13 1994 62 27 11 1995 75 16 9
** Large firms are those with 100 or more employees; small firms, fewer than 100 employees
Source: Orange County Executive Survey, 1995; Researched by JANICE L. JONES / Los Angeles Times
