THE TIMES 100 : What Keeps Our Economy On the Rise : California’s success is directly tied to millions of small entrepreneurial companies. They are the fertile environment for success.
At a recent conference on prospects for California, Lewis Coleman, chief financial officer of Bank of America, confirmed that the state’s economy was moving forward after recovering from the terrible recession of the early ‘90s.
But, curiously, he spoke about the recovery as a scientist would describe quarks or anti-matter--as seen through evidence of its existence, not as seen physically.
Coleman knew that business activity was rising and unemployment declining, but he couldn’t point to precise, traditional statistics to show where and why that was happening. “I know there’s a lot of entrepreneurial activity out there, but it’s hard to measure,” the veteran banker said.
Others at the San Francisco conference organized by Moody’s Investors Service, the municipal bond rating agency, said much the same thing--there was bustling activity among small and start-up companies all over the state, but it was difficult to categorize.
Welcome to the fundamental strength of the California economy: The millions of companies too small for inclusion on The Times 100 lists. This is the world of more than 1,000 biomedical companies, hundreds of computer and communications companies, small manufacturers and retailers, health service providers, accountants, lawyers and export-import agencies.
They are the fertile environment of business formation and enterprise that create new jobs for California’s massive 13.7 million-person work force. And thinking about them as one reads of the state’s largest companies can be reassuring about California’s economic future.
These less visible firms are the environment from which The Times 100 lists spring. Indeed, prominent names on the lists were start-ups only yesterday. Cisco Systems and Bay Networks, pioneers in computer communication, have been publicly owned for five years or less.
Callaway Golf, in business a decade, developed the large headed golf club that has revolutionized the game in the last few years. It is joined on The Times 100 lists by Cobra Golf, a neighboring company in Carlsbad, which can now be called the world center of golf technology as Silicon Valley, 500 miles to the north, is the center of electronics and computing technology.
Silicon Valley, of course, has been a hotbed of entrepreneurial activity since 1939, when William Hewlett and David Packard started their company in a Palo Alto garage that has become a national landmark.
California is like that. “The great strength of this state’s economy is in its abundance of individual business enterprise,” says George Shultz, former secretary of state and treasury, elder statesman and adviser to Gov. Pete Wilson.
The point is that entrepreneurial spirit is not merely a sentiment. It is a guiding principle that will help California make the transition away from an economy fueled for decades by government contracts.
The defense jobs are being replaced, we are told, by growing employment in computer services, pharmaceuticals, entertainment and tourism, trade and services. But it all seems so random and fragmented, no wonder Californians have been frightened.
Yet there is a way to group the industries of California’s future so opportunities for jobs and investment can be seen and the deep and constant linkages in this state’s economy can be understood.
“The four pillars of the new economy are: High Technology, Foreign Trade, Professional Services and Entertainment and Tourism,” says economist Stephen Levy of the Center for Continuing Study of the California Economy.
* High Technology, ranging from computers and electronics to medical instruments and biotechnology, is the area with the most visible companies, principally because they have sold stock to raise financing.
That’s why The Times 100 lists--especially the Market Value 100--are heavy with technology firms, from Intel to Oracle to Amgen to Qualcomm to Novellus and many more in between.
From those publicly traded companies and the legions of smaller companies behind them, high-tech industry is estimated to account for roughly 400,000 jobs in California’s economy.
In fact, the actual numbers are far greater given the indirect effect of technology’s rapid spread through all industries--not to mention its role in spawning the new businesses B of A’s Coleman knows are there.
* Foreign Trade brings us into a less visible but most promising and all-encompassing area of the state’s economy .
The volume of goods moving through the state’s ports and airports, now approaches $250 billion. And prospects are for a doubling of volume in the next 25 years.
Employment directly generated by trade runs easily to two million, when finance, brokerage and legal services are taken into account.
But looking at foreign trade simply as goods through ports is too limiting. So great are foreign markets today that half the revenues of Intel come from overseas. More surprisingly, 42% of Cisco Systems revenues are from foreign markets, demonstrating that even the most advanced technology spreads like a flame.
* Professional Services is another pillar, with engineering firms a prime example.
The great engineering firms, Fluor Corp. of Irvine and Jacobs Engineering of Pasadena, both on The Times 100 lists, and the privately held Parsons Corp. of Pasadena and Bechtel Co. of San Francisco call the world their market and California home.
Another example is California’s universities, which account for one of the state’s and the nation’s, greatest exports. Tens of thousands of foreign students, from among 450,000 studying in the United States, come to California’s universities. California’s scholars in turn teach and consult all over the world.
This is the state that invented discount brokerage, in the person of Times 100 entrepreneur Charles R. Schwab, who got the idea for a simplified brokerage service for retail clients while standing in line at a McDonald’s and watching that chain’s innovations in fast service. In fact, this is the state that invented McDonald’s--and Mickey Mouse.
* Entertainment and Tourism, the state’s best known industry, is underrepresented on any list of largest companies. Only Walt Disney Co. makes The Times 100 lists.
That’s partly because major film studios are owned by larger corporations, but mostly because entertainment is another entrepreneurial, fast-changing industry. Reported investment returns are often skimpy--although rivers of cash run through the business. Yet money is pouring into Hollywood today because everybody knows technology is shifting to multimedia, but few know what it means.
So major investors are bidding billions to buy in and employment in the business is expanding. On such risk-taking Hollywood was built 75 years ago and has maintained its position as the center of world entertainment ever since.
It is in that sense an emblematic California industry, changeable, risky and grounded in hundreds of small, skilled and entrepreneurial businesses.
Just the ingredients for a prosperous future.
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Absolute Profits
Companies ranked by profits from continuing operations.
‘94 Income Rank Company ($ Millions) 1 Intel Corporation 2,288 2 BankAmerica Corporation 1,928 3 Hewlett-Packard Company 1,833 4 Chevron Corporation 1,693 5 The Walt Disney Company 1,224 6 Pacific Telesis Group 1,136 7 Pacific Gas & Electric 964 8 Atlantic Richfield Co. 919 9 Wells Fargo & Co. 798 10 First Interstate Bancorp 700 11 SCEcorp 681 12 Rockwell Int’l Corp. 649 13 Apple Computer, Inc. 458 14 Lockheed Corporation 445 15 Transamerica Corp. 410 16 Oracle Systems Corp. 374 17 Cisco Systems Inc. 326 18 The Gap, Inc. 320 19 Amgen, Inc. 320 20 Advanced Micro Devices 310 21 Franklin Resources 256 22 Sun Microsystems, Inc. 255 23 National Semiconductor 254 24 Seagate Technology Inc. 251 25 Mattel, Inc. 251
In the Red
Companies ranked by loss.*
‘94 Income Rank Company ($ Millions) 1 20th Century Industries -498 2 Citadel Holding Corp. -203 3 McKesson Corp. -198 4 ICN Pharmaceuticals, Inc. -184 5 California Federal Bank -166 6 Glendale Federal Bank FS -140 7 Occidental Petroleum Corp -112 8 Orion Pictures Corp. -106 9 Sizzler International -93 10 Maxtor Corp -88 11 House of Fabrics, Inc. -86 12 Radius Inc. -79 13 Wahlco Environmental Sys. -66 14 Applied Magnetics Corp. -58 15 Gensia Inc. -55 16 Foodmaker, Inc. -52 17 Guy F. Atkinson Co. -52 18 Platinum Software Corp. -50 19 Intuit, Inc. -48 20 The 3DO Company -46 21 Borland International -38 22 Broadway Stores, Inc. -37 23 Calgene, Inc. -37 24 Spectrum HoloByte, Inc. -36 25 AST Research, Inc. -35
* Figures include one-time changes that may not indicate routinely losing operations.
