O.C. Executives Look at ‘96, Like What They See

Business executives in Orange County are beginning 1996 on the most upbeat note in a decade, a UC Irvine study has found.

Almost all who were interviewed said they expect new markets and new products to result in significant sales and profit increases.

“What we have here is a very good--and that’s a conservative choice of words--forecast for 1996 and beyond,” said Dennis Aigner, dean of the university’s Graduate School of Management.

The university’s annual survey of business executives’ attitudes about local conditions underscores what regional economists have been saying for several months: The economic recovery has finally found Orange County.

After five years of contraction and belt-tightening, executives are reporting increased hiring, rising revenue, expansion plans and the most positive attitudes ever about the attractiveness of the county as a place to do business.

Almost 60% of the survey respondents said they expect to expand their businesses within the county this year and nearly 80% said they expect to expand by the end of the decade. In contrast, about 22% said they expect to cut employment or see sales revenue drop this year--compared to 26% who reported “downsizing” in 1995.

While the portion of businesses anticipating expansion is growing, Aigner said, the number expecting contraction of their local operations is staying relatively steady.

In a significant switch from past years, only 4% of survey respondents said they were very likely to relocate some or all of their operations outside of Orange County this year. That is down from about 9% last year and 13% in 1993.

And though an additional 27% said they were somewhat likely to move at least some of their facilities, Aigner said 70% of the same companies also said they were contemplating expanding operations in Orange County.

“I don’t worry so much about the relocation figures now because I’ve figured out that companies that already have operations overseas, or even in other states, are always thinking about moving something to bolster performance over there,” he said. “This is just part of the emergence of Orange County as a full-fledged player in the international economy.”

International trade, especially first-time expansions into overseas markets by many of the county’s small manufacturers, will drive a lot of the recovery, the survey of 291 businesses found.

“The international market looks stronger than the domestic market,” said Kenneth Kraemer, a UCI management professor and co-director of the survey. Companies that are doing business in international markets were twice as likely as domestic firms to predict sales growth this year and three times as many said they expect to open new offices or manufacturing plants or increase their payrolls.

“International firms seem to be the vehicle for growth in the county,” Kraemer said. “They create opportunities for themselves and for other businesses” that provide services to manufacturers, he said. Those include advertising and marketing companies and financial and accounting firms.

Businesses involved in international trade also will be pushing a rising tide of employment in Orange County, the survey shows.

Aigner said UCI is predicting a 3.1% growth in local jobs this year, compared to a 2% growth rate predicted by economists at Chapman University. Hiring by companies involved in international trade will outpace those with only domestic business outlets by more than double, Aigner said.

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One of those companies is Neuro Navigational Corp., a small Costa Mesa surgical instruments maker.

William Worthen, chief executive at the 5-year-old company, said he has just received clearance to begin selling microsurgery devices in Japan and expects to launch a European sales effort by early spring. From just three employees in 1991, the company has grown to 50 employees. In the last year alone, the company hired 20 workers in anticipation of the overseas sales effort.

“And if all goes well, we will begin hiring again in the third or fourth quarter,” Worthen said. “We will have to.”

Small businesses such as Neuro Navigational will grow faster than large businesses with more than 100 employees, according to the survey. Small manufacturers, for example, said they anticipate an average 17% increase in jobs this year, while large manufacturers expect only a 1.1% employment growth.

But large businesses account for a greater share of total employment and that tempers the survey’s overall results. In manufacturing, for instance, the total anticipated job growth rate for the county will be just 2.4%, Aigner said. Still, that would make this the first year since 1988 in which the number of manufacturing jobs in the county increased.

The new corporate optimism is also shows up in executives’ ratings of the county business climate, which received its best marks since UCI began asking about such attitudes in 1988.

Among manufacturing companies, typically the most hostile, only 20% said they found the county a less attractive place for business. In past years, the negative response came from 30% to 90% of the manufacturing companies.

Overall, the survey found that 29% of executives believe Orange County is becoming a more attractive place for business while 19% believe it is becoming less attractive--the first time since 1988 that the positive response outweighed the negative.

Executives cited strong economic growth as the leading reason for positive attitudes about the county, while those who voiced increasing displeasure said the county government’s 14-month-old bankruptcy and the high cost of living were the chief detractions.

County government took a lot of abuse, with 41% of the executives from large businesses and 45% from small businesses voicing dissatisfaction, largely because of the bankruptcy. Just 34% of the large businesses and 30% of the small businesses said they were satisfied, most of them citing a pro-business attitude.

Although the county’s bankruptcy was cited often in general gripes about government and business, executives found nine worse villains when they were asked to list chief barriers to doing business in the county.

The cost of housing ranked first, with more than 30% of the executives saying prices have a severe impact on business. Although the median price of a single-family home has dropped to $186,000, its lowest in more than seven years, Orange County remains one of the nation’s most expensive housing markets.

Among the other barriers cited: Cost of land and buildings for business, state and local taxes, litigation liability, and the workers’ compensation insurance system.

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Looking Abroad

Expansion into international markets will help drive Orange County’s business and economic recovery. By the year 2001, executives from all sectors say, they will be more heavily involved in overseas business. Percentage with an international presence in 1996, and what they expect their presence to be in 2001:

Large manufacturing

1996: 74.3%

2001: 82.9

Small manufacturing

1996: 63.9%

2001: 75.0

Trade

1996: 35.0%

2001: 48.8

Large services

1996: 30.0%

2001: 47.1

Small services

1996: 36.0%

2001: 54.7

Relocation Plans

Fewer executives say their firms are “very likely” to relocate in the next five years, contributing to a more stable business environment. Percentage of those very likely to move:

1989: 11.7

1990: 13.1

1991: 9.3

1992: 7.0

1993: 12.8

1994: 10.5

1995: 8.7

1996: 4.1

Source: UC Irvine Graduate School of Management Orange County Executive Survey