A Hidden High-Tech Hot Spot

Behind the glitzy strip malls of the San Gabriel Valley, with their giant neon signs in Chinese and bustling throngs of shoppers, lies a network of booming yet little-noticed companies in quiet industrial neighborhoods.

Here, nondescript low-slung warehouses are strewn about like giant building blocks. But instead of ABCs, they carry names like CTX, AANEX and SOYO.

This is the heart of Southern California’s Taiwanese American computer industry. From Irvine to Ventura, immigrants have established hundreds of small, nimble companies that one day might sell parts by catalog and the next, put together whole computer systems. Their thousands of workers assemble finished parts and equipment imported from Asian manufacturers and repackage them for sale nationwide and around the world.

In an era of increasing hostility toward immigrants, they are contributing to the state’s economic recovery. Commercial and industrial real estate sales have skyrocketed in the San Gabriel Valley. And with their ties to Asian corporations, they are a conduit for vital Pacific Rim trade.

Just as Asian toy company owners in downtown Los Angeles’ Toytown resell goods manufactured in China, the computer mini-moguls resell computer hardware built elsewhere. But with annual worldwide sales estimated at $3 billion, Southern California’s Taiwanese American computer companies have far outstripped the better known $1-billion local toy industry.

Hard figures are unavailable, but computer industry analysts say a substantial number of computers and parts sold in the United States pass through the Southern California companies. The Taiwanese American firms undercut U.S. manufacturers like Compaq or Dell, resellers like Merisel or Ameriquest, and retailers like ComputerLand or Fry’s Electronics.

“They are a growing part of the distribution chain for individual consumers as well as the small-business market, with prices 15% to 20% lower than [name brands],” said Van Baker of Dataquest, a San Jose-based market research firm.

An increasing number of retail shops slap their own labels on computers acquired from the Taiwanese independents, he added.

A typical San Gabriel Valley company often will specialize in importing one or two computer parts but also might assemble and sell whole systems. Some eventually turn into manufacturers themselves, designing products and contracting with Taiwan factories.

Southern California is part of a “golden triangle,” said Paul Wang, co-owner of MAG Innovision Co., a Santa Ana computer firm with $700 million in annual sales. That triangle links computer design firms in Northern California’s Silicon Valley, overseas Taiwan manufacturers and assembly and distribution companies here. Linked by Taiwan, the computer companies in Northern and Southern California operate at different ends of the industry.

“They are engineers over there. Here, we are businessmen,” said Hank Tao, president of EKM Computer in Buena Park.

The distributors here are a close-knit band of entrepreneurs, largely unknown by most in the electronics and computer industries. Drawn by the concentration of Asians in the San Gabriel Valley, they cluster mainly in Walnut and the city of Industry.

“It’s like, at the back door is another company,” said Philip Chen, president of the Chinese Computer Assn., an organization of computer professionals.

The companies wheel and deal in “peripherals,” parts like scanners, motherboards, graphics boards, monitors, power sources and networking cards.

By clustering, the firms can respond quickly to customer desires, obtaining parts from another company when they need to assemble an entire computer and avoiding costly inventories.

“If you store a lot of inventory, say a CD-ROM drive, and that drops in price from $200 to $50 in five months, you’ve lost money,” Chen said.

These energetic companies range from tiny 10-person start-ups to global firms like ViewSonic, which has 350 employees in seven countries. There are more than 800 Taiwanese American firms in Southern California, said Johnny Tsai, president of the Max Group Corp. and head of the Southern California Chinese Computer Assn., which represents 300 business owners.

The network stretches beyond the San Gabriel Valley to a smattering of companies in Ventura County’s growing technology corridor along the Ventura Freeway. In Rancho Conejo, Newbury Park and Thousand Oaks, Asians make up about 15% of the business owners. Other companies work out of Orange County, spread thinly in Tustin, Irvine and Santa Ana.

But the preferred locale is the San Gabriel Valley, with its dense cluster of about 500 firms.

“If a company is making money, they move to the city of Industry,” Chen said.

Among the valley’s draws are its low-crime areas and plethora of warehouses with loading docks and security devices, a must in an industry in which a suitcase of chips can easily go for $250,000.

Another lure is the proximity of Chinese restaurants, stores and supermarkets, and good schools in prosperous suburban neighborhoods such as South Pasadena, Arcadia, Rowland Heights and Diamond Bar.

Taiwan and the drive of its people for education are the keys to the success of the Chinese American computer industry here. Formerly a textile-producing giant, Taiwan in the 1980s recognized the need to switch to high-technology manufacturing. With government money and tax breaks, it created a fledgling computer hardware industry out of land used for peanut farming in Hsinchu, a rural town an hour south of Taipei.

Hsinchu’s Science-Based Industrial Park now counts more than 42,000 employees on real estate that is among the world’s most expensive. Last year, Taiwan computer hardware manufacturing firms sold nearly $20 billion worth of goods, most of it manufactured by thousands of small companies, Baker said. The country is a leading producer of mouses, motherboards, scanners, monitors and keyboards.

It’s no surprise, therefore, that talented and well-educated Taiwanese immigrants here would find themselves in a unique position to do business with the thriving family-owned companies overseas.

The experience of two Southern California businessmen provides a template, duplicated over and over again, that demonstrates how small entrepreneurs have built a thriving computer network.

Friends in Taiwan helped Chuck Chen (no relation to Philip) start a business out of his Monterey Park apartment in 1984. With $2,000 in savings and his wife as his only employee, he went on to build Ocean Interface Co.

The small firm now has annual sales of $10 million, Chen said. The 18 employees who work out of a 10,000-square-foot building in Walnut assemble CD-ROM drives and network and interface cards manufactured in Taiwan.

“If textiles were still the same [dominant] business in Taiwan, we’d be selling clothes right now,” admits Chen, a tall, thin 41-year-old who puts in 12-hour days, six days a week.

Chen is like so many others from Taiwan who came to the United States for science and engineering degrees. After earning a master’s degree in engineering from Southern Methodist University in Dallas, he gained experience at a Van Nuys company.

Meanwhile, friends in Taiwan who had developed their own computer manufacturing company wanted someone in the United States to sell their interface cards. They called Chen and sent over $50,000 worth of products.

“It was based on mutual trust,” Chen said. “We just took the cards, sold them and sent back the money. No contract. No attorney. Just words.”

The casual arrangement was common in the early 1980s, Chen said, but was backed up by cultural connections. If a California company owner failed to deliver, the Taiwan manufacturer could simply speak to the Californian’s family in Taiwan.

Times have changed, say those in the computer business here. Agreements are more formal now, and credit ratings, expert management teams and professional reputations are given as much as or more weight than family or personal connections.

Still, the close cultural ties remain.

Mandarin is often the dialect of commerce among the computer company owners, and news about industry deals and developments travels by word of mouth. Tea is offered at business meetings rather than soda or coffee. And many of the owners know each other personally and are neighbors in the heavily Chinese neighborhoods of Rowland Heights, Diamond Bar and Walnut.

Chen’s experience shows how the Taiwanese American computer network was created almost by happenstance. Young Taiwan immigrants left behind a repressive political system and mediocre schools for educational opportunities here, stayed to get work experience, then were tapped to sell computer products that were manufactured by relatives or friends overseas.

Once the network was established, other Taiwanese followed, like James Chu, owner of the monitor manufacturing firm ViewSonic.

Impatient to earn money, Chu dropped his college studies in Taiwan and went to work selling computers for a company there. He volunteered to come to California when the firm decided to expand in North America and Europe. After a few years working in Fremont, he scraped up $100,000 from savings and family loans to start his own company in Santa Fe Springs in 1987.

He chose that city because it was midway between two booming computer areas, Irvine and Monterey Park. In 1991, he moved to Industry because the center of business had shifted. He recently broke ground on a 300,000-square-foot building in Industry that will triple the space of his current headquarters office.

“Within a 15-minute drive from here, I can visit 100 computer companies,” he said, looking out his office window at the array of warehouse buildings down the street.

Chu, 39, now reports annual sales of $500 million and oversees 350 employees who assemble, sell and distribute power sources and the ViewSonic line of monitors with its logo of three rainbow-colored finches. The equipment is manufactured in Japan, Taiwan and Malaysia under contract to ViewSonic and sold worldwide, Chu said.

With only 30% of his sales outside the United States, Chu said his goal is to increase international sales to 50% by 2000. He plans to focus on high-growth Asian countries such as Japan, Vietnam and Thailand, targets for many of the other Southern California-based computer companies.

Likewise, Chuck Chen said he has traveled to Italy, Tunisia, Brazil, Mexico and Canada seeking markets and business connections.

“We are a big superstore to the whole world,” said Tao of EKM Computer, explaining that the companies here act as a discount clearinghouse for the thousands of independent, small computer manufacturers in Asia. “The whole world has to come here for our products, even if they’re made in Taiwan.”

Overseas expansion by Southern California’s Chinese computer companies will create more wealth here, said Jack Kyser, chief economist of the Economic Development Corp. of Los Angeles County. The companies already have sparked a commercial real estate boom.

Warehouses of 5,000 to 10,000 square feet are being snapped up by local Asians starting out or expanding businesses, Bay Area firms branching south and Asian companies.

Although the entire valley is thriving, the current boom is concentrated in Industry and adjacent Walnut, where new industrial parks abut fields with grazing cattle.

“Over the past year and a half, six of 10 companies moving into the city are Asian,” said Dick Register, executive director of the city of Industry’s Manufacturers Council.

Kent Valley, vice president of Majestic Realty in Industry, said the vacancy rate on the 15 million square feet of industrial space his company owns in the San Gabriel Valley has dropped to 2% from the average 7% of a few years back.

“A year ago, I was really struggling to drum up business,” said Joseph Lin, 46, a CB Commercial real estate broker who specializes in the San Gabriel Valley. “Now, the phone is ringing off the hook. They’re all computer companies.”