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THE RECALL CAMPAIGN

A Variable Climate

To one company, California remains the place to be. To another, the cost of doing business has become too much.

October 05, 2003|Marla Dickerson | Times Staff Writer

Some of the busiest workers at Spirit Apparel Inc. these days are washing down equipment that's being stripped from the factory.

Slammed by burgeoning costs, the Orange County silk-screening company is laying off most of its 200 employees this month, when it will shift production to a new facility in Mexico.

"We cut everything we could think of, but it just wasn't enough," said President Al Rowland, watching employees folding some of the last sweat shirts to be printed at the Irvine plant. "Financially, California just doesn't pencil any- more."

The state's high business costs also are a major concern for Pulmuone USA Inc. Yet the subsidiary of South Korean food giant Pulmuone Co. has pinpointed Southern California as its beachhead for conquering the U.S. market for soy-based products. In August the company cut the ribbon on a $14-million tofu plant in Fullerton, its second major facility to open in the region in the last eight years.

"California is critical to our growth strategy," sales director John Sim said. "I'm not sure there is anything that could drive us out."

How two manufacturers of inexpensive, low-margin products could come to such opposite conclusions underscores the schizophrenic nature of California's economy: By many measures, the state is one of the worst places to do business. Yet at the same time, it remains one of the world's entrepreneurial hotbeds.

With its spiraling costs for everything from labor to insurance, overall business expenses in California are 32% above the national average, according to a recent study by the Milken Institute, a Santa Monica think tank. Electricity bills typically run twice those elsewhere, and companies in the state pay the country's highest workers' compensation premiums.

Such comparisons have made California's business climate a top issue in the gubernatorial recall race and have brought business recruiters from as far away as New Hampshire. They're urging revolt as part of their "Live Free or Die Tour."

"If you are looking at the pack of states with which we compete, we are not in the running," said Steve Spears, principal with SAER Group, which just gave California an F on an economic development score card. "When you get down to the core items that a businessperson has to look at to make it economically, we just totally flunk."

Yet for all that, California's $1.4-trillion economy remains one of the most vast and dynamic anywhere.

New business incorporations in the state have surged this year to levels unseen since the height of the last economic boom. California continues to outpace the rest of the country in population growth and personal income. And by 2005, UCLA forecasters predict, the state once again will be a leader in job creation, just as it has for much of the last half-century.

California's economic advantages are substantial. With its large and diverse population, the state is one of the world's most desirable consumer markets. Strategically perched on the Pacific Rim with the West Coast's largest port, it is the nation's prime gateway for booming trade with Asia. And being in California means having access to the leading centers in industries such as entertainment, technology and biomedical sciences.

Even though some companies and residents have fled California -- fueling sound bites on the campaign trail and soul-searching over whether the Golden State's dream has lost its promise -- that's only half the story in the eyes of UCLA economist Tom Lieser.

"There's a tendency by natives to think it's all gone to heck in a handbasket," he said. "But there's always a new bunch of migrants who don't view it the same way. To the new arrivals, it's still a wonderland."

Trouble in Paradise

For Spirit Apparel's Rowland, it is indeed paradise to live in California. He just can't afford to do business here.

The move to Toluca, Mexico, outside Mexico City, is one he didn't want and couldn't have imagined when he started the venture in 1983 with a partner and then-wife Kim Herbert to print T-shirts for the nearby surf wear industry. One small order from Quiksilver Inc. multiplied into a business that eventually employed 300 people at its peak in 2000.

"It just kind of blossomed," Rowland said.

The partners were riding a wave of California garment production that for years managed to defy the global forces that were pulling under Southeastern textile factories. By focusing on quick-turnaround, up-to-the-minute fashion items and specialty niches such as surf wear and swimwear -- and aided by Latino and Asian immigrants willing to work cheap -- the state's apparel manufacturers added jobs well into the late 1990s. This happened even as employment in the industry was plunging nationwide.

No longer. The state's garment industry has been brutalized over the last three years, shedding nearly 28,000 net jobs -- a whopping 23% of its employment base -- compared with about 15% for California's manufacturing sector as a whole.

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