Long ago, doing business in California was very costly. Finding a house to live in, cost of energy, quality of life, and other factors showed discouraging figures. However, with the assumption of Arnold Schwarzenegger as Governor of California changed the outlook of venturing in business in California.
This paper will present the pros and cons of doing business in California as well as the state of major industries such as aerospace, agriculture, and entertainment.
California in Focus
California is a state dominated by mountainous regions. It is the third largest state in the United States and includes Los Angeles, which is its largest city. The inhabitants of California derive its income from agriculture and mining (Rolle & Miller, 2008).
Despite its sheer size, California is home to the Death Valley, the lowest region in the US, and Mount Whitney, the country’s tallest mountain away from Alaska. Among its greatest attractions are varied national parks and forests as well as its wide array of sequoias (Rolle & Miller, 2008).
The name California initially referred to the area where Juan Rodriguez Cabrillo’s expedition arrived from Mexico in 1542. It is also known by the name Golden State, which may be attributed to the Gold Rush, which was one of the major influences in California becoming the 31st state of the United States in 1850 (Rolle & Miller, 2008).
The Business Picture
The first few years of the 21st century was without doubt very challenging for the economy of California. An increasing income can pose a lot of problems or at the very least has the capability to lessen the possible burden that the problems can bring. In the case of California, its relatively high income barely had an effect in the economy of the United States.
The assumption of Arnold Schwarzenegger as governor of California started the change of fortune towards the viability of business in the Golden State. In his first sixteen months, the Schwarzenegger administration targeted the legislative and regulatory measures that caused most California businesses to transfer their venture somewhere else (King, 2005).
When planning to do business in California, one would be discouraged by the fact that this state is not one of the best places to conduct a venture. In a 2005 survey conducted by Pollina Corporate Real Estate Inc. which is based in Chicago, California is not ranked among the 25 leading business friendly states (King, 2005).
The findings of Pollina were seconded by other studies conducted by other firms. The results of these surveys yielded a drop in businesses operating in California from 1998 to 2004. Because of increased business taxes, companies like Boeing Co., which has 36,000 employees in California, expanded their business in other states. This example was emulated by the company’s Boeing Delta IV Rocket Program warehouse, which chose to do business in Alabama rather than California to avoid paying huge taxes (Fitzenberger, 2005).
The Situation is Dismal in California
David Spaur, President and CEO of the Economic Development Corporation in Fresno County, said that unless the government regulate or implement measures to keep or attract businesses in California, more and more companies would most likely pull out from the state and move to Las Vegas or Reno where business taxes are more affordable. Business leaders are saying that it is now up to lawmakers to come up with the much needed legislation that will make California ideal for doing business (Fitzenberger, 2005).
Wayne Schell, who acts as president and chief executive officer of the California Association for Local Economic Development, said that businesses in the state face the prospect of losing in their competition against businesses from other states. According to him, among the reasons why firms based in California transfer their business to other state are increasing taxes, payment of new fees, and concealing of tax credits and exemptions (Fitzenberger, 2005).
Aside from that, the extremely high worker’s compensation insurance can be a burden to employers in the state. In a report issued by the California Department of Insurance, premiums paid by firms went down between 13.9 percent and 16.6 percent during the last six months of 2004. The high cost of health care, housing, gasoline, and power likewise contribute to the unhealthy business conditions in California (Fitzenberger, 2005).
The Strengths of California Businesses
While the situation may be bleak as far as doing business in the Golden State is concerned, there are some positive things that can still make it a leading venue for business. For instance, California tops the knowledge-based sector of US economy. This can be credited to its well-educated college graduates as well as its traditional entrepreneurial spirit. Likewise, California is still the leader in cutting-edge technology (King, 2005).
In addition, there is evidence that shows why California can still recover from its present state. Here are some of the facts that can prove the viability of doing business in California (Schultze, 2005):
- California employees are 15 percent more productive than the country’s average
- It is the heart of automobile, home furnishing, and furniture manufacturing.
- Seven of the leading design companies in the United States are located in the state
- Three of the Twenty Five Most Successful Large Metropolitan Areas can be found in the state as well
- Five of the Twenty Five Best Medium-Sized Cities belong to California
- California Ranks Number Six Among the Biggest Economies in the World and a Manufacturing Leader
- It is the second largest exporting state of the United States
- The Golden State is home to ten of the twenty leading software firms and five of the top ten hardware manufacturers in the United States.
- It takes pride in having the most number of nanotech patents which has now reached 200.
- It is included in the Top Ten most desirable states to live in the United States
The Future Looks Bright for California
Coldwell Banker, a major real estate firm, reported that the average cost of homes in San Diego is $607,475, while in La Jolla, the average cost is $1.7 million, Long Beach is $835,500, Irvine is $755,825, in Pasadena and Pleasanton, its $714,500 and $771,000, respectively (King, 2005).
When it comes to owning a home, the farthest east of the state has the lowest housing cost. For prospective business, the idea is to set-up their firm in the Hesperia region where the cost of owning a home is more affordable compared to other areas in the state. This would mean reduced manpower costs for firms planning to set-up their business in this region (King, 2005).
The LA-Ontario International Airport is another viable venue for venturing into businesses in the state. Situated 35 miles east of downtown Los Angeles, it entertained 7 million passengers in 2004, which is 6 percent higher than 2003. It is ranked thirteenth in the world and tenth in the country in air cargo tonnage. Being at the boundary of Interstates 10 and 15, the LA-Ontario International Airport is vital for manufacturing firms. Mag Instrument Inc., which manufactures Maglite flashlights, has a 500,000 square foot facility in Ontario which has about 800 employees in California (King, 2005).
Aside from the viability of business in these regions, Riverside County can provide high quality of life to the families of both employers and employees of firms that will be established in these regions (King, 2005).
In addition to cost reduction, the eastward region of California can free businesses from traffic congestion in the coastal counties. Another benefit that can be obtained in establishing business in this region is that it is a hub for manufacturing and logistic facilities. For example, Nutro Products, Inc., a firm engaged in the manufacture of pet food, has access to both truck and rail transport. Another firm benefiting from the manufacturing and logical advantage of the Hisperia region is ConAgra (King, 2005).
Moreover, manufacturing and materials distribution are not the only growing industries in the San Bernardino and Riverside Counties. Most manufacturing firms have now considered office expansion. Manufacturing firms such as Luminex Software, Inc. and Encore Pharmaceuticals, Inc. have benefited from office expansion. The former has seen a tremendous growth since it transferred from its original 6,000 square foot facility to its new 15,000 square feet two-storey building located at the Hunter Business Park. Since then, it has been adjudged as one of the fastest-growing technology firms in North America (King, 2005).
Obviously, it can be seen that the advantages of doing business in California far outweighs the disadvantages. Within the coming decade, California expects to generate 3 million additional jobs for 6 million additional residents and 2 million extra household. More businesses are likely to be generated in the state with the establishment of the California Commission for Job and Economic Growth, whose main objective is to address possible barriers to creating jobs and new investments. Credit this to the efforts exerted by Governor Arnold Schwarzenegger and the California Legislature.
Despite the negative reports about the business conditions in California, the positve aspects of doing business in California gives firms more reasons to retain and expand their ventures in the state.
The Aerospace Industry in California
As far as the aerospace industry is concerned, California is a major player in the manufacture of aircraft, missiles and missile guidance systems, radar technology, and navigational devices. It is the leading state as far as establishment of new businesses engaged in aviation and aerospace is concerned. In Southern California alone, there are more than 1,000 aerospace firms employing over 170,000 personnel which constitute 20 percent of the national total. There are several factors that have drastic effects to the fact that the aerospace industry is a thriving business in California (California Space Authority, 2008).
The Educational System
One of the major influences as far as the aerospace industry in California is its educational system. The state boasts of having two world class educational institutions namely the University of California (UC) as well as the California State University (CSU). The UC’s network of science, engineering, and research resources are major contributors to the space development efforts of the state. The nine campuses of the university benefit from funding provided by the National Science Foundation. Aside from that, it boasts of being the home of more award-winning scientists and researchers than any of the world’s educational institutions (California Space Authority, 2008). On the other hand, CSU offers 1600 varied bachelor and master’s degrees in 240 different fields and likewise has more engineering graduates in any part of the globe (California Space Authority, 2008).
The Extent of Research, Development, and Testing
Research, development, and testing efforts in California cover the most extensive scope which tops any other RD & T efforts in the world. The state is home to the most innovative and state-of-the-art facilities and equipments in the field of research and development (California Space Authority, 2008).
The Presence of Aerospace Firms and Suppliers
In a Southern California Edison study conducted in 1999, 42,000 aerospace firms and suppliers are based in the state. Aside from the major industry players such as Boeing, Lockheed Martin, TRW, to name a few, there are minor players that provide engineering, design, and manufacturing capabilities that leads the aerospace industry in the world. The number of employees working in the industry is at least 500,000 strong. Most of these firms bank on 40 years of design, manufacturing, and engineering experience (California Space Authority, 2008).
Home to Space Development Centers
Being the headquarters of more NASA centers than any other state, California gets almost 20 % of NASA’s entire funding. California is home to the NASA Ames Research Center, Jet Propulsion Laboratory, and the NASA Dryden Flight Research Center (California Space Authority, 2008).
Aside from that, California is home to aerospace development centers like Edwards Air Force Base, Los Angeles Air Force Base, and Vandenberg Air Force Base. California has also captured half of the world’s satellite market which can be attributed to the fact that Boeing Satellite Systems and Lockheed Martin Commercial Space Systems are located in El Segundo and Sunnyvale, respectively (California Space Authority, 2008).
The Agriculture Industry of California
Food-processing is the leading agriculture industry in California which generates 182,000 jobs. California is the top dairy producer in the United States. Likewise, the state accounts for 67% of US wines in the country with 2 out of 3 bottles in the market originating in California (Schultze, 2005).
The Central Coast of California is a region that is an agriculturally rich area. Lettuce is the most abundant product that this region contributes to the country during the winter and several varieties of fruits, flowers, and vegetables throughout the year. There are about 3,000 agricultural firms operating in the region and they range from at least ten acres to as much as 2,000 acres. Two-thirds of the industry in this region involves lands less than 50 acres (Jones, Harlen, & Bianchi, 2006).
Agricultural lands owned by families for generations have been leased instead of sold. Interested leasers have a choice between short-term or long-term lease. This has resulted to varying degrees of interest in terms of implementing water quality protection measures (Jones, Harlen, & Bianchi, 2006).
A major concern among farmers is the quality of food in the region which has somehow influenced the methods used by the farmers in selling their crops. These concerns have been raised as a result of water quality protection methods (Jones, Harlen, & Bianchi, 2006).
The quality of water in California is controlled by 9 regional water boards designated by the governor. These boards are focused on regulating point-source discharges by issuing permits. During the 80s, there was only minimal knowledge about the effect of irrigation tailwater and groundwater from inorganic fertilizers. There are instances when traces of nitrate concentrations were discovered in drinking water. It was only very recently that the Central Coast Water Board (CCWB) started to monitor water quality (Jones, Harlen, & Bianchi, 2006).
Starting in the 1990s, various segments of the industry have taken active roles in ensuring water quality. Efforts to develop sustainable practices among grape growers were started as well as outreach and education initiatives for Spanish-speaking farmers. In other areas of the Central Coast, the industry has started to cooperate with local watershed programs (Jones, Harlen, & Bianchi, 2006).
The Entertainment Industry in California
The glitz and glamour of Hollywood symbolizes the entertainment industry in California. Over the years, the state has remained as the top venue for producing films and television shows. The industry has more than 270,000 people in its payroll and it has a total gross of almost $31 billion (Schultze, 2005).
The entertainment industry is a major contributor to the economy and culture of California. It is a dynamic but costly industry. Recently, there were major layoffs reported as a measure to ensure that the industry will keep in step with the competition and the price of maintaining such a lucrative business (Hollywood Chamber of Commerce, 2006).
The advantage of California over other states is that it has the capacity to maintain such business. In a recent survey done by the Los Angeles Development Corporation, it was reported that 30 percent of all workers employed in the entertainment industry hail from Los Angeles County. The proliferation of training centers in the state ensures the protection of its talents (Hollywood Chamber of Commerce, 2006).
However, despite its lucrative nature, the entertainment industry faces various obstacles that may jeopardize its stature as a huge contributor to state economy (Hollywood Chamber of Commerce, 2006).
One of the major stumbling blocks in the continued success of the industry is the so-called runaway production. Realizing the benefits that they can obtain from it, some production outfits are keen on moving their business to nations such as Canada and Mexico as well as in other American states like New York. This is why leaders of the Hollywood Chamber of Commerce are bent on pushing for the enactment of AB 777, a bill that aims to push for the retention of tax incentives by lobbying with sister chambers throughout California (Hollywood Chamber of Commerce, 2006).
Another major concern for chamber leaders is the high business cost being implemented in California as well as hostile legislators not wanting to offer similar incentives given by other states. These are just two of the reasons that may cause the film industry from transferring to other states (Hollywood Chamber of Commerce, 2006).
The Future of the Industry
The entertainment industry is headed towards a bright future. The sector is moving towards implementing a new model called Participatory Media. In this approach, consumers now have a role in the operation of media systems. Participatory Media replaces the old model where customers are restricted to buying only (Hollywood Chamber of Commerce, 2006).
In addition, the industry has made great strides in advancing new technologies as part of efforts in preventing the transfer of the motion picture sector to other states (Hollywood Chamber of Commerce, 2006).
California Then and Now
The movie, “The Aviator” showed the dissatisfaction of businessmen in California and in the process moving to other states in the United States. Howard Hughes was a California resident before he decided to establish his business in Las Vegas in 1966. It likewise showed the progress of the motion picture industry from the silent era of the 1920s till the time sounds were added in the 1940s. Even during that time, the air force industry already showed innovations that made it one of the best in the world.
On the other hand, the “Grapes of Wrath” depicted the dismal state of California during the 1930s. After the Great Depression, migrant people flocked to California which was a state in need of cotton pickers. However, most of the migrants from other states arrived. Only a few of them were given work but at reduced wages.
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