California is the ninth largest economy in the world. “We’re more than just an amazing place to live with a world-class quality of life — though we have that too,” notes Leslie McBride, deputy director of Business Investment Services for the California Governor’s Office of Business and Economic Development (GO-Biz). “We’re the number-one market in the country and we’re number one in foreign direct investment and venture capital where we get more VC than the next 10 states combined,” adds McBride.
Given the size and diversity of the state, it is no surprise that California has a number of top rankings to its credit. The state also is a recognized leader in a variety of industries from cutting-edge technologies, such as computer software and unmanned vehicles, to more traditional industries including manufacturing and food processing. Businesses are drawn to the state’s large consumer marketplace. California is the largest state in terms of population with some 37.2 million people as of the 2010 Census. “You have to service the population, which is why a lot of businesses locate in California,” says Eric C. Dienstbach, a senior vice president at Binswanger Company in Greenwood Village, Colo.
The existing population, as well as the state’s position as a key gateway for importing and exporting goods to the Asia-Pacific region, continues to attract expansion of distribution and third-party logistics firms. For example, Amazon announced in January that it would open a new one-million-square-foot fulfillment center in Tracy. This marks the company’s third California facility in the last year. The company opened its first fulfillment center in San Bernardino in October, and currently has its second facility under construction in Patterson, which is slated to open later this summer. Combined, those projects are expected to create 1,000 new jobs.
Labor Is A Key Advantage
Among the state’s many assets, one of the most notable is its skilled labor force, which has been a boon for segments of the market such as technology, engineering, healthcare, and life sciences. Private and public universities such as Stanford University, UCLA, and the University of California-Berkeley rank at the very top among world-renowned universities across a variety of fields, ranging from arts and humanities to business. “Our top universities and private research institutions have created one of the world’s leading innovation and R&D cultures,” says McBride.
The strong education system fosters innovation and growth across an array of industries. Certainly, Silicon Valley and the Bay Area are at the heart of that knowledge base, but it has a broader reach throughout the state in markets such as San Diego, which is home to one of the strongest life sciences clusters in the country.
“[California has] some of the most educated and the most skilled work force segments in the world,” agrees Jubal Smith, an executive vice president in the Business and Economic Incentives Practice at Chicago-based Jones Lang LaSalle. “Many of the skilled workers located in California migrated there from around the world to be a part of the technology revolution.” Those skilled workers are employed at some of the most well-known, well-established global tech companies such as Apple, Cisco, Google, Intel, Oracle, and Yahoo. As those companies grow and mature, many of those workers leave to create new spin-off companies. “So California continues to be a birthplace for high-tech companies,” he adds.
California’s reputation as a leader in innovation has helped to attract workers, companies, and capital to the state. California is second only to Texas in job creation. In January, the state posted a year-over-year increase of 286,100 non-farm jobs. Another notable accomplishment, businesses in California received a staggering half of all venture capital financing in the U.S in 2011, according to an Ernst & Young venture capital report. “California has a lot going for it. It is highly diverse, and that diversity will continue,” says Smith.
California - At the Epicenter of Innovation
California is recognized both nationally and internationally for its tech development in areas such as cloud technology, operating systems, and app development.
- The entire tech sector has returned to the "boom levels" that existed prior to the recession. For example, Samsung, Dell, Ford, GE, and Volkswagen are among those firms that have opened R&D or innovation centers in California in the past year. In January, FICO, a leading provider of predictive analytics and decision-management technology, announced that it would relocate its headquarters from Minneapolis to San Jose in order to be closer to Silicon Valley's engineering talent pool. The company, which already employs 90 people in San Jose, will occupy about 40,000 square feet near the Mineta San Jose International Airport.
- High tech has been big and a driver for Silicon Valley and the Bay Area. However, those industries are continuing to expand throughout the state. California is one of the top hubs for gaming in the country with an established market in the Bay Area that is extending further south into Santa Monica and Venice - an area that is emerging as the "Silicon Beach" due to its growing base of companies and tech workers. California also has a strong healthcare industry, as well as a growing green energy sector.
- The state also is home to key life sciences clusters in both San Diego and the Bay Area. In fact, Jones Lang LaSalle ranks San Diego and the Bay Area as second and third, respectively, among the top life sciences clusters in the nation. California's 2,324 biomedical companies employ an estimated 267,000 people and account for $115 billion in annual revenues, according to the California Healthcare Institute.
- A notable trend in San Diego in the past year has been a flurry of M&A activity. The local market recorded $13.8 billion in eight M&A deals, according to Jones Lang LaSalle. It remains to be seen how those acquisitions will impact plans to expand - or contract - existing operations. One sizable announcement is Shire Pharmaceuticals' plan to build a new 170,000-square-foot facility in Sorrento Mesa to house manufacturing and warehouse functions. The site also will be able to accommodate future growth up to 800,000 square feet.
Traditional Industries Provide a Solid Base
Although Silicon Valley and the glamour of the state’s thriving movie and television industry are more apt to grab the spotlight, the state is home to steady workhorse sectors such as manufacturing, shipping, and energy.
California is by far the number-one state for manufacturing — both in terms of jobs and output. Manufacturers in California account for 11.7 percent of the state’s total output and employ almost 9 percent of the work force. Total output from manufacturing was $229.9 billion in 2011, significantly more than for any other state, according to the National Association of Manufacturers. “Manufacturing will continue to be an enormously strong segment in California for many years to come,” says Smith.
Another traditional sector where California continues to reap the benefits is agriculture; the state produces everything from almonds to wine. California is also the number-one state for agriculture revenues. The state’s 81,500 farms and ranches posted record sales revenues of $43.5 billion in 2011, which represents 11.6 percent of the U.S. total, according to the California Department of Food and Agriculture. “As the country continues to demand fresh food, healthy food, and organic food, California will continue to be an enormous [agricultural] leader,” says Smith.
Another traditional source of revenue is the state’s busy ports. The San Pedro Bay ports of Los Angeles and Long Beach are the two largest container ports in the nation. Imports from the Pacific Rim countries are responsible for a lot of activity of multinational 3PL providers as well as distributors coming into the San Pedro area. The Inland Empire is one region that has benefited from that business with considerable expansion in the last 10 years as trade from the Pacific Rim into the United States has increased. However, there are some predictions that the Panama Canal expansion could grab 20 to 30 percent of the shipping volume that is now coming into the California ports of Long Beach and Los Angeles.
Battling Competitive Pressure
Despite California’s many strengths, the state does face increased competition from other states such as Texas, Arizona, and Nevada. Yet, according to McBride, those businesses that do choose to move out-of-state are only a very small fraction of the broader business base. “For us, retaining businesses is maintaining businesses. We work with them to deal with their issues — from permitting to capacity to capital — wherever possible, and as early as we can to identify issues in which we might assist,” she says.
Another area where California is gaining ground is getting businesses to consider regions within California that they might not know about. For example, the state has a variety of communities with strong research university partners, able work forces, and great infrastructure — cities outside of the San Francisco Bay Area or Southland (i.e., Los Angeles, Orange, San Bernardino, Riverside, and Ventura counties).
Certainly, businesses are attracted to the state’s work force, support for emerging technologies, and a strong academic base that encourages R&D and innovation. Those are just a few of the attributes that have helped to establish California as the number-one destination for foreign direct investment in the country and a prime target for venture capital investment. “People don’t come to California to do small things,” McBride concludes.