Tuesday, November 28, 2000

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SoCal Not Mickey Mouse
When It Comes To Tech

By Antonio A. Prado

Investor's Business Daily

Southern California may be the neglected stepchild of the high-tech economy.

There’s much more to the sun-baked region than movie-making and beach-going, a new study says.

The five-county area surrounding Los Angeles - not the Silicon Valley - employs more tech workers than anywhere else. It has the most high-tech firms, too.

Silicon Valley is the undisputed world leader of tech innovation and venture funding. But Southern California is flying fast in the new economy, even though it remains "below the radar," says Rohit Shukla, an economist and president of the Los Angeles Regional Technology Alliance, or LARTA.

He and other economists say two things are mainly to blame for Los Angeles’ lack of recognition: The region’s sheer size - 33,966 square miles - and the fact that it’s a national economy in microcosm.

While the much-smaller Silicon Valley is known for all tech, all the time, technology is merely one of many sectors that thrive in Southern California, Shukla says.

The region’s large size doesn’t make for the kind of combination that fueled Silicon Valley’s tech boom, he adds.

In LARTA’s study, called the Southern California Technology Innovation Index, the state-backed private think tank spells out the region’s strengths and weaknesses in the new economy.

 Image: More Powerful Than Silicon Valley?

The study compared the five-county area surrounding Los Angeles with Austin, Texas; the San Francisco Bay area, including Silicon Valley; and Massachusetts. Southern California scored 6.7 on a scale of one to 10.

Though its technology-based economy is strong, Southern California lags in venture capital funding, exports and patents. It’s also behind in the number of firms obtaining federal innovation research grants and initial public offerings.

But the potential is there, economists say. Southern California has more higher-education institutions - 305 colleges, universities and trade schools - than any other region. Strong research schools were key to Silicon Valley’s growth, analysts note.

"This has been one of the secrets of success of the Bay area," said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., a research group.

Caltech The Region’s Stanford

To succeed in the new economy, a region’s universities must be able to turn their research into viable commercial products, says Russ DeVol. He’s director of regional and demographic studies at the Milken Institute, a think tank near LA.

For instance, a student project at Stanford University produced Yahoo.

Kyser says Southern California universities such as the California Institute of Technology in Pasadena, University of California at Irvine and the often-overlooked California State University at Long Beach are well on their way to doing the same.

"Caltech seems to be on the cutting edge of this," Kyser said.

One of the several "tech clusters" emerging in the region is in Pasadena. Another cluster has sprung up around Irvine focusing on biotech.

An entertainment-technology cluster has formed around Burbank, home to Walt Disney Co. and NBC studios. And telecom firms have clustered along the 101 freeway that links the San Fernando Valley and Ventura County.

Southern California could gain from the housing and labor shortage in Silicon Valley, economists say.

Property values and rents have soared in the Bay area. Some workers commute three hours. "That’s just not sustainable," DeVol said.

Economists note that Southern California has plenty of land, a mild climate, beaches and mountains, and many cultural and social amenities.

"It boils down to the livability of a place," Shukla said. "There are enough good reasons to feel positive about Southern California."

The region’s real estate isn’t cheap. But it’s more plentiful and a lot cheaper than in the Silicon Valley.

"Compared to the Silicon Valley, we’re a raging bargain," Kyser said.

Shukla is bullish about the region.

"By all measures, venture capital investment and deployment in the region are up considerably," Shukla said, "per-capita, higher than at any time in the past 10 years."

Challenging Geography

Venture capitalists invested $2.36 billion in Southern California firms in 1999, LARTA said. That’s almost three times the $790 million venture funding in 1998.

"Venture capitalists are more positive about the region," Shukla said.

While more venture capitalists are coming to Southern California, they are still daunted by the region’s far-flung geography, says K. Lynn Farris, a LARTA researcher.

"They can’t come to a certain area and knock on doors like they can in the Silicon Valley," Farris said.

Another drawback of Southern California’s size is that it’s hard for firms to persuade job candidates to move within the region to be nearer their prospective workplaces.

Southern Californians often choose where they live within the region based on their lifestyles, Farris says. The region offers everything from rural ranches to urban apartments.

Farris says firms in Ventura County find it easier to recruit from out-of-state than from, say, Los Angeles or Orange County.

And Southern California has a tangled web of local governments.

Los Angeles County has 88 cities, while Orange County has 32. Riverside and San Bernardino counties each have 24 cities and Ventura County has 10.

These jurisdictions each have their own bureaucracies.

"It gets to be very complicated," Kyser said.

But the region’s technical and artistic strengths will help it succeed in the tech economy, Shukla says.

"It’s role in this new economy will be a unique one, and thus, by definition, difficult to replicate," Shukla said. "This is the essence of competitiveness - to make something that is hard to replicate."

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