Resurgent Japanese Firms Doubt if They Should Bring New Investment to Southern California.

LOS ANGELES -- Japanese companies in Southern California have made significant contributions to the local economy: three out of four Japanese companies surveyed have headquarters or play other key functions in the United States, and these Japanese companies employ a little over 110,000 staff locally

and pay over $6.1 billion in total salaries and wages, according to a trial calculation based on questionnaire results. Amidst the ongoing expansion of the local economy, many of these Japanese companies continue to find Southern California attractive in terms of the market scale, the presence of logistical bases such as seaports and airports, and the size of Japanese community.

On the other hand, among the areas in the United States seen by the Japanese companies as attractive sources of new investment and business opportunities, only Southern California dropped its score compared with the last survey (conducted in 2002).

One reason behind this rise in negative sentiment is the deteriorating business environment in the state of California because of rising direct costs per employee arising from the Minimum Wage Law and the proposed medical insurance law. Other problems specific to Southern California include increased housing allowances due to escalating land prices, low quality of labor force for the wages/salaries paid, and excessive social security costs to businesses resulting from labor-friendly claims under workers' compensation insurance. These growing cost burdens are hurting Japanese companies in non-manufacturing sectors, which are more susceptible to labor cost increases, especially those in transportation and other service industries that are reliant on the Japanese community in Southern California. In addition, the increase of imports of competing Chinese products into the U.S. is another factor creating anxiety among the Japanese manufacturers in Southern California, which is a gateway to the U.S. for Asian importers.

This survey was conducted jointly by the JBA (Japan Business Association of Southern California) and JETRO, Los Angeles. They sent out a questionnaire to a sample of 1,079 companies in spring 2004. In May 2004, 404 responses were received and tabulated from the sample companies in Southern California.

Japanese Companies Generating $100 Million or More Account for

Nearly 20 Percent of Those Surveyed

Looking at the size of Japanese companies by revenue, approximately one-half of those surveyed have revenues of less than $10 million. On the other hand, companies generating $100 million or more account for nearly 20 percent.

Japanese Companies Create Local Employment for 111,000

The average number of workers employed per Japanese company is 106, including 101 employees hired locally. The total number of employment positions among Japanese companies in Southern California, when estimated through multiplication by 1097 (the number of such companies) approximates to 116,000, including 111,000 employees hired locally.

Japanese Companies Pay $52,800 Per Employee

The salaries and wages (including benefits) paid per base of Japanese company in the state of California stand at approximately $4.77 million, with an average $52,800 paid per employee (the average personal income in the state of California is $32,900).

The total amount of salaries and wages estimated by multiplying the above amount by the total number of employments by Japanese companies in Southern California (116,282 employees) is approximately $6.1 billion.

A Little Less Than 60 Percent of the Companies Make Donations

A little less than 60 percent of the companies responding to the questionnaire have donated cash, products and/or goods during 2003, with the total value of such donations reaching $45 million, excluding personal donations. Donations in cash and goods were contributed predominantly to various nonprofit organizations and funds, followed by schools, fire departments, law-enforcement agencies and local municipalities.

California Continues to Fascinate Japanese Companies

Japanese companies consider the market scale, the presence of logistical bases such as seaports and airports and the size of Japanese community as the advantages and attractions of the state of California, among others.

Only Southern California Dropped Its Score Compared With the Last

Survey

Among the areas in the United States seen by the Japanese companies as attractive sources of new investment and business opportunities, only Southern California dropped its score compared with the last survey. When asked about the obstacles and complaints associated with doing business in California, three out of four companies cited employment costs. In all industries, more than a half of the companies surveyed cited negative aspects of Southern California. One reason behind this rise in negative sentiment is the deteriorating business environment in the state of California because of rising direct costs per employee arising from the Minimum Wage Law and the proposed medical insurance law. Other problems specific to Southern California, as cited by the Japanese companies surveyed, include increased housing allowances due to escalating land prices, low quality of labor force for the wages/salaries paid, and excessive social security costs to businesses resulting from labor-friendly claims under workers' compensation insurance.

Furthermore, the Japanese companies in non-manufacturing sectors, especially those in transportation and other service industries whose markets are more reliant on the Japanese community in Southern California and which have limited revenues from the communities of other ethnic groups, are more susceptible to the increasing cost burdens as mentioned above. When asked in relation to the new law that would require companies to provide medical insurance for their employees (scheduled to take effect in 2006), 92 percent of the Japanese companies surveyed said that they were providing medical insurance for their employees. Additionally, nearly 80 percent of these companies contributed over 80 percent of insurance premiums on behalf of their employees. In addition, the impact of increasing imports of competing Chinese products into the U.S. is directly felt in Southern California, which is a gateway to the U.S. for Asian importers.

As a result, China's growing presence in the U.S. market is fueling concerns about the future among the Japanese manufacturers, as well as Japanese transportation companies whose major customers are Japanese manufacturers. The environmental regulations specific to the state of California present another factor that is weighing on the minds of Japanese transporters. Additionally, the growing dissatisfaction with the local tax system among the companies surveyed may have had negative psychological effects on their assessments.

The full report of this survey is downloadable in English and Japanese (28 pages) at the website of JBA (http://www.jba.org) and JETRO (http://www.jetrolosangeles.org/).