< Previous18 C A L I F O R N I A I N V E S T M E NT G U I DE the hots are getting hotter, but we are doing our best to ensure that California is ready for the inevitable to occur. Climate change is here, and it is real. The urgency of responding to natural disaster is real too, and we are living up to that. What is the global brand identity of California? What would you like it to be? MENDONCA: California is known as a state where dreams can come true. We are the world’s fifth largest economy. We are the fresh fruit and vegetable and nut capital of the world. This is a place where companies change the world. We want to be known as a place that welcomes the free flow of ideas and people — a place that is inclusive and resilient. We want this to be a California for all. Are there any misconceptions about California that you’d like to clear up? MENDONCA: One misconception is that California is a challenging place to do business. Everyone wants to live here, and our housing growth has not kept pace with that. We are working on that. California is a place that is very complex. We work hard to have an economy that is sustainable and inclusive. We have very high standards for the environment, the workforce and C A L I F O R N I A I N V E S T M E NT G U I DE 19 and product safety. This is a place that has very high standards, and we want companies to know that. What would you like the reader to know about the future of small business growth in California? MENDONCA: We love small businesses in our state. They are the engine for job creation in our economy. We also need to make sure that we do everything we can to drive their health care costs down. These small business enterprises will be propelled by the rich diversity that is California. Latinas and African American women have the fastest rate of new business starts in the state. The future of California is about small business and what we make of it. We must make sure that we provide critical access to capital markets. We have led the nation in R&D patents and solving global issues across energy, transportation, health and water. Our goal is to create a globally competitive workforce and make the California dream something that is available for everyone. Everyone knows California from what they see on TV or in movies or what they read about. The picture in your mind should not just be the beach or a celebrity. It should include the heartland of California and its highly educated, diverse and young population. My advice is to look at all of California, because we have a California for all. 20 C A L I F O R N I A I N V E S T M E NT G U I DE here are many ways to measure the relative strength of a state economy, but perhaps the best way is to measure the performance of its companies. When it comes to long-term staying power, California delivers the goods. Bloomberg noted recently that over the last 10 years, publicly traded firms in the Golden State delivered a return on investment of 420%, shattering the gains recorded by the S&P 500 (239%) and those of America’s chief foreign competitors. Bloomberg added that California companies turned $100 of sales into $57 of gross profit last year, besting the $49 average for the U.S., the $35 average for China, and the $39 for Japan and Germany. Moreover, these California-based firms increased their employee headcount by 15%, or twice the average of corporate America and almost double the 8 percent increase in China. What’s happening in California to enable such robust business growth? While there are many reasons for this West Coast success story, a chief contributor is the state’s continued investment into research, innovation and development. Of the 5,440 corporate locations in the Golden State, 17% are devoted to research and development, according to California companies produce superior results thanks to a robust ecosystem. T C O V E R S T OR YC A L I F O R N I A I N V E S T M E NT G U I DE 21 Bloomberg, topping the 10% for the U.S., the 13% in China, Japan’s 11% and even Germany’s 16%. Companies in California generally are built for the long haul because California’s entire ecosystem is one designed around the concept of continual improvement. Gary Bender, vice president of flight operations for General Atomics Aeronautical Systems Inc. in the High Desert region of San Bernardino County in inland Southern California, says his firm’s location enables this high-tech drone manufacturer to excel. “We have grown from about 60 employees initially to over 2,000 currently at our High Desert facilities,” he says. “Recently, we have been hiring at a rate of around 200 people a year.” No Longer Flying Under the Radar General Atomics, a leading manufacturer of remotely piloted aircraft systems, radars and electro- optic and related mission systems for the Department of Defense, operates out of both El Mirage Field and Gray Butte Field west of Adelanto. Favorable flying weather and the availability of aerospace talent are “very attractive for our company,” says Bender. “Also, the operational costs of our facilities here are considerably less than at our corporate headquarters in the San by R O N S TA R N E R Photo: Getty Images22 C A L I F O R N I A I N V E S T M E NT G U I DE Diego area. We plan to continue to lead the unmanned aircraft system industry into the future. We are now selling our aircraft to approved foreign governments, and we expect that to help sustain our growth.” Access to talent is critical, he adds. “Southern California is a hub of the aerospace industry, and therefore we have access to a pool of highly qualified workers in the area,” Bender notes. “Also, with the help of San Bernardino County Supervisor Robert A. Lovingood, we have established relationships with local schools, including Victor Valley College, to provide career paths for students and a pipeline of future employees for the company.” California gives employers like General Atomics a competitive edge because the state supplies a steady stream of high-tech talent found nowhere else in the country. The Golden State ranks No. 1 in total technology employment, according to CompTIA, with 1,782,499 tech workers. The three leading tech occupation categories in California are software and web developers (271,744), computer system and cybersecurity analysts (89,117) and network architects, administrators and support specialists (78,812). Combined, R&D, testing and engineering services account for 260,869 jobs in California, with IT services and custom software services accounting for another 400,617 jobs. Talent clusters like this are why so many world-leading companies are located in California; and in many cases, they are located in places that are not household names on the map. ESRI, the world leader in digital mapping, is headquartered in Redlands in the Inland Empire, as is Garner Holt Productions, the world leader in animatronics design and manufacturing. In virtually every case, these firms started out small with humble origins in California and grew to become globally competitive. There are many reasons why California helps small businesses grow. Besides access to the nation’s best talent, California also gives entrepreneurs the world’s best access to venture capital, R&D and innovation hubs, a marketplace of 40 million people, proximity to very wealthy investors, and a host of small business resources. A Mecca for Small Businesses While California boasts the fifth largest economy in the world, 99.8% of all California businesses — some 3.8 million — are classified as small businesses. This also means that 95.9% of all California exporters are small businesses, and 49.2% of California employees — some 6.8 million workers — are employed by a small business. “Southern California is a hub of the aerospace industry, and therefore we have access to a pool of highly qualified workers in the area. ” — Gary Bender, Vice President of Flight Operations, General Atomics Aeronautical Systems Inc.In just one year, some 197,532 net new jobs are created by small businesses in California. Resources for small businesses in the state include California SCORE, U.S. Small Business Administration District Offices, the Governor’s Office of Business and Economic Development, and the California Small Business Development Centers. Soon to be added to this list will be the many federally designated Opportunity Zones across the state. It is estimated that more than 3 million people now live in one of 879 Opportunity Zones in California, the highest number in the country. The federal Opportunity Zone Incentive allows investors to defer federal taxation on capital gains by investing the proceeds through a qualified opportunity fund into a designated Opportunity Zone. Investments must be long-term (at least 10 years) and meet a set of rules designed to ensure these investments create additional economy activity in these disadvantaged communities across the state. Gov. Gavin Newsom has indicated support for enacting legislation to conform California’s Opportunity Zone system to the federal program while aligning with state goals. 24 C A L I F O R N I A I N V E S T M E NT G U I DE Top 25 Projects by Investment for 2018 Projects by TypeProjects by Sector Cali by the Numbers S T A TI S TI C A L P R O F I L E Company City Sector Category Type Million US$ Jobs Facebook Burlingame IT & Comm. New Office 300 — Google Sunnyvale IT & Comm. New Office 160 — Printerprezz — Consumer Products Expansion Mfg. 121 75 Allogene Therapeutics — Life Sciences Expansion R & D 106 256 rPlanet Earth Los Angeles Vernon Chemicals & Plastics New Mfg.,DW 100 140 Lockheed Martin Palmdale Aerospace Expansion Mfg. 100 450 Gap — Textiles Expansion DW,HQ 100 698 Grifols Sa Emeryville Life Sciences New Mfg. 80 — USF Holding Mcclellan Food & Beverage New DW 71.6 216 Nellson Nutraceutical Ontario Food & Beverage New Mfg.,R & D 70 — Foster Poultry Farms Livingston Food & Beverage Expansion Mfg. 67 7 Dreamworks Animation Skg Glendale IT & Comm. Expansion Mfg.,DW 60 306 Ove Arup & Partners International Los Angeles Mach., Equip. & Const. New Office 57 150 International Rectifier Corporation — Electronics Expansion Mfg. 55 114 Robert Bosch Gesellschaft Mit Beschränkter Haftung Sunnyvale Automotive New R & D 40 — West Coast Steel & Processing — Metals Expansion Mfg. 40 68 Teradata San Diego IT & Comm. New HQ 35 — Radiology Partners Holdings El Segundo Life Sciences New Office,HQ 33 — Tec Equipment Fontana Automotive New DW 30 — Berber Food Manufacturing Elk Grove Food & Beverage New Mfg. 25 250 Hawke Media Santa Monica Bus. & Fin. Services Expansion Office 25 445 Mitchell Repair Information Company San Diego IT & Comm. Expansion Mfg. 25 22 Avid Bioservices Tustin Life Sciences Expansion R & D 23.2 — California Natural Products Lathrop Food & Beverage Expansion Mfg. 22 157 Axos Financial, Inc. San Diego Consumer Products Expansion Office 22 160 Type Projects Manufacturing 107 Distribution Warehouse 55 Office 51 Research and Development 29 Headquarters 22 Data Center 4 Call Center 1 Sector Projects Consumer Products 44 IT & Comm. 36 Life Sciences 30 Food & Beverage 24 Transport & Logistics 14 Business & Financial Services 13 Chemicals & Plastics 13 Electronics 12 Automotive 9 Machinery, Equip. & Const. 9 Aerospace 5 Other 15 Source: Conway AnalyticsC A L I F O R N I A I N V E S T M E NT G U I DE 25 California Is the Nation’s Leading Farm State Sector Projects Dairy Products, Milk $6.56B Grapes $5.79B Almonds $5.60B Strawberries $3.10B Cattle and Calves $2.53B Lettuce $2.41B Walnuts $1.59B Tomatoes $1.05B Pastachios $1.01B Broilers $939M Animal Products Other Crops $50 45 40 35 30 25 20 15 10 5 CA LA TX NE MN KS IL WI NE IN 2015 Value of Farm Production (In $Billions) Top 10 Commodities for California Agriculture in 2017 Grapes Almonds Dairy $6.56B $5.79B $5.6B Source: California Department of Food & Agriculture26 C A L I F O R N I A I N V E S T M E NT G U I DE Living in the Golden State $70,000 60,000 50,000 40,000 30,000 20,000 Government Manufacturing Construction Professional Services and Technology* Agriculture, Mining and Logging Greater LA Bay Area Rest of State 2 4 6 8 10 12 14 16 18 20% 1985 1990 1995 2000 2005 2010 2015 *Includes information sector and professional, scientific , and technical services sector. Percent of Jobs in Each Region Median Household Incomes 1985-2017 Employment Concentration in Selected Sectors, 2015 Source: California Legislative Analyst’s Office Source: Federal Reserve Bank of St. Louis Source: California Legislative Analyst’s Office The entrepreneurial spirit is strong, with 141 startups for every 100,000 residents in the state.C A L I F O R N I A I N V E S T M E NT G U I DE 27 The Golden State has 51 Fortune 500 HQs. California companies are 2,156% more profitable than Texas companies and 38% more profitable than New York companies. State Economic OUtput Bay Area $93,599 San Diego $66,850 Sacramento Area $52,248 San Jaoquin Valley $52,248 Central Coast $50,628 Greater Los Angeles $59,940 Population and Per Capita Gross Domestic Product = 1,000,000 People Source: California Legislative Analyst’s OfficeNext >