O.C. Businesses Optimistic on Year’s Outlook : Economy: Executives forecast improvement in their financial condition, partly because of a dip in job growth.

IRVINE —  Despite the recession, Orange County business executives are optimistic about the coming year, a new survey shows, and most expect their companies to be in better financial shape by the end of 1991.

But part of that improvement will come at the expense of domestic growth, according to the annual poll of county business executives conducted by the UC Irvine Graduate School of Management.

One sign of the recession’s impact so far is that a number of small companies that were asked to participate in the survey this year declined, claiming they had cut employment so much that their top executives didn’t have time to answer the questions. The survey included 151 large companies with 100 or more employees, and 42 small companies with 20 to 99 employees.

In all, only 29% of the executives said they anticipated increasing their domestic payrolls this year. In each of the last three years, slightly more than half of the executives said they planned more domestic hiring. And 22% of the executives said they expected payrolls to shrink this year, up from 13% in 1990, 14% in 1989 and just 8% in 1988.

Aside from the recession-driven drop in job growth, the poll showed no major changes from last year and showed that trends that developed over the five years the survey has been conducted will continue, said Jone Pearce, a UCI associate professor of management and co-director of the study.

Those trends include a gradual decrease in the county’s attractiveness as a place to do business; a continuing shortage of--and demand for--skilled professional and technical workers; a shrinking durable goods manufacturing industry; a growing business services industry and considerable concern about the county’s transportation system.

Business leaders also worry about the impact of the new regional air quality regulations. While 94% of the respondents said they believe the rules will help improve the environment, 61% said they were too stringent for most firms to comply with.

The regulations require businesses to cease using a wide variety of chemicals and solvents, to institute car- or van-pooling programs and to take other steps to reduce air pollution. About 80% of the executives said they believe the rules will force some businesses to leave California.

A separate forecast by UCI economists David Brownstone and Robert Valletta projects that total employment in the county will grow by 1.1% this year and 1.8% in 1992 after a near-stagnant 0.3% increase in 1990. While still below the average annual pace of 3.4% from 1986 to 1990, that growth is expected to outpace surrounding Southland counties and the nation as a whole, Valletta said.

The steep drop in building permit activity that occurred in the last half of 1990 and which is anticipated to continue through most of this year will impede job growth, he said.

But the federal government’s ongoing defense budget trimming won’t have a major impact on local employment, according to Brownstone. “Orange County defense employment is just not as sensitive as many people think. . . , in part because many of the companies in the county are small and so are less vulnerable” to cuts in federal spending, he said.

Even setbacks among Southland defense contractors--such as Northrop’s loss this week of the Air Force’s advanced tactical fighter contract to a team led by Lockheed Corp.--won’t have significant impact in the overall employment picture in Orange County, Brownstone said.

Echoing other economists, the two UCI forecasters said they expect the recession, which began in the third quarter of 1990, to end by the third quarter of this year.

In Orange County, Valletta said, recovery should be mild but rapid. He said he expects the county unemployment rate to average 4.4% through 1992--higher than in the past five years but still comfortably below the 6% mark that economists consider the “natural unemployment” rate that would prevail if the economy were not in recession.

Of the Orange County companies included in the survey, 14% are foreign owned and 40% have international operations, said Kenneth Kraemer, a UCI management professor.

Most of the firms with overseas operations intend to step up sales efforts in their current markets but don’t plan to expand their territories, Kraemer said.

The survey also found that companies with foreign operations are maturing, with the average firm selling internationally for 19 years.

Because of that, Kraemer said, executives for the first time said they considered cultural differences a bigger problem of doing business overseas than government regulations, local hiring and training policies, and consumer acceptance.

Forecast for ’91 In percent responding to the question: “By the end of 1991, do you expect your firm’s overall financial position to be . .” Better ‘87: 80% ‘88: 73% ‘89: 78% ‘90: 75% ‘91: 66% Worse ‘87: 6% ‘88: 3% ‘89: 2% ‘90: 4% ‘91: 5%

Hiring Plans Scaled Back In percent responding to the question: “Now looking to the future regarding the number of Orange County-based employees in your firm, would you say that the end of 1991, the number of full-time equivalent empolyees, excluding temporary and contract workers, would be. . “ More ‘88: 55% ‘89: 50% ‘90: 51% ‘91: 29% Fewer ‘88: 8% ‘89: 14% ‘90: 13% ‘91: 22%

The Business Climate Why the county is becoming more attrative. Factors named first, by percentage of executives surveyed: Desirable Place to Live ‘87: 23% ‘91: 3% Economic Growth of Area ‘87: 31% ‘91: 30% Good Customers Base ‘87: 34% ‘91: 55% Why the county is become less attractive. Factors named first, by percentage of executives surveyed: Traffic Congestion ‘87: 42% ‘91: 29% Housing and Living Costs ‘87: 29% ‘91: 26% Hiring Difficulties ‘87: 3% ‘91: 11%

ISSUES IN INTERNATIONAL TRADE

The percentage of firms in the survey involved in international trade ranged from 23% of large service companies to 75% of large manufacturers. Here are the factors cited most often as obstacles to overseas sales and operations:

Percent of Executives Citing This Factor SALES 1991 1990 Cultural differences 17% 10% Financial 17 17 (currency exchange, collection) Establishing a sales force or 12 10 distribution network Foreign 12 12 government regulations Consumer 10 18 acceptance of product Communication problems between 9 10 Orange County and sales area

OPERATIONS Cultural differences 30% 9% Communications between home office 15 25 and foreign facility Financial risk 15 6 Managing 11 22 and training local employees Foreign government 7 9 relations and regulations

Source: UC Irvine Graduate School of Management