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Jobless Making California Court Companies From Korea to Croatia

Construction nears completion at Wakunaga Pharmaceutical Co.
This 55,000 manufacturing and distribution site in Riverside County is expected to employ as many as 300 people when it opens. Photographer: Jonathan Alcorn/Bloomberg

In California’s Riverside County, Japan’s Wakunaga Pharmaceutical Co. is building a 55,000-square-foot manufacturing and distribution site that will employ as many as 300 people before and after completion in January.

“If this didn’t open up, we definitely would be sitting at home for who knows how long,” said construction foreman Javier Duran, 45, who earns about $30 an hour. “It doesn’t matter where it comes from, as long as we get work.”

Riverside, part of a metropolitan region that was once California’s fastest new-jobs creator, is courting companies like Wakunaga and South Korea’s Jusung Engineering Co. to bring down a 14.5 percent unemployment rate. County officials from California to Texas and Virginia are combating the worst revenue crisis in two decades and a national jobless rate near the highest in a quarter-century by competing for a shrinking share of foreign direct investments.

“Riverside County is the most aggressive in seeking overseas investors” among many California regions that are looking to create jobs, said Paul McIntosh, executive director of the group that represents the state’s 58 counties. A skilled labor force, abundant land, and proximity to ports in Los Angeles and Long Beach make it easier to forge trade deals, he said.

With a population of 2.2 million, Riverside County is bigger than Slovenia, which competed in the World Cup, and home of the desert city Palm Springs. It has 477 foreign-owned businesses, county foreign-trade commissioner Tom Freeman said, and a 14.5 percent jobless level that compares with a national average of 9.5 percent and California rate of 12.3 percent.

California has the nation’s third-highest jobless rate, after Nevada and Michigan.

Japan, Croatia

Riverside officials have contacted representatives of at least 10 countries in the past 12 months, Freeman said. They signed a pact with Croatian delegates on July 13 to promote each other’s exports and tourism industries. Two weeks before, Riverside and Japan’s consul general in Los Angeles agreed to work on a study that will determine the county’s potential for future investments.

California, New York and Texas are the largest recipients of projects through foreign direct investments in the U.S., which fell 59 percent to $134.7 billion last year from $328.3 billion in 2008, according to London-based fDi Intelligence and the Bureau of Economic Analysis in Washington. Investments rebounded to $47.3 billion in the first quarter, compared with $5.87 billion a year earlier and $80.6 billion during the first three months of 2008, the bureau’s preliminary data shows.

Tax Abatements

In Texas, China’s Tianjin Pipe Group Corp. is spending $1 billion to build a production mill in the Corpus Christi area. Tianjin, which chose the site because it’s close to companies like Shell Oil Co. and Chevron Corp., will get property-tax abatements over 10 years from San Patricio County based on the number of jobs created and the land’s future value, said Leah Olivarri, a spokeswoman for its U.S. unit.

Canadian snack maker Saratoga Potato Chips LLC is investing $4.9 million on a U.S. headquarters in Fort Wayne, Indiana, that will employ as many as 175 people. In return, Indiana is offering as much as $1 million in performance-based tax credits.

“Turning to those with deep pockets is the most promising prospect for many of these state and local governments that are desperate to rekindle job and production growth,” said Charles McMillion, president and chief economist at forecasting firm MBG Information Services in Washington, who has studied labor markets for 30 years. “Those with deep pockets are now often outside our borders.”

Inland Empire

From 2000 to 2006, Riverside and adjacent San Bernardino County, known as the Inland Empire, created 340,000 jobs, or 33 percent of all in California, fueled by its role as an affordable destination for homebuyers from the coast and warehouse and transportation hub for companies like Wal-Mart Stores Inc. and Target Corp., said John Husing, founder of Economics & Politics Inc., a consulting firm in Redlands, California, that specializes in the Inland Empire.

When U.S. housing prices began to collapse in 2006, followed by the deepest recession since the Great Depression, Riverside’s reliance on construction and trade became drawbacks.

The property and sales taxes that made up the county’s main sources of revenue plummeted, sending discretionary income down 25 percent to 30 percent in the fiscal year ended June 30, 2009, said Marion Ashley, 74, chairman of the board of supervisors. Officials now expect deficits of as much as $87 million over the next two years, he said.

‘Dire Need’

“Cities and counties are in dire need,” said Jeff Finkle, president and chief executive of the International Economic Development Council in Washington. “Because of the recession, communities have far fewer deals to pursue. In good times, you could be more selective in terms of what you chase. In bad times, you shoot at everything that moves.”

In March 2009, Riverside, an hour east of Los Angeles, created an Office of Foreign Trade inside its Economic Development Agency, setting off a yearlong effort to boost exports and attract investors. The county offers low-interest loans, redevelopment funds to build streets and sewers, and a fast-track program for processing permits and approvals in a few months instead of years, said agency head Robert Field. It also provides employee recruitment and training, yet doesn’t typically offer tax breaks, he said.

“Riverside is offering a model that other counties can follow to attract foreign investments, without having to give up significant incentives,” said McIntosh of the California State Association of Counties.

Dirt Lot

Osaka-based Wakunaga, maker of Kyolic-brand dietary supplements, is building a new facility on a dirt lot in Mira Loma where diesel trucks bustle less than 10 miles (16.1 kilometers) from abandoned homes. Next door is Wakunaga’s existing raw-materials processing site, which employs 10 people, said Tsuyoshi Sakai, controller and general counsel of the company’s U.S. subsidiary.

Mira Loma was selected for the project because it’s not far from the current plant, LA-Ontario International Airport, and garlic farms in Fresno that supply the raw materials, Sakai said. He added that Wakunaga “was not offered any special incentives from the county.”

Jusung, the Gyeonggi-do, South Korea-based maker of semiconductor equipment that competes with Applied Materials Inc., is looking to build two solar-related plants on Riverside’s west side. Company spokeswoman Song-me Lee declined to comment. Fresh & Easy Neighborhood Market, part of Cheshunt, England-based Tesco Plc, has opened 15 stores in the county since 2007, said spokesman Brendan Wonnacott.

“Foreign-direct investment can be a win and sometimes it can be a tie,” Finkle said. “It can be a win if there are jobs existing outside the U.S. that come here. It can be a tie when there are some new jobs, but we’re losing some elsewhere in the economy.”

Still, “all economic development organizations are under intense pressure to find jobs and are doing everything they can,” he said.

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