For manufacturers and distributors who want to expand or relocate in Southern California but consider land and labor too expensive, Phoenix and southern Nevada are increasingly. . . : CLOSE ENOUGH

PHOENIX — Some unusual advertising aimed at a select group of Southern Californians has appeared in the last month.

A full-page ad in the Wall Street Journal on April 4 proclaimed Phoenix as “L.A.’s newest business suburb,” ideal for companies that want to serve Southern California but don’t want to be in Southern California.

And for the last several weeks, the sound of traffic, horns and screeching brakes have blared from some Southern California radios while an announcer asks, “Is your work force stuck in traffic again? . . . If you were in the Las Vegas Valley, you could be where you want to go in minutes. . . . the Las Vegas Valley, America’s new corporate address.”

Those ads--one placed by a Phoenix developer and the other by the Nevada Development Authority, a nonprofit organization representing southern Nevada--illustrate a relatively new push in the competitive world of economic development in the Southwest. The Phoenix area and southern Nevada contend that they are making inroads by exploiting their proximity to Southern California and their lower business costs to attract companies and new jobs.

To be sure, only a handful of companies have picked these locations rather than Southern California for expansion or relocation, and the Southland will continue to grab its share of growth. But with higher business costs in Southern California and increasing regulatory constraints--in particular, impending restrictions to reduce air pollution--other areas of the Southwest could chalk up more victories.

“It’s a trend in the offing,” said Jack Kyser, economist for the Los Angeles Area Chamber of Commerce. “Yes, definitely, I see it as a threat to Southern California.”

A Mixed Message

Kyser noted that some large companies have expressed reluctance to expand in the Southland so long as restrictions on development and traffic aimed at improving air quality are unknown.

“And yet, the aerospace companies continue to take out building permits . . . (and) real estate leasing activity in industrial areas is very strong,” he said. “It’s a mixed message.”

The Phoenix area and southern Nevada are two places that have aggressive campaigns to attract business, but other areas, including Tucson and Utah, are also beneficiaries of the trend.

Some examples:

* Rubbermaid, known for such products as dish drainers and food storage containers, recently opened a 370,000-square-foot factory in Phoenix for its home products division. About half of the factory’s production is shipped to Southern California.

* Kidd & Co., the nation’s second-largest producer of marshmallows, built a factory in Henderson, Nev., 12 miles south of Las Vegas. About 25% of the sweet stuff made by the factory, which opened in April, goes to Southern California, and company officials are seeking to expand sales in the Southland.

* Hughes Aircraft is considering relocating its Hughes Missile Systems Group from Canoga Park to the Arizona desert just outside Tucson. A decision, affecting up to 3,251 Hughes employees, is expected soon.

Lower Costs

While these manufacturers and distributors serve many markets from their Southwestern bases, Southern California makes up a large portion of their business. So why not put the factory in the Southland?

“It comes down to cheaper operating costs coupled with easy access to California,” said David Maurer, vice president of economic development for the Phoenix Chamber of Commerce. Both Phoenix and southern Nevada are about an hour away by air and an overnight trip by truck from Los Angeles.

Said Nevada Lt. Gov. Robert Miller: “We market ourselves as being an inland California with a better business climate, in our opinion.”

“We jokingly say here that we really are a suburb of L.A.,” said Al Dague, president of the Nevada Development Authority. The organization’s ads on two Southern California radio stations have generated calls from several interested businesses--”and one drunk”--and two companies have already visited the area, said Karen Marshall, vice president of administration.

Among the cost savings, Maurer said, are taxes. “Southern California beats us on property taxes and we beat Southern California on essentially every other business tax,” he said. Nevada has no corporate or personal income tax or franchise or inventory tax.

Both areas boast of lower land prices, utility rates and wages than Southern California.

What’s more, boosters say, the cost of shipping freight by truck is lower from Phoenix and southern Nevada to Los Angeles than when freight travels out of Los Angeles. That is because trucking companies, anxious to fill empty trucks on the “back haul” to Los Angeles, charge lower rates than they do on the much busier route out of Los Angeles. Tariffs on shipping within California make shipping from Phoenix and southern Nevada cheaper than shipping from the Inland Empire to Los Angeles, they contend. (However, transportation experts say that shipping costs are usually low on a company’s list of reasons for picking a site and that rates can be found to prove any point.)

American Continental Corp., the Phoenix developer that placed the Wall Street Journal ad to promote Phoenix and the company’s huge planned community west of the city, estimates that doing business in western Phoenix costs 25% to 30% less than in Southern California.

Fewer Hassles

Two large aerospace companies and a manufacturer from Southern California are talking with American Continental about building in its 20,000-acre community, called Estrella, said Charles H. Keating III, chairman of the company’s real estate division.

“Their basic purpose is to be part of Southern California,” Keating said, but at a lower cost and with fewer “hassles.” “I’m not knocking California. I love California. It’s purely cost,” he said.

A study by Mountain West, a real estate consulting firm in Phoenix, found that a hypothetical 200,000-square-foot defense electronics plant would save nearly 21% in operating costs by picking Phoenix over Los Angeles and nearly 15% by bypassing Orange County.

The study did not include a detailed cost comparison for Riverside or San Bernardino counties. But Mountain West President James A. Chalmers said Phoenix would be cheaper than those areas, although the saving would be much smaller.

Compared to Los Angeles and Orange counties, Phoenix came out cheaper in labor costs, electric power costs and amortization expenses, but was more expensive in taxes as well as heating and air conditioning costs, the study contended.

The time required to get a facility through the zoning and permit process is much less in Phoenix and southern Nevada than in Southern California, officials claimed.

It took Rubbermaid only about eight months from the time it bought land to its opening last November. In Henderson, the process can take as little as 90 days if the company already has its design work done, said Gary Johnson, executive director of the Henderson Chamber of Commerce.

Good Distribution Point

“The processes you have to go through are not as cumbersome and burdensome as in a larger city,” said George Bootes, executive director of Western Gateway Team, a nonprofit economic development organization that represents five small cities to the west of Phoenix that for years specialized in farming. Now, “the people who were in agribusiness are in the real estate business,” he quipped.

Rubbermaid picked western Phoenix for its plant, which now employs about 150 people, because “it’s just a good distribution point for us, for where we have sales,” Vice President and Treasurer Richard D. Gates said. The company was attracted by the availability of transportation at a lower cost, as well as the availability of power, raw materials and “a good labor force.”

Kidd & Co. liked Henderson because “this is a good central location,” said John Kidd, vice president and manager of the 40,000-square-foot factory. “Los Angeles is the hub of people and yet the cost is so much greater there,” he said, adding that land and freight savings were of particular importance to the family-owned company, which is based in Ligonier, Ind.

“We make as many marshmallows as we can . . . just to keep up with all the stomachs in California,” he said. Kidd is the nation’s largest producer of private-label marshmallows and trails Kraft for the overall marshmallow title.

Hughes is considering relocating its Hughes Missile Systems Group to Tucson to improve the efficiency of its $1.3-billion missile business by consolidating its missile operations at one site. The missile business is facing unprecedented competition for contracts.

Access to Officials

Beyond the cost differences, doing business in Phoenix, southern Nevada and other parts of the Southwest definitely means a difference in style.

“Nevada is a much smaller state and it’s easier to get access to state officials,” said one Las Vegas advertising executive. “In fact, businessmen get downright (upset) if the governor doesn’t show up for the ground breaking.”

Nevada Lt. Gov. Miller confessed on a recent Friday afternoon that he had attended three ribbon cuttings in the previous 24 hours and had two more scheduled for the weekend. Henderson just completed its 37th annual Industrial Days, a weeklong celebration of industry that features a parade, beauty contest, chili cook-off and lip-sync contest.

But that kind of atmosphere doesn’t appeal to everyone.

“Phoenix and Tucson are really resolutely Western,” Kyser of the Los Angeles chamber said. “Are people going to be willing to go from the glitz and all the creature comforts of Los Angeles to something more, how shall I say, down home?”

The Las Vegas area has a different image problem to contend with: the idea that it is a sin capital.

“The adult Disneyland in Nevada--it’s very hard for us to push that aside,” said Johnson of the Henderson Chamber of Commerce. “We’re a regular-kind-of-guy community under all that razzle-dazzle.”

While gaming and tourism are the state’s biggest industries, a downturn in the early 1980s made diversity look even more attractive.

Phoenix’s difficulties are more concrete. The fast-growing city has pollution and traffic problems of its own, although no where near the scale of those in Los Angeles.

Possible Problems Later

The economic victories achieved by southern Nevada and the Phoenix area have been too few to slow economic growth in Southern California so far, Kyser said. But as more and more states send economic raiding parties looking for growth, the future effect could be something to worry about, he said.

“We’re doing very well economically, things are growing very nicely,” Kyser said. “It’s something we have to be concerned about, say, in 1994 when people from our mini baby boom start hitting the labor force. Will we have jobs for these people, and the right kind of jobs?”

Miller, who is chairman of the state’s economic development commission, said Nevada has not mounted a trade mission to California--”because of the proximity, we thought it might be presumptuous.”

“I don’t think they’re worried that much” in California, he said. “California is going to continue to grow. . . . I don’t think we’re going to take away from the California market, and we don’t need to.”

Real estate consultant Chalmers sees the move of some kinds of businesses away from Los Angeles as “kind of an evolution of a city which originally was a major manufacturing and distribution center.”

“Los Angeles has become increasingly significant as an international center and I think in the next century will become more New York-like, will become an international financial center for the Pacific Rim,” he said.

Businesses that need lots of land, such as large manufacturers and distributors, will move away from Los Angeles, he said. “You can’t imagine trying to manufacture airplanes in the middle of Manhattan.”

John Ogden, president and chief executive of SunCor Development, which is planning a 12,000-acre community west of Phoenix, said cities have to work for their jobs.

“Every part of the United States is dealing to attract growth as well as trying to keep the jobs that they have there,” he said. “There are some areas which decided that they don’t want to grow but they want to keep what they’ve got.

“I can tell you that you can’t sit on a fence. You either teeter over backwards or you move forward.”