COVID-19 curbed foreign investment in Southern California in 2020

California suffered a notable loss of foreign-owned businesses and jobs last year amid the COVID-19 pandemic, and the state will need to boost its marketing efforts to get them back,  a new report says.

The study from World Trade Center Los Angeles and the Los Angeles County Economic Development Corp. shows California lost 267 foreign-owned enterprises in 2020, leaving the state with 18,451.

Those foreign-owned companies employed 703,187 workers last year, a decline of 27,461 from 2019 as a result of business closures and layoffs. That generated $1.6 billion less in annual wages.

World Trade Center President Stephen Cheung attributes the downturn to two primary factors:

“Many of these businesses didn’t qualify for Paycheck Protection Program loans because their international headquarters aren’t here,” said Cheung, who is also the LAEDC’s chief operating officer. “They also needed to have their executives on hand to run the operations, but many couldn’t get the visas to be here.”

The report’s initial employment figures are based on Dun & Bradstreet data, which classify a foreign-direct investment as a 51% or greater stake in a U.S. business.

Additional data from the U.S. Bureau of Economic Analysis, which lowers the equity stake to 10%, show California is still outpacing Texas and New York, its closest competitors.

By that standard, the most current figures show California had 845,400 jobs related to foreign-owned businesses in 2018, compared with Texas, which had 666,100, and New York with 519,800.

Southern California leads the state

The report breaks the Golden State into three regions — Southern California, the Bay Area and Greater California, which takes in the rest of the state.

Southern California led the way in 2020 with 11,154 foreign-owned firms employing 444,217 workers. The Bay Area ranked second with 5,873 businesses and 220,584 employees, followed by Greater California (1,424 firms and 38,386 employees).

Japan retained its position as the biggest source of foreign investment in Southern California last year, with 2,446 businesses that employed nearly 81,500 California residents while contributing more than $7.4 billion in wages.

The United Kingdom, France, Canada and Germany rounded out the top five foreign-owned employers, collectively employing another 184,868 workers.

The biggest industries

Southern California’s largest share of foreign investment-related jobs in 2020 was found in manufacturing (146,069), followed by professional business services (63,512), wholesale trade (58,334), financial services (38,255) and the information industry (22,542), which includes computer programmers, web developers, systems analysts and IT technicians, among other jobs.

The construction industry ranked second to last with just 5,573 jobs.

With hundreds of thousands of people still unemployed in the region, job creation from foreign-owned businesses is one of the region’s biggest tools for recovery, the report said, adding that wages for those jobs average 5% to 25% higher because the positions are often specialized.

But California’s high cost of living and its climate of high taxes and strict environmental mandates have driven some big players out of state.

Cheung said Toyota’s departure should be a warning. In 2014, the automaker announced in 2014 it would be moving its U.S. marketing headquarters from Torrance to Plano, Texas. By the time that process was completed in 2017, it eliminated 3,000 local jobs that had been housed on a campus near the junction of the 405 and 110 freeways.

“They had been here for decades, and Southern California invested in Toyota — our talents, our road infrastructure and our educational system,” he said. “For them to depart after all of those years … it’s a sore point.”

The automaker tied the relocation to a corporate restructuring that would give the company better proximity and access to clients and manufacturing. Texas sweetened the move with $40 million in tax incentives.

California needs to up its marketing campaign, Cheung said, but that won’t necessarily be easy.

“Silicon Valley and Hollywood do a good job of telling their stories, but California as a whole has so many different industries,” he said. “How do you get aerospace to partner with the clean-tech sector, for example? Our industries are so diverse, it’s hard to corral them all together. We have a very strong message to get out there – we just haven’t done it.”

Cheung said the 2028 Summer Olympics, set to take place in Los Angeles, and Southern California’s ongoing focus on sustainability will drive additional foreign investment in the coming years.

Japan, the UK and France are all interested in investing more in the region’s sustainability industries, he said, as they see greater potential for energy and environment-related global demand.

“We’ve made headway in setting up environmental regulations, policies and infrastructure,” he said. “There’s pent-up demand for that.”