Mention the cost of doing business and California business owners are likely to grunt and shake their heads.

Workers’ compensation insurance—higher than the national average—is a big complaint, though costs have come down. Pesky state business taxes strip away profits, and what about the exorbitant cost of living, those lofty environmental regulations, and let’s not forget the bureaucracy of it all.

The collective cry: What is the state trying to do? Put us out of business?

Business owners such as Tom Richard have to be especially diligent when it comes to turning a profit. His company, Old California Lantern Co. in Orange, which hand makes historical lanterns, is labor-intensive.

Richard has heard the siren call from states, such as Idaho and Arizona vying for his business. But the call that California businesses hear loudest is Southern Nevada’s. Mayor Oscar Goodman is pictured in California business newspaper ads, welcoming one and all to Business Disneyland. Come and make more bucks than you ever could in California, he says. Come before you’re out of business, he warns.

But more than not, companies choose to stay in the Golden State.

“There’s really no better place in America where innovation and capitalism take place,” said Tim Jemal, executive director of AeA Orange County Council, a technology trade group.

Californians have an intangible entrepreneurial spirit that drives the economy, Jemal said. From afar, the state lures the ambitious and the inventive, such as Google Inc.’s co-founder Sergey Brin and Intel Corp.’s co-founder Andy Grove.

“There is a deep sense of risk taking in California,” he said.

California colleges and universities attract some of the brightest talent, Jemal said. University of California, Irvine, University of Southern California, Stanford University and University of California, Los Angeles, are breeding grounds for technology entrepreneurs.

UC Irvine, for example, cranks out many of Orange County’s science and technology employees. The county, which has one of the highest costs of living in the state, as well as one of the highest income levels in the state, boasts a plethora of high-tech, medical device and biomedical companies. Those include Broadcom Corp., Conexant Systems Inc., FileNet Corp., recently acquired by IBM Corp., Allergan Inc. and Boeing Co. still employs thousands in the state.

California also is where the venture capital is, key for fledgling businesses. One of the latest funds is Laguna Beach-based Okapi Venture Capital LLC, which has $30 million to get emerging technology companies up and running.

Southern California leads in design. It has a slew of apparel designers and manufacturers that help give the state its hip edge: Paul Frank Industries Inc., Volcom Inc., RVCA Clothing, True Religion Apparel Inc. and Sole Technology Inc.

Southern California is home to several auto design centers, including Toyota Motor Corp.’s Calty Design Research Inc., Mercedes-Benz Advanced Design of North America and Mitsubishi Research & Design of North America

“California is a trendsetter in almost every way,” said Robert Swayze, manager of economic development for Long Beach.

The reason that businesses most often cite for staying in the state is the workforce, Swayze said. You could say California hit the jackpot when it comes to the depth of its labor pool—it’s both highly educated and highly skilled.

California’s manufacturing workforce, largely Hispanic, is praised for its productivity. Manufacturing jobs are often Hispanic immigrants' pathway to open small businesses. California is home to more than a quarter of the nation’s Hispanic-owned businesses. These businesses help keep the state’s economy robust.

“We stay in California because of the niche workforce that is right here,” Richard said. His lantern-making company employs mostly Hispanic workers. “We have a factory full of workers who have been making lighting for many, many years,” he said.

To keep costs down, Richard borrows Japanese “just-in-time” manufacturing methods, making products only as they are ordered. He also said Gov. Arnold Schwarzenegger has kept his promise to lower workers’ compensation insurance costs.

Competition has come back to the market, Richard said. “We’ve seen a dramatic reduction in our workers’ comp costs,” Richard said. Old California’s costs have dropped by more than 50% because it was able to switch to another carrier.

Many stay in California because it is their home – businesses sprout where owners live. Richard lives five miles away from his business.

“It’s hard to disparage the quality of life,” Jemal said. California has the weather on its side. Access to the Pacific Coast and the sunny, warm climate has always been a draw. The state has plenty of parks and a thriving arts culture. California is one of the few places where you can spy business executives catching a wave at dawn.

No doubt, California has its challenges. “The challenge for policy makers is to make sure we stay an innovator,” Jemal said. That means strengthening the K-12 school system and inspiring kids to pursue careers in math and science. “We’re not doing the job as good as we can,” he said.

Higher than ever housing costs also are a problem, he said.

But California’s biggest competition isn’t Nevada. It’s countries such as China.

In the 1990s, many of Southern California’s manufacturers packed up and left the state, Swayze said. But they didn’t go to Nevada, Arizona or another state. “They were going offshore,” he said.

Mostly, Long Beach competes for businesses with other regions within California.

A few companies have moved out of state, Jemal said. “We’re just not seeing a critical mass heading over to Nevada.”

Sherri Cruz is a former Las Vegas business writer who relocated to California.