Telecommunication ; Federal Reserve District, 5th ; Cities and towns

Charles Gerena

English

Research Papers in Economics

U
ntil the growth of the telecommu-
nications industry slowed to a
crawl, 40 percent of the world’s
fiber optic cables reportedly flowed from
one place — Catawba County in western
North Carolina. Factories in Hickory and
Claremont churned out millions of
kilometers of these light-carrying
communications lines, as well as the optical
fibers inside of them.
The initial location of cable and
fiber production in Catawba was more
a product of chance than design.
Through a series of acquisitions and
mergers, locally owned plants ended up
in the hands of three major suppliers
to the telecom industry — Comm-
Scope Inc., Corning Inc., and Alcatel.
But executives could have expanded
their firms elsewhere when the demand
for cable and fiber increased. Instead,
they chose to invest in their existing
facilities in Catawba. The county had
several economic advantages, from its
established industrial base to a labor
pool that encompasses a four-county
metropolitan area north of Charlotte.
What ultimately made the difference,
though, was the lobbying of govern-
ment officials who wanted to keep
industry alive in Catawba County.
T
he production of hosiery, furniture,
and other goods has been an
important part of the county’s
economy, thanks in part to cheap electricity
from Duke Power’s hydroelectric plants
on the Catawba River. 
“We have always been heavily man-
ufacturing oriented,” notes Scott Millar,
president of the Catawba County Eco-
nomic Development Corporation.
There were 575 manufacturers in the
county as of June 2002, the third-
highest number in North Carolina.
However, Millar says most of the
county’s manufacturers could be classi-
fied as small businesses. “There are quite
a few firms that are two-, three-, or five-
person hosiery operations, or small fur-
niture production facilities,” he describes.
Employment in the hosiery and fur-
niture sectors has been shrinking for
years. Dean McGinnis, Claremont’s city
manager for the last 15 years, attributes
this trend to the same factors that have
hurt many labor-intensive industries —
28 Region Focus • Summer 2003
Seeing the
Light
Communities in Catawba County, N.C., supported the
growth of optical fiber and cable producers to help
maintain the county’s manufacturing sector. 
BY CHARLES GERENAautomation and increased competition
from less expensive imports. “We have
not lost a furniture factory,” he notes.
“They have just fallen down in the hier-
archy” of employers. 
So McGinnis and other officials
throughout Catawba County have been
hunting for other manufacturing
sectors that need workers. In particu-
lar, they have coveted producers of
telecommunications equipment, plas-
tics, and other high-tech goods. These
firms are thought to pay higher wages
than producers of textiles and other
“low-tech” goods. They also are sup-
posedly less likely to relocate abroad to
reduce their labor costs. (See sidebar.)
Fiber optic cable and optical fiber
production fit the bill for industry-
hungry Catawba County. The region
had a foot in the door with Superior
Cable Corporation, which was founded
in Hickory in 1953 and opened a plant
in Sherrills Ford in 1966. These facili-
ties would later be sold to new owners,
providing the foundation for Comm-
Scope and Corning’s fiber optic cable
production in the county. Also, Comm-
Scope’s Chairman and CEO Frank
Drendel developed strong relationships
within the cable television industry.
As the expansion of long-distance
telecom markets spurred demand for
fiber optic cable and optical fiber in
the 1980s and ’90s, local officials
lobbied cable and fiber companies.
For example, when Alcatel wanted to
expand its optical fiber production in
the early 1990s, McGinnis says that
Claremont got the new factory in 1992
because local officials “offered innova-
tive ideas and incentives.” The county
bought the land for the factory and sold
it to Alcatel, which paid for the purchase
out of future tax payments. The city
built a sewage treatment plant to accom-
modate the factory’s waste flow.
Then came the rapid expansion of
telecom networks during the latter half
of the 1990s. Backlogged cable and fiber
producers struggled to keep up with
demand. Sensing the opportunity at
hand, Catawba County and local gov-
ernments stepped up their efforts to
encourage producers “to make their
investments here rather than somewhere
else,” recalls Millar. Grants, work force
training, and other incentives “were
developed to facilitate their growth.”
D
riving through the county’s small
communities, it’s easy to see the
growth of the “big three” cable
and fiber producers. CommScope, a fiber
optic and coaxial cable manufacturer
headquartered in Hickory, operates
industrial and research facilities in
Claremont and Newton that occupy over
1 million square feet. Corning runs its
Cable Systems division in Hickory, as well
as two cable plants that total more than
800,000 square feet. Alcatel has corporate
offices in Hickory, produces cable and fiber
at a million-square-foot complex in
Claremont, and operates a research and
development center in the latter city. 
Even so, the local economic effects
of large manufacturers can be disap-
pointing in “small communities that
lack the ability to fully absorb those
impacts,” wrote Dennis Roth in a
January 2000 article for the Economic
Research Service of the U.S. Depart-
ment of Agriculture. “Branch plants in
rural communities may not benefit the
poor and unemployed because they
bring employees with them, hire more
skilled immigrants, or stimulate long
commuting from other communities.”
Indeed, the employment and payroll
effects of Claremont’s two fiber optic
Summer 2003 • Region Focus 29
When recruiting industry, economic development
officials often favor producers of high-tech goods.
For officials in Catawba and other counties in the
Hickory metropolitan area, the focus has been on
fiber optic cable and optical fiber manufacturers.
Are such firms better for a community’s economy
than producers of low-tech goods?
One reason that officials give for targeting
high-tech manufacturers is that workers earn
relatively higher salaries. A June 1999 analysis by
the Bureau of Labor Statistics (BLS) showed that at
least 10 high-tech industries—from communications
equipment to aerospace—paid at least 50 percent
more than the median wage for all industries.
A March 2002 BLS report explained why high-
tech manufacturers could pay more: they have
achieved higher annual growth in labor productiv-
ity compared to the industrial sector as a whole.
“The benefits for workers from growth in labor
productivity are reflected in rising real wages and
other compensation,” wrote economists Christo-
pher Kask and Edward Sieber in the report. “Over
time, trends in real labor compensation tend to
parallel trends in labor productivity.”
Economic development officials also target
high-tech manufacturers because they appear to
be less likely to relocate in search of cheaper
labor. This is a problem that has plagued
communities where furniture and textile factories
once played a large economic role.
But the likelihood of a plant relocating
doesn’t depend on whether the manufacturer is
high-tech or low-tech, argues economist Joseph
Cortright of Impresa, a Portland, Ore.-based
consulting firm. “The issue is whether the plant is
doing routine, mass production or something that
it is good at doing in a community.”
Cortright says a new product usually requires
continued refinement and customization during
the production process. Therefore, the manufac-
turer needs engineers behind the scenes and highly
skilled workers on the factory floor. As long as it
finds this valuable human capital and other unique
resources in a community, it will continue to
operate its plant there. As the production process
becomes more standardized, however, the product
can be made by less specialized, low-wage workers
that can be found anywhere in the globe.
Based on this analysis, one could surmise that
high-technology manufacturers are less likely to bolt
from a community than other producers because
their products are more sophisticated. But that’s not
always the case. For example, the manufacture of
compact discs used to be more complicated, says
Cortright. “Now, it is a very routine process,” so the
cost of labor became a more important considera-
tion than the quality of labor. As a result, Sony Disc
Manufacturing shut down its plant in Oregon and
transferred production to other facilities.
In Catawba County, fiber and cable produc-
tion is still an exacting process. Equipment must
be precisely controlled to produce glass fibers
that have few impurities, that are the correct
diameter, and that have specific physical and
optical properties.
Also, Alcatel and CommScope Inc. operate
research and development centers near their
plants. “That is a very important indication,” notes
Cortright. “It signals that [they are] doing higher
value-added functions in the community, and
those jobs are more likely to stick around.” 
—CHARLES GERENA
The Allure of High-Tech Manufacturingcable plants are widely dispersed. The
city has only 1,000 residents, so the
facilities draw laborers from through-
out Catawba County and the broader
Hickory metropolitan area, which also
includes the counties of Alexander,
Burke, and Caldwell.
Factory workers spend some of their
salaries at commercial establishments
in town. McGinnis says this has helped
stimulate commercial development.
Still, most of their pay goes back home
at the end of the workday.
The money spent by the manufac-
turing plants themselves also leaks out
of rural areas, argues Roth. “Because a
branch plant has many economic link-
ages outside the local community, its
activities create a much smaller multi-
plier effect than its urban counterparts.” 
For example, several suppliers of
equipment and components have
located sales and service offices in
Catawba County, including a Canadian
maker of fiber production systems
named Tensor. But not many of them
operate factories nearby. “They have
mostly showrooms and small R&D
facilities” in Catawba, says Ken Luter-
bach, sales and technical manager at
Tensor’s office in Hickory. Most of
their production is done elsewhere in
the United States, Canada, and Europe.
Nevertheless, Catawba’s cable and
fiber plants contribute substantially to
the local tax base. Revenue from utility
surcharges, property taxes, and other
levies paid by plants helped small cities
like Claremont expand municipal serv-
ices like fire and police protection.
While some of this added capacity was
needed to keep plant managers happy,
residents also reaped the benefits. 
N
ow that the telecommunications
industry is retreating, however,
the economic punch of Catawba’s
cable and fiber plants is growing weaker.
Capacity far exceeds the demand,
especially on long haul networks. Less
than 30 percent of all long haul fiber was
activated by 2001, according to a report
by the Telecommunications Industry
Association.
This has led to fewer communica-
tions lines going into the ground and,
subsequently, less demand for fiber
optic cable and optical fiber. World-
wide fiber production fell an estimated
50 percent in 2002, with the steepest
drops in North America and western
Europe. In a recent report for KMI
Research, Patrick Fay noted that the
fiber market has shifted to Asian coun-
tries like China where networks are in
earlier stages of development. 
Not surprisingly, cable and fiber pro-
ducers have scaled back their produc-
tion. Corning and CommScope have
laid off hundreds of their plant workers
and engineers in Catawba County.
Alcatel has scaled back its R&D activ-
ities in Claremont and mothballed its
fiber plant, but continues to produce
cable from an adjoining facility. 
This retrenchment has added to the
job losses in Catawba County’s manufac-
turing sectors. Not adjusted for seasonal
changes, the county’s jobless rate shot up
from 3.5 percent in January 2001 to 9.1
percent in January 2003. “At one point
last year, we were recognized for having
the highest percentage rate change [in
unemployment] over the previous 12
months in the nation,” says Millar. “It has
been a difficult pill to swallow, from
feeling invulnerable to having to look at
a lot of other opportunities.”
Telecommunications analysts and
executives say it will take a while to
absorb the industry’s excess capacity.
But fiber optic cable and optical fiber
producers remain cautiously optimistic.
A core demand still exists for their
products, driven by the need to
improve the quality of networks. Glass
fibers transmit data with fewer errors
than copper wires, thus reducing the
need to re-send data and increasing
network performance.
While many long haul networks are
fiber based, Corning executives and
others believe that the telecom indus-
try is still in the early stages of replac-
ing copper with fiber. Operators of
short haul networks, which transmit
data between local loops in communi-
ties, are still making the transition.
And, many of the local loops that
connect homes and businesses to
central switching stations haven’t been
upgraded. But in order for telecom car-
riers to broadly embrace optical fiber,
there must be greater demand for the
high-bandwidth services that require
the capacity and quality of fiber.
Despite these challenges, local offi-
cials don’t regret fostering cable and fiber
production in Catawba County.
“We have not written off the telecom
industry,” says Millar. “Cable and fiber
producers have invested in their work
forces and facilities here, and I feel that
they will invest here again as they
achieve their growth plans in the future.”
Meanwhile, the county will keep search-
ing for new industry. RF
30 Region Focus • Summer 2003
R EADINGS
Fiber Optic Network Capacity and
Utilization.Arlington, Va.:
Telecommunications Industry
Association, September 2002.
Kask, Christopher, and Edward
Sieber. “Productivity Growth in
‘High-Tech’ Manufacturing
Industries.” Monthly Labor Review,
March 2002, vol. 125, no. 3, pp. 16-31.
Roth, Dennis. “Thinking About Rural
Manufacturing: ABrief History.”
Rural America, January 2000, vol. 15,
no. 1, pp. 12-19.
2002 Worldwide Markets for Optical
Fiber and Fiberoptic Cable.Providence,
R.I.: KMI Research, December 2002.
Visit www.rich.frb.org/pubs/
regionfocusfor links to relevant sites.
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Fiber Insulation
For a while, the expansion of optical fiber and
cable production in Catawba County helped
compensate for labor reductions at textile
makers and other manufacturers. But the
downturn in fiber and cable made the county
fare worse than the state in 2001 and 2002.
SOURCE: Employment Security Commission of North Carolina
North Carolina
Catawba County

Seeing the light : communities in Catawba County, N.C., supported the growth of optical fiber and cable producers to help maintain the county's manufacturing sector

http://www.richmondfed.org/publications/research/region_focus/2003/summer/pdf/feature3.pdf

Seeing the light : communities in Catawba County, N.C., supported the growth of optical fiber and cable producers to help maintain the county's manufacturing sector

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