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Aricia Loo, DeRoyal Industries' head of Asia Pacific sales, is one face of Knoxville's global business reach.

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World View

How the global economy affects Knoxville's own economic health

by Joe Sullivan

The two industrial campuses sit side by side on Beaver Creek Drive in Powell, but symbolically they are poles apart.

In her paneled office at the headquarters of DeRoyal Industries, Aricia Loo exudes confidence over her company's prospects. "DeRoyal has a very strong position on a worldwide basis, and we are moving at a very fast pace to expand on it," says the thirtysomething native of Singapore who heads Asia Pacific sales and marketing. Exports accounted for 15 percent of the health care products manufacturer's business last year, and DeRoyal officials expect that percentage to double over the next five years. While DeRoyal doesn't release sales figures, officials say that about the same percentages of its work force, which presently numbers about 1,400 in East Tennessee, are attributable to exports.

As she heads home from her job of 13 years standing as a pocket hanger at Levi Strauss & Co's Dockers manufacturing plant, Elaine Hodge is anything but sanguine about the plant's future. "I figure we've got two more years at the most," she says of the 1,000 workers at the plant—one of eight Levi's facilities that remain open in the U.S. after 23 plant closings over the past year. "Why should they pay me $8.33 an hour, when they can get someone in the Dominican Republican to do the same work for $2 an hour?" she asks with resignation. And a Levi's spokesman confirms that, "We're at a point where we can't compete without moving much of our production outside of the U.S."

DeRoyal and Levi's are emblematic of the best and the worst of the ways in which the vaunted global economy is making itself felt locally. In addition to job gains from exports and losses to imports, globalization is making its mark on Knoxville's economy in many other ways as well. Foreign-based companies are establishing an ever growing presence in the community. Importers may be generating more jobs in sales and distribution than the manufacturing jobs lost to foreign competition. And however it may cut from an employment standpoint, global competition has clearly benefited consumers.

The Foreigners are Coming

Of the six companies to locate manufacturing plants in Knox County within the past few years, three were foreign-based. Daiken Drive Train and Oozx USA, both from Japan, and Australian-based PBR collectively employ about 700 workers at their respective auto parts plants where the pay scales are uniformly high. Moreover, yet another auto parts supplier, Transmission Technologies, continues to exist here only because a Mexican company, Groupo Spicer, took it over when its previous American owner wanted out.

Foreign ownership has also benefited several other local manufacturing operations of longer standing. Ameristeel was in a struggle for survival when Kyoei Steel of Japan acquired it in 1993. Since then, Kyoei has invested on the order of $200 million in making Ameristeel one of the most efficient U.S. producers. As a result, its business is now prospering at a time when many old line U.S. steel companies are hurting and trying to curb imports. Despite the fact that Kyoei's own business has been hurt by Asia's economic slump, its directors assembled in Knoxville last October to approve a $35 million investment in a new melting facility that secures the future of Ameristeel's mill on Tennessee Avenue and its 300 jobs.

Since Acquiring a fiber testing systems business from its local owners in 1990, Swiss-based Zellweger Uster has doubled its business and pushed it ever more into export markets. According to President Rudi Kagy, about 80 percent of the Knoxville company's $40 million annual sales go to some 80 foreign countries, making it one of the area's larger exporters.

Several other foreign companies have their U.S. sales and other operations based in Knoxville. The largest of these is ABB Environmental Systems, an arm of the Swiss-based global giant, ABB. From its 160-person offices in Centerpoint Park off Pellissippi Parkway, ABB Environmental Systems sells and oversees the installation of air quality control systems at electric power plants and other industries throughout North America. On a smaller scale, U.S. Waves maintains a seven-person U.S. sales and marketing staff here on behalf of its Israeli parent, K.S. Waves, which makes audio software for recording studios.

On the other hand, Knoxville lost its highest profile U.S. headquarters of a multi-national company when Philips Consumer Electronics moved the 120-person unit to Atlanta in 1997. Better air service, especially to Philips' global headquarters in Amsterdam, was the stated reason for the move. But the sell-off of its Magnavox TV plant in Greeneville may have been a contributing factor. So may have the demise of Whittle Communications in which Philips blew a huge investment.

Local Companies Extend Their Global Reach

While Knoxville isn't exactly in the forefront of the globalization movement, an array of home-grown manufacturers are growing their export business and with it local jobs. In addition to DeRoyal, chief among them are:

* CTI, whose principal product line is PET scanners which are used in the diagnosis and treatment of cancer, heart disease, and brain disorders. Through a joint venture with global juggernaut Siemens, exports now account for about half of CTI's $100 million annual sales. President Terry Douglas foresees the company's work force more than doubling to 1,000 by 2003.

* CSI, which makes software and hardware to monitor machines used in manufacturing at a plant adjacent to CTI's on Technology Drive. Since CSI became a subsidiary of Emerson Electric at the end of 1997, it's stopped releasing financial data. But sales are known to have grown from the $50 million reported in 1996, and a substantial percentage of them are for export.

* Environmental Systems, which makes emissions monitoring systems, doesn't release sales figures either. But about 30 percent of the product manufactured by the 175 workers at its North Knoxville facility is headed overseas, according to Executive Vice President Tom Carlson. The company now has subsidiaries or sales offices in the Czech Republic, Hungary, Poland, China and Thailand.

Perhaps the closest thing to a Knoxville-based multi-national is a recent addition to the local scene. Moll Industries moved its corporate headquarters to Knoxville last year after acquiring Anchor Advanced Products here. A lean headquarters staff of 17 at Tyson Place runs a $400 million-a-year molded plastics business with 27 manufacturing plants in seven countries. Its two nearby plants in Morristown employ 1,000 workers.

While DeRoyal keeps its revenues a closely guarded secret, it's a good bet that the company Pete Debusk built is the largest local player on the global scene. (The only home-grown company that's probably bigger, Clayton Homes, hasn't yet tried exporting its manufactured houses.)

DeRoyal's 12-person international division is headed by a Spaniard, Francisco "Paco" Olano, and includes the Singaporean Ms. Loo, a Belgian, and a representative of DeRoyal's Japanese partner, Hogy. Plants in Ireland and Costa Rica complement its seven U.S. manufacturing facilities of which the one in New Tazewell is the largest. And DeRoyal is an importer as well as an exporter, albeit on a much smaller scale. Textiles from China are used in the company's orthopedic softgoods.

In addition to orthopedic products, DeRoyal also produces operating room procedural trays, surgical accessories, critical care products, wound care products and software for hospitals.

When Loo takes off on her five three-week trips a year to Asia, her mission is to line up dealers to represent DeRoyal products in the 12 countries that she covers and then to train their people.

"I put all the gadgets in the bag and carry them within my head as well," she says with a round-faced grin.

The Other Side of the Coin

Global market driven job gains in high tech, capital intensive industries have been offset in the Knoxville area by the loss of lesser skilled, labor intensive manufacturing jobs to lower wage foreign competition. The shutdown of Levi's jeans assembly plant on Cherry Street a year ago alone resulted in 2,400 layoffs, the largest plant closing ever locally. And the last 200 of what was once a work force of 1,500 making Palm Beach suits here will soon be out of a job as well.

Yet the sense of foreboding that overhangs Levi's Dockers plant in Powell may be worse than the actual drop of the shoe for many of the displaced Cherry Street workers. Visit a class of 20 of them, ranging in age from 23 to 55, who are nearing completion of a year-long office systems training program at the Tennessee Technology Center on Liberty Street, and the mood is uniformly upbeat.

"Levi's actually did us a favor. You wear out your body working there," says Joyce Chambers, a 28-year Levi's veteran who's now looking forward to an office job. Her starting pay in the $7.50 to $8 an hour range and her benefits will be less than she got at Levi's. But instructors who double as placement officers at TTC predict that with experience Chambers and her classmates will rise to $10 to $12 an hour—assuming the Knoxville job market remains anywhere near as robust as at present.

The Private Industry Council, an arm of the Community Action Committee, has been coordinating federally funded training for 750 former Levi's workers in "almost as many job categories as there are people," according to PIC's director, Vaughn Smith. Contrary to the popular perception that displaced manufacturing workers mostly end up in much lower paying service jobs, Smith claims that, "On a statewide basis, average replacement pay starts at 94 percent and within three months is up to 99 percent." He acknowledges, though, that many incur financial hardship while undergoing training. "You can't make COBRA [health insurance] payments and eat very well on $185 a week in unemployment comp," he says. But in the case of the Levi's workers, generous severance packages from the company supplemented their other entitlements.

Neither Smith, nor the company, nor the Tennessee Department of Employment Security can account for the outcomes of the 1,650 displaced Levi's workers who didn't sign up for training programs. Many are believed to have found jobs on their own while others have retired. One place they aren't showing up is in the Knox County unemployment rate, which dipped to a record low of 2.5 percent in April.

Knoxville's economy is increasingly driven by its service sector, which is less susceptible to global influences than manufacturing. "Services by and large are still provided locally, and I'm not just talking about haircuts and dry cleaning," says Matthew Murray, director of UT's Center for Business and Economic Research. Where goods are concerned, Murray cautions that, "Increasing interdependence with the rest of the world means we may lose some control over our own destiny." But he adds that, "Without doubt, consumers are being afforded far greater choice and diversity as well as more competition over both price and quality."