Foreign investors drawn to Western Pennsylvania

| Thursday, June 19, 2014, 11:09 p.m.

Foreign-owned companies are playing a key role in Pittsburgh's economic growth and evolution from an industrial economy.

The number of jobs at these companies in the Pittsburgh region nearly doubled between 1991 and 2011, from 26,340 to 51,840, according to a study by the Global Cities Initiative, a joint project of Brookings and JP Morgan Chase.

Companies such as Germany's Bayer AG, whose North American MaterialScience division is based in Robinson, also account for a greater share of private employment locally, increasing from 2.9 percent to 5 percent in that 20 year span, the report said.

The growth outpaced other American cities and reflects how Pittsburgh's skilled workforce and transition to a knowledge-based economy has expanded its global appeal, said Devashree Saha, Brookings senior policy analyst and co-author of the report.

“In Pittsburgh's case, that has definitely played a big part,” Saha said. “That is an attractive feature for foreign companies scouting different locations. They ask, ‘Do I have access to a skilled workforce?' ”

International companies offer higher wages and account for a disproportionate share of capital investment and exports, she said, which is why city officials would be wise to craft programs that attract foreign investment.

In 2011, German-owned firms, such as Bayer, provided the greatest share of jobs among foreign-owned companies, employing 8,000 people. That was followed by England (6,800), Japan (6,300) and Canada (5,600). Most of the jobs were in manufacturing.

Pittsburgh's proximity to metropolitan areas on the Atlantic Coast and Midwest has made it an attractive gateway to the American market, and there is a “European feel” to the city that foreign companies enjoy, said Suzi Pegg, vice president of global marketing at the Allegheny Conference on Community Development.

Economic development policies often target “greenfield” investments to persuade foreign companies to build an operation from the ground up. But in the past two decades, most of the job growth from international firms in the country has come through buying other companies, according to the Brookings report.

“Merger and acquisition has been neglected quite a bit in policy making,” Saha said. “To ignore that reality is foolhardy. Merger and acquisition brings significant economic opportunities, same as greenfield investment.”

Foreign acquisitions raise concerns about job losses, but those fears often are unjustified, Saha said. Rather than shape economic policy to be protectionist, officials should aim to make those foreign investments “sticky” so companies extend their roots.

Economic development programs could help foreign firms connect with workforce development resources in the region, such as partnerships with community colleges. They can provide “after care” by dedicating staff to reach out to foreign firms after they get established.

“All of these things that would make a foreign investor want to stick around after they have made the initial investment,” Saha said.

One company that has proved “sticky” is German-owned VEKA.

The Fombell-based manufacturer of vinyl window frames and profiles began as a joint-venture with Alcoa in 1983. It has grown from a 10-person start-up into a company with 402 employees.

Pittsburgh was a logical place for VEKA to establish itself in the United States, as the city offered proximity to the densely populated Northeast and Midwestern cities such as Chicago, said president and CEO Joe Peilert.

There have been other advantages.

“There is a skilled manufacturing labor force,” Peilert said. “Clearly, people (in Pittsburgh) have a great attitude.”

VEKA has benefited from state tax credits and grant programs. Last year, it was awarded $190,000 in Pennsylvania First Program grants to add 38 jobs, which have been filled, Peilert said.

A negative for foreign companies in Pittsburgh has been transportation, Pegg said. Firms complain that they can't get direct flights overseas. And for manufacturers like VEKA, there is growing competition from the shale industry for workers, Peilert said.

VEKA has retained staff through competitive wages and strong benefits packages, he said, and Pittsburgh offers enough advantages that Peilert could not imagine leaving.

“We are very happy to be here in Western Pennsylvania,” he said.

Chris Fleisher is a staff writer for Trib Total Media.

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