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Why do U.S. firms add jobs abroad? Germany offers an example

An Ohio-based manufacturing firm is investing $4 million in Bavaria due to education, subsidies and health care.

Last week I was in Germany on business. I attended a planning session for a mid-size manufacturing company on whose board of directors I serve.

The company headquarters is in Cincinnati, but the company has a German division which had just opened a 40,000-square-foot manufacturing facility in the small Bavarian town of Bad Kotzing.

Bad Kotzing is in the far eastern part of Bavaria near the Czech border.

This area has long been viewed as a poor, largely agricultural area. Vestiges of the Cold War remain in twin observation towers in the mountains near the town which the Allies used to keep tabs on Russian activity in what was then Czechoslovakia (now the Czech Republic).

Over the past five years this American company had added significant manufacturing capacity in a Tennessee facility prior to the investment in Bad Kotzing. The investment in Bad Kotzing was over $4 million to expand the product lines of this division.

Because the area is still considered a priority for economic development, the Bavarian government provided a grant of approximately $700,000 to us for the project.

Part of the rationale for holding the planning meeting in the Bad Kotzing area was so that all of us participating would be able to see the new facility in operation. The plant manufactures high precision stainless steel flow meters for industrial operations. It is a good example of the manufacturing base that Germany has been able to sustain and grow – precision parts that require excellent engineering as well as specialized manufacturing.

The workforce is highly capable, well-trained and able to compete in this niche market all over the world.

The division, like most manufacturing operations, was hard-hit by the global recession in 2009.

Yet it has bounced back solidly this year, and expects to exceed the record sales of 2008 next year. This is the principal reason we decided to go ahead with this investment.

Interestingly, the part of Bavaria that includes Bad Kotzing is similar to the western mountain region of Maine. The area is heavily forested with mountains in the 2,000- to 3,000-foot range. There is a lot of hiking and outdoor recreation.

As one of my colleagues pointed out, this part of Germany provides an illustration of the different approaches to economic and social policy taken by Germany compared to the United States.

First, there is much more investment capital available to small and medium-sized businesses investing in zones designated for economic development.

Second, there are more targeted educational programs for manufacturing and related technical skills. Germany has developed a highly-effective apprenticeship program for skilled workers.

At our facility in Bad Kotzing, for example, we have apprentices training to operate precision lathes who work part-time for us while they are still in school.

We pay them a modest amount and often make them an offer of full-time employment once they have completed their education.

A third significant difference is the two countries' approach to health care.

The CEO of this company lamented that he had recently held employee meetings at our three U.S. locations to explain why the employees had to make a greater contribution to their health care plans as the company was facing another double-digit increase in rates. It was a tough sell.

Of course, he did not need to visit the German division because their health care is provided in a national plan.

Even though the recently passed national health-care legislation promises all Americans health care coverage by 2013, the United States has not yet tackled the drivers of escalating health-care costs.

As a result, company health plans like ours are likely to continue to be under intense price pressure.

The United States has consistently led developed countries in its ability to create jobs. We do not provide as much of a social safety net, but we have offered more economic opportunity.

The current sluggishness in our recovery is worrying, particularly to a state like Maine that tends to lag the rest of the United States even in the best of times.

We will recover, but it seems likely to be a long, slow and painful process.

In spite of my faith in this country's free market approach, I return from Germany with my convictions tested.

It would not take many of the kinds of investment in precision manufacturing I saw in Bad Kotzing to make a significant difference in Maine.

Perhaps the next governor should consider petitioning Massachusetts for special economic development grants.