German accents: Changing labor, trade climate challenges Southeast Tennessee's biggest foreign investments

Photo Gallery

German Accents

Tennessee announced in March two more German businesses are opening factories in Southeast Tennessee, bringing to 125 the number of facilities in Tennessee making or selling products from a German-owned company.

The German "invasion" in Chattanooga began in 2008, ironically on the same site where the United States military originally assembled and built America's biggest TNT plant to fight Germany during World War II. Today, the former Volunteer Army Ammunition's Plant the Pentagon shut down after the Vietnam War has been converted to Enterprise South, where Volkswagen and its suppliers have created thousands of new jobs.

Up Interstate 75, less than 25 miles to the north, the biggest private investment ever in the region came shortly after VW came to town. German polysilicon chemical company Wacker Chemie built a $2.5 billion facility in Charleston, Tennessee.

In Southeast Tennessee, a total of 27 German-owned companies have set up shop or expanded operations over the past decade. Chattanooga Mayor Andy Berke said the German investment has been welcomed and embraced by the community.

"There are a lot concerns I hear from international businesses about comments from the president or trade issues, but we want everyone to know that in Chattanooga we are a welcoming community and we want them to help us grow our economy," Berke says.

Over the past decade, the Chattanooga region has attracted more than $7 billion of foreign direct investment, including nearly $5 billion from German companies alone. Statewide, Tennessee has led the nation in foreign direct investment over the past decade and a majority of the biggest private investments in Chattanooga over the past decade have come from companies headquartered overseas.

"This is a fantastic addition to our economy from companies from 22 different countries - very impressive numbers," said Christy Gillenwater, president of the Chattanooga Area Chamber of Commerce.

Gillenwater said the Chamber's International Business Council "is a vehicle for being thoughtful and mindful around diversity and equity inclusion as it relates to people and companies from around the world."

"We want to create even more of a welcoming space for international companies," Gillenwater says. "As our new economic development program "Chattanooga Climbs" takes shape, you will see that we want to continue to cultivate relationships in various countries to continue to see our FDI (foreign direct investment) numbers increase."

Changing markets but sustained growth

The investments have been sustained - and even increased - by German companies despite changing markets that have raised new challenges for both exporting goods and hiring talent for the new ventures.

"When Volkswagen came to Chattanooga (in 2008) it was a different situation," says Nicole Koesling, the Chattanooga Volkswagen plant's senior vice president for human resources. "Unemployment was much higher than today and we had a lot of job applications so we had could pick the best people to work for us."

As unemployment in Chattanooga has fallen to around 3 percent, Koesling said the job market is much different and hiring has become more difficult.

"This is something that keeps me up at night," she says. "Finding the workforce we will need for the future is more difficult, not just finding the quantity of the people but getting and training the right people."

Werner Van Antwerpen, vice president of operations at Schnellecke Logistics, said finding qualified workers to staff the growing Volkswagen plant is proving harder as the unemployment rate hovers around the lowest level in a half century.

"Along with that good news for workers also comes some challenges for employers," he says. "You are always competing with somebody else for workers."

In a region without much automotive assembly work before Volkswagen, the German auto maker established a training academy and has worked with high schools and Chattanooga State to train workers for the VW plant. The training has helped equip workers for the plant, but Koesling said turnover remains higher than what the company expected, even after providing the specialized training.

"Coming from Germany, I am used to 0.001 percent attrition, but here we have a bit more and that is a challenge," she says.

Van Antwerpen said some workers opt out of their new VW jobs within the first couple of weeks so the employment firm and VW are working harder to make sure new hires understand the job better in advance and know what to expect.

Despite the workforce challenges, however, Volkswagen has continued to expand its Chattanooga facility, including a a $900 million addition in 2014 and a $340 million expansion in 2018 to add new gas-powered vehicle lines. VW announced in January it will spend another $800 million to begin making electric vehicles in Chattanooga. VW's 3,500-employee staff is projected to grow by another 1,000 employees with the electric vehicle line. The new electric vehicles

will require new training of both existing and new workers in the Volkswagen Academy, Koesling said.

Solar import duties threaten Wacker

The markets have shifted even more for Wacker, which originally planned to ship most of its products to Asia when the company picked its Bradley County site for its latest polysilicon production facility.

"One of the main reasons that we came to the U.S. with our polysilcon plant in the beginning was that our product was sold mainly in Asia and is traded in dollar currency so we wanted to be able to produce in dollar currency and we wanted to make sure we would retain our intellectual property, which is better protected in the U.S.," says Mary Beth Hudson, a Wacker vice president and site manager of the company's Charleston facility.

But while Wacker was still building the initial $2 billion plant, the U.S. government slapped import quotas on Chinese-made solar panels and China countered with its own trade barriers. The net effect of the solar panel trade war has been to effectively cut off Wacker's biggest customer from buying U.S. made polysilicon.

The trade dispute led another major polysilicon maker, Hemlock Semiconductor, to permanently close its $1.2 billion polysilicon plant in Clarksville, Tennessee, in 2014. Hemlock, a joint venture between DowDuPont, Corning Inc. and Shin-Etsu Handotai, suspended production at the plant two years earlier in response to the threat of potential tariffs on its products sold into China. Polysilicon is the base material needed for solar panels.

Although Wacker slowed down its initial construction plan when tariffs weakened one of its prime markets, the company ultimately decided to keep and even expand its chemical plant here, making a key element in solar panels and semi-conductors. By next year, the company will also make pyrogenic silica, an agent used in such products as toothpaste, cosmetics and paint.

"Dr. (Peter-Alexander) Wacker and other officials have told us they like to think in 100-year horizons and they made a very determined, long-term analysis and decided they were here to stay," says Doug Berry, vice president of economic development for the Cleveland/Bradley County Chamber of Commerce who has worked with Wacker since 2009. Hudson said she hopes the U.S. and China can negotiate better trade deals to remove some of the costly import duties, which she said "is what keeps me up at night."

But Wacker has been able to shift its Asian exports to its European operations, where such tariffs and duties are not in place, and use the new Charleston plant to supply other countries and other markets.

"This is a very business-friendly region and I think that is why you see so much investment in this area," Hudson says.

Van Antwerpen agrees, although the German native said it took some time to adjust to Tennesseans' reluctance to drive in wintry road conditions.

"It's a diverse and economically friendly region for business and Chattanooga has been very inviting and welcoming to foreign investment," he says.