A conversation on Pittsburgh’s business scene several decades ago would inevitably turn to one topic: steel production. Around the middle of the 20th century, Pittsburgh contributed nearly half of the nation’s steel output. Steel defined its economy and workforce—at least for a while. Then, during the ’70s and ’80s, steel production dwindled, beset by foreign competition, a saturated market, and other factors. Pittsburgh’s economy sank, bringing down job numbers, population figures, and the prestige surrounding what was once the country’s eighth largest city.
Gradually, Pittsburgh recovered, and its resiliency paid off. Today, the region supports a diverse, thriving business portfolio. Total capital investment in the 10-county Pittsburgh region reached a record high $10.2 billion in 2016, according to analysis by the Pittsburgh Regional Alliance, which has been tracking regional investment for the past decade. The majority of this figure stemmed from the announced $6 billion investment to build a world-scale Royal Dutch Shell ethane cracker plant in Beaver County, a project that will establish southwestern Pennsylvania as a petrochemical powerhouse.
Pittsburgh’s key economic sectors including energy, advanced manufacturing, business and financial services, healthcare and life sciences, and information technology are helping its business investment landscape to shine. These sectors don’t encompass the extent of commercial activity in Pittsburgh, but they are driving some of the region’s most compelling business developments and producing statewide and national buzz. These sectors share a synergy, enabling each to complement, versus outshine one another, and give the region’s economy a certain stability. The region benefits from retaining and supporting a balanced, diverse set of industries that round out and sustain its economy, fostering an exciting future for business in Pittsburgh.
Even with a banner year and impressive figures and numbers across so many business areas in 2016, it’s important to analyze the region’s performance over a longer period to maximize insight, says Pittsburgh Regional Alliance President David Ruppersberger. Fortunately, such a good year represents a culmination of many pro-business practices and traits inherent to Pittsburgh, ones that will continue to attract new businesses and grow existing companies. “Having a business-friendly environment with good academic institutions and a good quality of life, it kind of drives itself,” Ruppersberger says.
Pittsburgh’s legacy industries in energy and manufacturing have long powered its economy. But more recently emerging sectors, such as the growth of healthcare and life sciences in the region, have helped redefine it. Healthcare and life sciences capital investment in the region reached $150 million in 2016, the largest amount since 2011. Projects generating significant capital investment included Excela Health’s $40 million Ambulatory Care Center in Westmoreland County and a $30 million expansion by Mylan at its Washington County world headquarters. Equally exciting is not only the large-scale expansion and development of these established healthcare leaders, but the creation and growth of new life sciences companies in Pittsburgh.
With Pittsburgh’s world-class, research-focused universities, including the University of Pittsburgh and Carnegie Mellon University (CMU), the region isn’t short on brainpower and researchers who possess the acumen, creativity, and experience needed to dream up and actually create new technologies. This is especially evident in the life sciences and healthcare industries. Still, while scientists and researchers can understand a product from a customer or patient angle, commercializing, finding investors, and moving these technologies to market is itself a science. “Healthcare is the most highly regulated industry in the economy next to the nuclear industry,” says Jim Jordan, president and CEO of the Pittsburgh Life Sciences Greenhouse (PLSG), an investment and business incubator firm focused on the creation and advancement of life sciences companies. The PLSG helps entrepreneurs navigate industry complexities in order to commercialize innovations and build their companies.
There’s certainly a market for life sciences technologies, which can range from pharmaceuticals, diagnostic technologies, healthcare information technologies, and other medical devices. At $3.2 trillion, healthcare approaches 20 percent of the total U.S. economy, and 40 percent of that amount pertains to life sciences and health information technology products, Jordan says. Since the turn of the century, Pittsburgh’s life sciences entrepreneurial community has steadily and substantially grown, complementing the universities’ capabilities as innovation hubs. Since its founding in 2002, the PLSG has invested in 80 companies total, 51 of which are still active, Jordan says. This activity has delivered more than $1.5 billion in capital to the region, creating and affecting some 14,300–15,000 direct and indirect jobs, Jordan adds.
Plus, successful life sciences companies breed other new companies and entrepreneurial endeavors. When a new product or technology integrates into the market and investors see a return, those investors often fund additional new start-ups, hoping for another successful cycle.
Such has been the case with Blue Belt Technologies, a Pittsburgh company that evolved from an idea, to a start-up, to a company purchased for $275 million by the multinational medical technology business Smith & Nephew in 2015. Blue Belt’s signature technology, the Navio Surgical System, can be described as a robotic, hand-held orthopedic drilling device. The founders behind Blue Belt’s technology, who began its development around 2002, conducted work with CMU and its Robotics Institute before approaching the Pittsburgh Life Sciences Greenhouse and acquiring further capital. After Blue Belt’s angel investors made money on their investment, they turned around to invest in more start-ups, Jordan says.
The Pittsburgh region attracts a significant amount of venture capital, which is key to new-company growth, but it faces competition, of course. Jordan says somewhere from 48–53 percent of all life sciences venture capital in the nation goes to California, Massachusetts, and New York. If Western Pennsylvania can bring in 2 percent, it will break into the top 10 regions with the largest amount of life sciences venture capital. The region currently stands in the top 15, Jordan says.
Even in industries outside of the life sciences and healthcare, Pittsburgh is hardly a stranger to tech innovation. In fact, Pittsburgh’s robust technology sector plays a role in industries whose link to technology may not be as immediately apparent. PNC Bank, headquartered in Pittsburgh, (along with other area banks and financial companies) is capitalizing on the region’s tech prowess. PNC has invested more than $1 billion in technology over the last couple of years, much of it focused on cybersecurity, new financial products for customers, and technology to support increased use of digital banking channels. Lou Cestello, PNC regional president for Pittsburgh and southwestern Pennsylvania, says that some of the biggest challenges that banks face are keeping pace with changing technology and how clients are interacting with their financial providers. Clients’ expectations for a bank’s use of technology are changing, too.
PNC hosts APIFest events throughout the year (short for application programming interfaces), which convene groups of PNC employees, and, at one recent event, CMU students were included. The groups work on developing technologies and innovations in banking products and services. The fest takes the form of a competition. Teams work to solve real-life issues and complexities surrounding consumer money management and other areas and aim to bring these solutions into practice. “We are not just about purchasing technology,” Cestello says. “We’re developing technology.”
PNC has achieved significant growth in just the past decade. Around 2008, it was a $125 billion asset bank with some 5,000 employees in the region, says Cestello, who also oversees PNC’s Office of Regional Presidents. Today, it’s a $372 billion bank that employs more than 12,000 regional workers. Cestello attributes this growth to a variety of factors, including the bank’s focus on retaining clients and not taking excessive risks regarding its capital structure. Plus, Cestello says, PNC isn’t a Wall Street bank, it’s a Main Street bank, one that emphasizes community engagement. “Throughout all of our communities that we’re serving, we have a very strong not just financial commitment but a volunteerism commitment from our employees to give back to these communities,” Cestello says, noting the bank’s pre-K education volunteer initiatives.
A vibrant Pittsburgh helps make for a vibrant PNC, and the region has shown strong ability to start businesses, Cestello says. This, of course, provides opportunity for banks and contributes to financial companies’ notable success in Pittsburgh. The financial and business services sector is the Pittsburgh region’s largest employment sector. In 2016, the sector employed 230,000 people, with more than 2,000 jobs added that year. Contributing 25 percent of the gross regional product, the financial and business services sector leads the region in this category.
Whether a company is a rising star or a decades-old backbone of Pittsburgh’s business realm, banks and the services they provide play a role throughout every stage of a business’ lifecycle. Similarly, no business could exist without a constant power source for its operations. Powering industry requires energy, and Pennsylvania has had a long history with energy. Here, the first oil was drilled in Titusville in 1859, sparking the global hunt for petroleum that’s so shaped our modern world. The region’s coal industry fed steel production and the processing and transport of other key goods.
Today, southwestern Pennsylvania’s access and proximity to natural gas deposits at the Marcellus Shale and Utica Shale sites have, within the past decade, transformed the region’s energy portfolio and business potential. “Energy has obviously been a big part of our past, but it could play an even bigger part in our future,” says Morgan O’Brien, president and CEO of Peoples Natural Gas. Together, Marcellus and Utica Shale hold the second-largest natural gas reserves on earth, O’Brien says, containing more gas than anywhere in the United States.
Yet it’s only been within the past decade or so that we’ve employed the right technology to extract all of this natural gas on a large scale. In the ’80s, people thought we would run out of natural gas, O’Brien says, so the nation remained fixated on oil. Today, we have the means to tap into and unlock these shale reserves, which has wide implications for businesses across the spectrum.
Energy in the region is cheaper because we are so close to the source. For big manufacturing and technology facilities, this is clear incentive. For example, General Electric’s additive manufacturing facility near Pittsburgh, which opened in 2016, can rely on low-cost energy for its production of 3D-printed components and other operations. “I think what you’re seeing is the beginning of both manufacturing and technology building the business case that says you want to be in Western Pennsylvania,” O’Brien says.
The region’s energy sector also benefited in 2016 from the announcement of the construction of a $785.2 million clean-burning, natural gas-fueled Tenaska power plant in Westmoreland County. Additionally, Pittsburgh possesses the manufacturing capabilities and scientific innovation to advance alternative energy technologies. Pittsburgh’s PPG industries is one of the largest makers of high-performance glass, coatings, and fiber glass used for solar and wind energy technology. And the area’s abundant manufacturers are vital to the supply chain for wind energy components.
As plentiful as natural gas is within southwestern Pennsylvania, the region remains focused on efficient use of this resource. For example, Pittsburgh has shown potential to lead the charge to implement microgrid technology within the city. Instead of relying on large, distant power plants to energize and deliver electricity to an entire city, microgrids essentially use locally placed, smaller plants to generate electricity for a certain complex or site. O’Brien says that natural gas has been fueling this technology, which local university campuses and hospitals have already leveraged. Using combined heat and power technology, a university campus, for example, receives nearby natural gas, and an on-site plant uses this supply to generate and harness electricity and thermal energy.
Such a self-sufficient system produces key environmental and cost-effective advantages. As electricity travels farther and farther across power lines, energy gets lost along the way, O’Brien says. A more local plant eliminates this long-distance problem, and less lost energy means less demand for power and, ultimately, less strain on resources and the environment. Combined heat and power means generating not only electricity, but the energy needed for hot and cold water and other utilities. Hospitals, for example, can harness a plant’s steam production for their laundry needs, O’Brien says. Energy is a critical component of any business platform, and business complexes with sizeable energy demands have incentive to employ this technique that the southwestern Pennsylvania region stands so well-positioned to provide.
In the same fashion, it’s very possible that the highly-anticipated Shell ethane cracker plant to be built in Beaver County will contain its own natural gas-powered plant to generate electricity for its significant manufacturing and processing demands. The plant, which should begin operations in the 2020s and employ 600 full-time workers after completion, truly embodies the interconnectivity between Pittsburgh’s legacy energy and manufacturing sectors.
Essentially, the plant will take ethane from the nearby natural gas sites and “crack” the ethane molecules, converting them to ethylene to be used in plastics and other materials. The plant marks the first such investment of this type outside of the U.S. Gulf Coast and will anchor the emerging petrochemical industry in the region. The facility plans to produce some 3.5 billion pounds of polyethylene pellets annually.
As the Shell plant begins production, it’s likely to draw plastics, chemical, and other types of manufacturers to the area, multiplying its business potential. Indeed, Pittsburgh also bears a long history with manufacturing, which was most visible during the city’s steel days. Steel production may no longer dominate Pittsburgh, but by no means has manufacturing evaporated. Today, Pittsburgh is leveraging its technological prowess, access to innovation, and educated, skilled workforce to emerge as a leader in advanced manufacturing.
The 10-county Pittsburgh region hosts nearly 3,000 advanced manufacturing establishments, employing 95,000 workers. “Manufacturing really is diverse in the region,” says David Ruppersberger of the Pittsburgh Regional Alliance. “[It] continues to be one of our most active sectors in the region, despite the downturn and loss of steel.” Pittsburgh’s manufacturing companies conduct metals processing and fabrication. They construct medical devices and electronic appliances. They do food processing, manufacture chemicals, and assemble computer components.
Such diversity isn’t restricted to advanced manufacturing’s products; companies here reflect similar variety. Large-scale, global manufacturing firms such as Philips Respironics and Boeing exist alongside rising manufacturers in the region, such as plastics manufacturer Retal in Washington County, and Gordon Sinclair in Indiana County—which supplies customized promotional items—that are increasingly affecting and growing Pittsburgh’s economy. “Today, attractions or expansions in advanced manufacturing are focused on innovation-driven, high-efficiency environments—both newly constructed and existing facilities creatively adapted for reuse,” says Ruppersberger.
Every Pittsburgh industry benefits from the region’s abundance of colleges and top universities, which allows for recruitment of local talent. Advanced manufacturing is no exception. The 35 colleges and universities in the area, plus nearby Penn State University, graduate some 4,400 engineering students each year. Coupled with highly skilled machinists, the manufacturing workforce is becoming increasingly dynamic and in demand. 2016 saw the addition of approximately 600 more manufacturing jobs than the total added in 2015.
It isn’t uncommon to find other midsize cities in the United States dominated by one employer or industry sector. Conversely, Pittsburgh’s more balanced structure has helped the region remain economically stable and grow businesses across the board. Absent are the tumultuous highs and lows that can generate uncertainty. Instead, steady gains have gotten Pittsburgh where it is today and will continue to cement its path forward.
Even during periods of growth, various sectors will still see some rise and fall in revenue and expansion; the ebb and flow of business affects even the most robust regional economies. Yet the balance harbored by Pittsburgh’s business sector remains one of its most valuable traits, ensuring that industries will propel one another through these cycles. Pittsburgh will always remember its days as the Steel City. But from this smoky past, emerges a clear future. mg