German Mittelstand – Unveiling the mysterious champions of German industry! (Part 1 of 3)

Germany is – undeniably – the engine of European economy. Post-Brexit her position in European Union has further strengthened.

When you think of German companies which names come to your mind? – Automobile manufacturers like Mercedes-Benz, Volkwagen, BMW, Audi, Porsche? Electrical and multi-product giants like Siemens and Bosch? Chemical companies like Bayer and BASF? Insurers like Allianz, Muenchener RE? Consumer products manufacturers like Adidas, Beiersdorf, Henkel? … Deutsche Bank? …Lufthansa? …SAP?

There is no denying of the contributions of these world-famous companies. But the backbone of German economy is its huge, silent, and publicity-shy Mittelstand.

What is Mittelstand?

Mittelstand is the term used vaguely to describe Germany’s highly successful, ingenious and down-to-earth small and medium-sized enterprises. Well, in Germany everything has to have a clear definition – which eventually, may or may not be followed strictly. If you were a German professor of economics, or a German bureaucrat, you will disqualify a company with Sales turnover of EUR 50.1 million, and/or 501 employees to be termed as Mittelstand. But then luckily we are neither! The term “Mittelstand” is often used to include much larger companies too if they are run in the same spirit of Mittelstand. Now a days, the term Mittelstand is used loosely for – highly specialised, locally ingrained, not exclusively profit-oriented, selling below EUR 2 billions, unlisted, mostly family-owned, long-term oriented, predominantly manufacturing companies. Complex? No really! The beauty of the Mittelstand is that – they are less complex and more focused, less hierarchical and more flat, less transaction-oriented and more relationship-oriented. They believe in developing long-term relationships with customers, vendors, employees and the communities in which they operate.

Why should you be interested in understanding the Mittelstand?

Albeit a bit late, the Mittelstand is going global at a rapid pace. The Mittelstand has been conservative. They have been export-masters, but had not ventured much with operations in uncharted waters. Even their export markets were predominantly in Europe and the USA. The demography of Europe is developing the way it is. Europe is ageing. To give a few examples: Life expectancy in Germany is over 81 years, average age of the population is 43 years (India 24), Average number of children per woman is 1.3 (India 2.8). Mittelstand has recognised that the future markets are going to be outside Germany. Even the factories of a distant future are going to be outside.

For policy-makers – The exceptionally successful model of German Mittelstand provides a lot of clues as to how the eco-system can be built to support the SMEs (Small and Medium-sized Enterprises) in their country.

For large companies – The Mittelstand provides a lot of good practices to benchmark upon. Smaller units of multinationals can be run in the spirit of Mittelstand to achieve better results.

For SME companies – The Mittelstand offers a model to emulate.

For employees – It’s highly likely that you may be working for one or more German SMEs in your career. It helps to know how the Mittelstand ticks.

Mittelstand companies have a unique bond with the employees. Germans, often, are deep-rooted in their local communities, in their home-towns. They prefer stability and a steady job over brisk career growth. This stability is provided by the Mittelstand employer who in turn gets rewarded with employee loyalty, new ideas, contribution to inventions and innovations.

Won’t most of us like to have an employer who cares for you as a human being not just as a headcount or an FTE (full-time equivalent)? Whose values, often, match with yours. Who is innovative, willing to experiment new business models, flexible so far as working hours are concerned, does not pay you like the big-wigs but does not fire you as smoothly either, who is connected with you personally, and who believes in “stake-holders value” more than “shareholder value”, in spite of being himself or herself the largest or often, the only shareholder. Your work is giving you the satisfaction that you are contributing to the continuity of the organisation, to the well-being of local community, to the advancement of the society, and the progress of the nation. And all this is happening while you and your family are progressing economically, culturally and intellectually. What more do you wish?

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