Mittelstand

Representation of the supporting role of the Mittelstand in Walter Wilhelms „Mission des Mittelstandes“ (Mission of the Mittelstand, 1925)

Mittelstand refers to small and medium-sized enterprises in German-speaking countries, especially in Germany, Austria and Switzerland. Economic and business historians have been increasingly giving Mittelstand companies more and more credit for Germany's economic growth since the beginning of the 20th century, often under the name of hidden champions.[1]

The term is also used in other languages as an alternative to e.g. SME/SMB.

Definition

The term is not officially defined or self-explanatory. The German word Stand refers to an estate, from the medieval model of society, under which a person's position was defined by birth or occupation. There were three principal levels, the upper one being the aristocracy, the middle one (the Mittelstand) the free bourgeoisie of the cities, and the lower one the peasants. Today, the term is used with two meanings. The first refers to small and medium-sized enterprises (SME; German, kleine und mittlere Unternehmen or KMU), as defined by number of employees and turnover. The second meaning refers to any family-run or -owned business (not necessarily a SME). (Note that the correct term to describe households of middling income would be Mittelschicht, with the English translation middle class.)

Mittelstand model

Mittelstand companies are "highly focused, achieving unprecedented efficiencies by designing a business model with a razor-thin focus and learning to do the one thing really well"; then to "compensate for their razor-thin focus . . . they diversify internationally and enjoy great economies of scale".[2] Mittelstand companies benefit from Germany's apprenticeship system, which provides highly-skilled workers;[3] and there is a "collaborative spirit that generally exists between employer and employees . . . . In the post-reunification recession, it seemed only natural to German workers to offer flexibility on wages and hours in return for greater job security.".[4]

Many Mittelstand companies are export-oriented. They focus on innovative and high-value manufactured products, and occupy worldwide niche market leadership positions in numerous B2B segments.[5] They are typically privately owned and often based in small, rural communities. Many of the successful Mittelstand companies combine a cautious and long-term-oriented approach to business with the adoption of modern management practices, such as employing outside professional management, and the implementation of lean manufacturing practices and total quality management.[5] The Mittelstand emphasis on long-term profitability stands in contrast to the public corporations of many countries (including German public corporations) which face quarterly or annual pressure to meet expectations.

Typically, Mittelstand companies work closely with universities and researchers and cluster themselves around big manufacturers.

In modern Germany

Germany's Mittelstand companies are a very important part of the country's economy. In 2003, these companies employed 70.2% of all employees in private business, according to the Institut für Mittelstandsforschung (IfM).[6] Some predicted their demise that year due to narrowing of credit availability and a record number of firms collapsing.[7] So far these predictions have failed to materialize, Mittelstand companies continue to employ 70% of Germany’s workforce. However, they contribute only 50% of its gross domestic product (GDP, $3.3 trillion). [8]

The German Savings Banks Association (DSGV) publishes an annual analysis, Diagnose Mittelstand, based on surveys and balance sheets of over 100,000 Mittelstand companies amongst its member bank's customers.[9]

Main sectors

Germany's Mittelstand is heavily concentrated in:

Notes

  1. ↑ IfM Bonn – Institut für Mittelstandsforschung (de)
  2. ↑ Karan Girotra and Serguei Netessine (February 12, 2013). "Extreme Focus and the Success of Germany's Mittelstand". Retrieved 2013-06-21.
  3. ↑ "German Mittelstand: Engine of the German economy" (PDF). Federal Ministry of Economics and Technology (BMWi). Retrieved 2010-12-08.
  4. ↑ John Studzinski (5 February 2013). "Germany is right: there is no right to profit, but the right to work is essential". Retrieved 2010-12-08.
  5. ↑ 5.0 5.1 Venohr, Bernd (2010). "The power of uncommon common sense management principles - The secret recipe of German Mittelstand companies - Lessons for large and small companies" (PDF). Retrieved 2010-12-08.
  6. ↑ Günterberg 2004, p.5
  7. ↑ Sam Vaknin (Jan 29, 2003). "Analysis: The demise of the Mittelstand". United Press International. Retrieved 2011-12-14. The investment requirements of Mittelstand firms total $20 billion annually. But access to capital is narrowing. Tottering local banks are risk averse, the capital markets are lethargic, private investors are scared and scarce. The Basel 2 capital adequacy requirements will considerably increase the cost of bank loans to risky borrowers, such as are most Mittelstand firms...According to Creditreform, quoted by The Economist, a record 37,700 companies went under last year. The Financial Times puts the figure at 45,000. This year will witness another bumper crop. The figures, according to the Institut für Mittelstandsforschung in Bonn, are even more harrowing. In 2001, 386,000 startups were liquidated and 455,000 formed to yield 69,000 new firms. New startup formation is at a low ebb.
  8. ↑ Sreedhar Kajeepeta. "Finding Hidden Gems in the German Mittelstand". Retrieved 2012-02-22. Mittelstand companies employ 70 percent of Germany’s workforce and contribute to 50 percent of its gross domestic product (GDP, $3.3 trillion).
  9. ↑ Diagnose Mittelstand 2012 and Supplementary tables, DSGV website. Retrieved 2012-02-13. Diagnose 2012 is the eleventh annual analysis published by DSGV.
  10. ↑ "Germany's Mittelstand Still Thrives". September 30, 2010.

References

External links