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Mittelstand

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

Mittelstand commonly refers to small and medium-sized enterprises in German-speaking countries, especially in Germany, Austria and Switzerland. However, the Mittelstand proves difficult to translate and causes a lot of confusion. The majority of definitions define the Mittelstand as a statistical category and most commonly suggest that Mittelstand firms are small and medium-sized enterprises (SMEs; German, kleine und mittlere Unternehmen or KMU) with annual revenues up to 50 million Euro and a maximum of 499 employees.[1][2]

However, the term is not officially defined or self-explanatory hence, in English linguistic terms SMEs are not necessarily equivalent to the Mittelstand. In fact, even larger, and often family-owned, firms claim to be part of the Mittelstand, such as Robert Bosch[3] based on the Mittelstand's positive connotations.[4] The term Mittelstand mainly applies to mid-sized firms as opposed to larger listed companies and most importantly Mittelstand companies are characterized by a common set of values and management practices.[5]

Already Ludwig Erhard, the former Economics Minister who crafted the post-war (West) Germany's economic miracle (German: Wirtschaftswunder) warned not reduce the Mittelstand to a mere quantitative definition, but instead emphasized more qualitative characteristics which embody the German Mittelstand, as it is "...much more of an ethos and a fundamental disposition of how one acts and behaves in society."[6]

What does define the Mittelstand, is a much broader set of values and more elastic definitions.[7] Business historians[8][9] define various traits associated with Mittelstand firms, such as:

  • Family ownership or family-like corporate culture
  • Generational continuity
  • Long-term focus
  • Independence
  • Nimbleness
  • Emotional attachment
  • Investment into the workforce
  • Flexibility
  • Lean hierarchies
  • Innovativeness
  • Customer focus
  • Social responsibility
  • Strong regional ties

The latest English publication on Mittelstand firms by Prof. Bernd Venohr, Prof. Jeffrey Fear and Dr. Alessa Witt highlights that: "These companies are predominantly run by classic “owner-entrepreneurial families” (Unternehmerfamilien) seeking to sustain the business by instituting a core ideology of longevity, conservative long-term financing, and operating practices."[5] The Mittelstand acts as a counterpoint to a singular focus on shareholder value and dispersed investor-orientated shareholding.

Germany's business 'landscape' and the role of the Mittelstand

Germany's business landscape,[5] showing that over 99% of German firms are Mittelstand firms but not necessarily all are SMEs.

Due to the broad set of values which define the Mittelstand, Venohr, Fear & Witt (2015)[5] divide Germany's 'business landscape' into three distinct categories of Mittelstand firms.

  1. 'Classic' SME-type Mittelstand firms, which account for 99% of German firms (revenue below 50 million EUR).
  2. 'Upper'-sized Mittelstand firms, which account for 0,34% of German firms (revenues between 50 million EUR up to 1 billion EUR).
  3. Large cooperations, which account for 0,02% of German firms (revenues over 1 billion EUR) and are more well-known companies, including the DAX 30 companies.

This pyramid shows that over 99% of German firms are Mittelstand firms but 0,34 depart from the classic small and medium-sized enterprise (SMEs) definition. The two categories of 'classic' and 'upper' Mittelstand firms in Germany account for 68% of Germany's exports. In comparison, Germany's larger cooperation generate 32% of Germany's exports.[5] The 'upper'-sized Mittelstand firms (revenues between 50 million EUR and 1 billion EUR) form a unique and distinctive group, as they are the most export-orientated group of firms in Germany's business landscape contributing significantly to Germany's sustained export success. As such, Mittelstand firms clearly form the backbone of the German economy[10].

Defining the term 'Mittelstand'

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.)

The Mittelstand explained

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".[11] Mittelstand companies benefit from Germany's apprenticeship system, which provides highly skilled workers;[12] 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.".[13]

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.[14] They are typically privately owned and often based in small, rural communities.[5] 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.[14] 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.

Management model "Made in Germany"

The Mittelstand model is most specifically defined in the 2015 publication "The Best of German Mittelstand",[4] which summarizes the distinct management model that "dovetails strategy, leadership and governance principles, with core processes in a unique blend, creating a finely tuned process."[5]

  1. Strategy: Global niche dominance
  2. Governance: 'Enlightened' family capitalism
  3. World class performance in core processes
  4. Locational advantages: The German microeconomic business environment

The Mittelstand in Great Britain -Brittelstand and McMittelstand

The German Mittelstand is envied by many neighboring countries, and Britain is no exception. The Confederation of British Industry (CBI), for example, urges the backing of the British Mittelstand.[15] Also George Osborne highlights that "we want to learn lessons of the successful Mittelstand model, which has operated in Germany for decades."[16]

A recent study[7][1] suggests that Britain has its own version of a British Mittelstand - the so-called Brittelstand and Scotland has its own McMittelstand. The comparison between German and British/Scottish successful mid-cap companies suggests that British firms are far more short-term orientated in terms of management and policy raising the question whether the UK Mittelstand - Brittelstand - can endure over time in the same manner as the German equivalent

Mittelstand's main sectors

Germany's Mittelstand is heavily concentrated in:

  • machinery
  • auto parts
  • chemicals
  • electrical equipment[17]

Industrie 4.0

While the Mittelstand has served the German economy well since World War II, it is now faced with questions about how it will adapt to the digital revolution of the 21st century. Many of the industrial machines produced by the Mittelstand are quickly being connected to the Internet of Things (IoT), from manufacturing equipment that can warn owners when material is low to cars that are connected to digital entertainment systems. Strides have recently been made by firms such as Trumpf, which in October 2015 unveiled a digital platform called Axoom that can connect machines built by Trumpf and others to collect data that can be used to help firms improve their operating efficiency.[18]

Germany’s National Academy of Science and Engineering (Acatech) has addressed the challenge by introducing the concept of "Industrie 4.0" in 2013, calling for German manufacturing firms to enter the IT revolution by "consistently integrating information and communication technology into its traditional high-tech strategies so that it can become the leading supplier of smart manufacturing technologies." [19]

The cause of Industrie 4.0 has been taken up by the German government and is a favorite theme of Chancellor Angela Merkel. The government has invested 200 million euros in Industrie 4.0 research.[20] With this policy, the government seeks to create test beds for new ideas in industry and to convince the smaller Mittelstand firms to take up the cause of digitization.[18]

Notes

  1. ^ "IfM Bonn".
  2. ^ "IHK Berlin".
  3. ^ Schaefer, Daniel (2011-05-31). "The German drive to globalise". Financial Times. ISSN 0307-1766. Retrieved 2015-11-10.
  4. ^ a b "Deutsche Standards EDITIONEN GmbH | The Best of German Mittelstand – THE WORLD MARKET LEADERS". www.deutsche-standards.de. Retrieved 2015-11-10.
  5. ^ a b c d e f g
    File:The Best of German Mittelstand.jpeg
    The Best of German Mittelstand
    Venohr, B.; Fear, J.; Witt, A. (2015). "Best of German Mittelstand - The world market leaders" (PDF). In Langenscheidt, F.; Venohr, B. (eds.). The Best of German Mittelstand. Cologne: Deutsche Standards Editionen.
  6. ^ Erhard, L. 1956. ‘Mittelstandspolitik.’ In Rüstow, A. inter alia (Eds.), Der mittelständische Unternehmer in der Sozialen Marktwirtschaft.Wortlaut der Vorträge auf der vierten Arbeitstagung der Aktionsgemeinschaft Soziale Marktwirtschaft e.V am 17 November 1955 in Bad Godesberg: 51-61. 1st Ed., Ludwigsburg.
  7. ^ a b Witt, A. 2015. ‘Global Hidden Champions: The Internationalisation Paths, Entry Modes and Underlying Competitive Advantages of Germany’s and Britain’s Global Top Three Niche Players.’ PhD Thesis, University of Edinburgh Business School.
  8. ^ Fear, J. 2012. ‘Straight outta Oberberg: Transforming mid-sized family firms into global champions 1970-2010.’ In D. Ziegler (Ed.), Economic History Yearbook (Jahrbuch für Wirtschaftsgeschichte): 125-169, Oldenburg: De Gruyter.
  9. ^ Berghoff, H. 2004. Moderne Unternehmensgeschichte: Eine themen- und theorieorientierte Einführung. Paderborn: Verlag Ferdinand Schöningh.
  10. ^ "Federal Ministry of Economics and Technology (BMWi)" (PDF).
  11. ^ Karan Girotra and Serguei Netessine (February 12, 2013). "Extreme Focus and the Success of Germany's Mittelstand". Retrieved 2013-06-21.
  12. ^ "German Mittelstand: Engine of the German economy" (PDF). Federal Ministry of Economics and Technology (BMWi). Retrieved 2010-12-08.
  13. ^ 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.
  14. ^ a b 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.
  15. ^ Thompson, Barney (2014-12-01). "CBI urges backing for British 'Mittelstand'". Financial Times. ISSN 0307-1766. Retrieved 2015-11-10.
  16. ^ Schaefer, Daniel (2011-05-31). "The German drive to globalise". Financial Times. ISSN 0307-1766. Retrieved 2015-11-10.
  17. ^ "Germany's Mittelstand Still Thrives". September 30, 2010. Archived from the original on October 9, 2010. {{cite web}}: Unknown parameter |deadurl= ignored (|url-status= suggested) (help)
  18. ^ a b "Does Deutschland do digital?". The Economist. ISSN 0013-0613. Retrieved 2015-11-25.
  19. ^ "Recommendations for implementing the strategic initiative INDUSTRIE 4.0" (PDF). ACATECH. 2013.
  20. ^ "Germany's vision for Industrie 4.0: The revolution will be digitised | ZDNet". ZDNet. Retrieved 2015-11-25.

References

  • K. Hartmann: "German Mittelstand deals: Dead, or alive and kicking?". In: Acquisition Monthly Nr. 9, 2005, p. 2–3. (PDF, 360 KB)
  • Günterberg, B.; Kayser, G. (2004). "SMEs in Germany - Facts and Figures 2004". IfM-Materialien Nr. 161. Bonn: Institut für Mittelstandsforschung. Retrieved 2012-09-26. {{cite journal}}: Cite journal requires |journal= (help) (PDF, 340 KB)
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