Prof. Dr. Michael WoywodeInstitute for SME ResearchUniversity of Mannheim
Institut für MittelstandsforschungUniversität Mannheim
L9, 1-268161 MannheimTel. 0621.181.2894
Mittelstand in Germany: An international perspective on sustainable business
The Metropolregion Rhein-Neckar (MRN) – a powerful region where excellent science meets powerful economic actors
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• 39 universities and research labs
• 6 DAX stock market listed companies
• Many family firms and hidden champions,
• numerous start ups
THE “GERMAN MITTELSTAND”: ECONOMIC RELEVANCE, CHALLENGES, AND TRENDS
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Introduction
From the sick man of Europe (2004, Economist)
To
Question: What is the contribution of the Mittelstandto Germany‘s surprising recovery?
2014, Economist
Agenda
1. What is the German Mittelstand?
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Agenda
1. What is the German Mittelstand?
2. Quo vadis – German Mittelstand?
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Agenda
1. What is the German Mittelstand?
2. Quo vadis – German Mittelstand?
3. Challenges and trends
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Agenda
1. What is the German Mittelstand?
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Importance of small and medium-sized businesses
No. of employeesShare in the economy in percent
10-19
50-99
100-499
20-49
1-9
> 500
9,6%
80,4%
2,2%
6,0%
1,6%
0,3%
Share of small and medium-sized businesses in the economy
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Source: ifm / destatis
small business
medium-sized business
large business
Hidden champions: 200 - 2000 employees
Significant economic impact
The economic impact of the Mittelstand in Germany is significant
40,3% of sales
99,7% of businesses
70,9% of employees
82,4% of apprentices
© Institut für Mittelstandsforschung der Universität Mannheim 10
Source: ifm / destatis
55,2% of business taxes
Significant economic impact
The economic and social impact of the Mittelstand in Germany is significant
40,3% of sales
99,7% of businesses
70,9% of employees
82,4% of apprentices
© Institut für Mittelstandsforschung der Universität Mannheim 11
Source: ifm / destatis
55,2% of business taxes
Mittelstand contributes to low youth unemployment
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• More than 80 percent of trainees receive their training in the German Mittelstand
• Due to its long-term oriented strategic orientation, the Mittelstand can be regarded as a major factor ensuring low youth unemployment compared to other European countries
• Vocational training system in Germany guarantees a high quality of training
• 2012 more than 550.000 apprenticeship contracts were newly signed
Source: Ministry of Education and Technology (www.bmbf.de)
Preliminary conclusions
• The Mittelstand plays a crucial economic and social role in Germany
• Quantitative definitions for the Mittelstand do not suffice
• Instead, qualitative characteristics are very important when aiming to understand what the Mittelstand is and how it acts
The Mittelstand is not a simple statistic, but an important element of the social market economy
1. What is the German Mittelstand?
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Agenda
1. What is the German Mittelstand?
2. Quo vadis – German Mittelstand?
1. Economic conditions
2. Management
• Investment behavior
• Supporting institutions
• Internationalization
• Management innovations andprofessionalization
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Agenda
1. What is the German Mittelstand?
2. Quo vadis – German Mittelstand?
1. Economic conditions
2. Management
• Investment behavior
• Supporting institutions
• Internationalization
• Management innovations and professionalization
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Economic dependence
Currently, German medium-sized businesses profit from a favourable economic situation
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Economic dependence
Credits and liquidity are easily available
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Agenda
1. What is the German Mittelstand?
2. Quo vadis – German Mittelstand?
1. Economic conditions
2. Management
• Investment and innovation behavior
• Supporting institutions
• Internationalization
• Management innovations and professionalization
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Sources of finance
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• Most investments in the German Mittelstand are financed from cash flow/own funds (54 percent) and bank loans (29 percent)
• The importance of bank loans drops
• Alternative forms of financing (e.g. venture capital, private equity) are only used hesitantly
Source: Federal Ministry of Economics and Technology (www.bmwi.de)
20© Institut für Mittelstandsforschung der Universität Mannheim
Investing in innovation
Hidden Champions
> 5%
Medium-sized businesses invest in innovations – however, not as much as large businesses
SME
Large companies
INNOVATION EXPENDITURESAS PERCENTAGE OF SALES
International comparison of investments in R&D
• More than 50 percent of the companies from the Mittelstand have created at least one process or product innovation between 2008 and 2010
• In 2010, the Mittelstand has invested roughly 9 billion Euros in R&D
• Between 2004 and 2010, investments in R&D have increased by 71 percent (large companies: 19 percent)
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Source: Federal Ministry of Economics and Technology (www.bmwi.de)
Hidden Champions
> 5%
Agenda
1. What is the German Mittelstand?
2. Quo vadis – German Mittelstand?
1. Economic conditions
2. Management
• Investment and innovation behavior
• Supporting institutions
• Internationalization
• Management innovations and professionalization
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SME supporting institutions in Germany
SME
EU Bund State Municipality
ERP-Funds
Förderdatenbank
State owned banksEIB-Group
EU-Regional Fund
EU-Social Fund
Euro-Info-Centre
Promotion oflocal economy
KfWPrograms
Guarantee banks
Chamber of Handcraft
Ministry of Economics of the states
Federal ministryof
Economics
Chamber of Industry and Commerce
Corporate-growth
Research &Innovation
Business-start-up
Foreign-tradeLabour Consulting Vocational
TrainingRegional-promotion
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Source: ifm
Agenda
1. What is the German Mittelstand?
2. Quo vadis – German Mittelstand?
1. Economic conditions
2. Management
• Investment behavior
• Supporting institutions
• Internationalization
• Management innovation and professionalization
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Internationalisierung
German medium-sized businesses internationalize – at present even more than in the past
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Source: Federal Ministry of Economics and Technology (www.bmwi.de)
Exports 2003-2012 in Euros
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Per Capita Exports 2003-2012 in Euros
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Internationalization during the European crisis
• Although export turnover is still growing, many German SMEs face challenges when aiming to internationalize
• Challenge: At present, it is hard to make the first learning steps within Europe
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2
1
Source: ifm3
Agenda
1. What is the German Mittelstand?
2. Quo vadis – German Mittelstand?
1. Economic conditions
2. Management
• Investment behavior
• Supporting institutions
• Internationalization
• Management innovations andprofessionalization
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Management innovations
0% 20% 40% 60% 80% 100%
Six SigmaBusiness Intelligence
Business Process ReengineeringKnowledge Management
Balanced ScorecardEnterprise Resource Planning
Work Life BalanceChange Management
Corporate Social ResponsibilityShareholder Value Management
Strategic AlliancesJust-In-Time
Joint VenturesCustomer Relationship Management
Lean ManagementManagement by ObjectivesKey Account Management
BenchmarkingOutsourcing
Quality ManagementISO 9000
Quality Circles
Knowledge
Implementation
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Source: ifm
Quality
Efficiency
Customer
Management innovations
Medium-sized businesses adopt management innovations comparatively slowly, but focused
• The Mittelstand is skeptical towards management fashions – it wants management concepts that bring immediate return
• Focus on quality enhancing concepts, efficiency, customer oriented concepts
31Source: ifm Mannheim
The number of employees in Germany is rising among the biggest top 500 German family businesses relative to the DAX companies
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© Institut für Mittelstandsforschung der Universität Mannheim
Agenda
1. What is the German Mittelstand?
2. Quo vadis – German Mittelstand?
3. Challenges and trends
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Demographical change
Declining birthrates: Acquiring qualified employees – also from abroad – will be one of the main challenges for the next decades
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SMEs are increasingly recruiting internationally
Successions have an increasing economic impact
CorporateSuccessions (70.900)
Family succession (31.000) 43,8%
Buy-out (enterprise)(7.300) 10,2%
Liquidation(5.900) 8,3%
Buy-out (external)(11.700) 16,5%
Non-buy-out sale(15.000) 21,1%
Source: ifm/ ZEW 2010
Change in ownership & control leads to a variety of outcomes, which have a strong influence on the future shape of the company
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„Hunting season“ for international
investors
Hidden Champions - characteristics
• privately owned family enterprises• often with a long history• >200 and <2000 employees• global leader of a niche market• high equity capital quota• high export rate of > 50 %
Characteristics of Hidden Champions in the German Mittelstand
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Source: Simon 1996
Hidden Champions – international comparison
No other country in the world has as many hidden champions as Germany
Around 1.300 small and medium sized enterprises are world market leaders and have positioned themselves in successful market niches
High number of hidden champions especially in machinery construction, electrical industry and industry products
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Source: Federal Ministry of Economics and Technology (www.bmwi.de)
The Hidden-Champion-Strategy
© Institut für Mittelstandsforschung der Universität Mannheim
Internationalization
Highly qualified
and motivated employees
Strong Leadership
and ambitious goals
Innovativeorientientation
Specific competitiveadvantages
Focus -Value capturing business model
Closeness to customers
ConservativeFinancing – selffinanced growth
High degree of internal value creation
Thank your for your attention
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Introduction: Institute
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Institute for SME Research and Entrepreneurship, University of Mannheim
Interdisciplinary research institute with a focus on German SMEs Core topics
Family Businesses (New) Entrepreneurship Management, Strategy and Organization
Director: Prof. Dr. Michael Woywode Former positions: University of Karlsruhe, RWTH Aachen, Stanford
University Publications: Academy of Management Journal, Organization Studies,
American Journal of Sociology, Journal of Institutional and Theoretical Economics, Journal of Industrial Economics
Team: 25 researchers from various backgrounds Research funding: DFG, Economics Ministry (state of Baden-
Wurttemberg and national), Ministry for Education,Volkswagen Stiftung, …
Investment behavior: Focusing on equity
Businesses of all sizes have increased their equity capital continuously after the financial crisis and are now less dependent on banks
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Source: Diagnose Mittelstand 2012
Development of firm‘s equity capitalIn percent according to size classes
0 to 1 mill. €Small enterprises
1 to 50 mill. €Medium enterprises
0 to 50 mill. €“Mittelstand”
> 50 mill. €Large enterprises
Equity ratio of hidden champions often > 50 %