Mittelstand commonly refers to small and medium-sized enterprises in
German-speaking countries, especially in Germany,
Switzerland, however Britain also has its own. The term
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
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.
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 based on the
Mittelstand's positive connotations. The term
applies to mid-sized firms as opposed to larger listed companies and
Mittelstand companies are characterized by a common
set of values and management practices.
Ludwig Erhard, the Economics Minister who crafted the post-war (West)
Germany's economic miracle (German: Wirtschaftswunder) warned against
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."
What does define the Mittelstand, is a much broader set of values and
more elastic definitions. Business historians define
various traits associated with
Mittelstand firms, such as:
Family ownership or family-like corporate culture
Investment into the workforce
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." The
Mittelstand acts as a
counterpoint to a singular focus on shareholder value and dispersed
1 Germany's business 'landscape' and the role of the Mittelstand
2 Defining the term 'Mittelstand'
3 Geographical distribution
5 Management model "Made in Germany"
6 Financial Success of the Mittelstand
7 Britain's Mittelstand
8 Mittelstand's main sectors
9 Industrie 4.0
12 External links
Germany's business 'landscape' and the role of the Mittelstand
Germany's business landscape, showing that over 99% of German firms
Mittelstand firms but not necessarily all are SMEs.
Due to the broad set of values which define the Mittelstand, Venohr,
Fear & Witt (2015) divide Germany's 'business landscape' into
three distinct categories of
Mittelstand firms, which account for 99% of German
firms (revenue below 50 million EUR).
Mittelstand firms, which account for 0.34% of German
firms (revenues between 50 million EUR up to 1 billion EUR).
Large corporations, 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
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 corporations generate 32% of Germany's
exports. 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.
Mittelstand is not a rigid economic entity. On the contrary,
Germany’s liberal economic order, which is also subject to
international competition, is constantly leading to structural changes
which in turn influence the composition and characteristics of the
corporate landscape. In the past several years, an increase of
very small units can be observed: the so-called "solo self-employed".
These are business start-ups that are not designed to grow into a
small or larger business over time. Instead, such entrepreneurs will
act permanently as individuals. New forms of cooperation ("changing
networks") have also emerged in the recent past. Depending on the
project requirements, teams of independent agents form, each
contributing their own specific skills and competences, and thus work
together efficiently. However, these entrepreneurs usually do not feel
like they apply to the term "Mittelstand", as do start-ups that have
not been on the market for at least three years. On the other hand,
the affinity of small and medium-sized enterprises for one another
increases with company size and age; the older and larger the
companies, the more they identify themselves as small and medium-sized
enterprises. However, among those companies that consider themselves
to be medium-sized, according to the IfM Bonn (Institute for
Management in Bonn) definition, one in seven is no longer included
because they no longer fulfill the criterion of "ownership and
management in one hand". As a result of continuing globalization and
worldwide corporations, SMEs in
Germany were increasingly under
competitive pressure. In order to compensate for the resulting
disadvantages, more and more medium-sized companies have joined forces
in recent decades to form co-operative partnerships. As a single
member of a group of companies, the respective family-owned company
retains entrepreneurial independence, but through joint inter-company
activities it can gain a market position that only large companies
could otherwise offer. Today's groups are regional, national, and even
international. The inter-company cooperation of the group is usually
organized from a legally independent center and covers a variety of
areas such as purchasing, marketing, logistics, IT solutions,
financing services, consulting or training, and so on. In Germany,
around 250,000 companies from around 45 different branches of trade,
craft trades, and the service industry are currently grouped together,
resulting in around 400 groups. 320 of these groups were formed
through the Central Federation of Industrial Associations e.V.
(Zentralverband Gewerblicher Verbundgruppen or ZGV) based in Berlin,
Brussels, and Cologne.
The importance of small and medium-sized enterprises is also evident
from the fact that more than 160,000 small and medium-sized
enterprises with about 4.3 million employees have organized themselves
in the Federal Association of SMEs (BVMW). The focus of the
association's work is the formation of networks, the organization of
events, and political advocacy.
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.)
As Stand or estate addresses a group, single Mittelstand-companies are
often called Mittelständler.
According to an article published in the journal, Die Deutsche
Wirtschaft (The German Economy), the most important medium-sized
enterprises—using absolute figures—are in North Rhine Westphalia
at over 22%, followed by Bavaria (21%), and Baden-Württemberg (17%).
The lowest ranking performers are Bremen, Saarland, and
Mecklenburg-Vorpommern, each with an approximate share of 1%. However,
when assessed based on size by population, the city states of Hamburg
and Bremen lead with 185 and 182 large medium-sized enterprises per 1
million inhabitants, respectively. The larger states of Bavaria and
Baden-Württemberg follow close behind with 163 and 159 major
medium-sized enterprises, respectively. The article also mentions
the cities of Hamburg (329 enterprises), Berlin (227) and Munich (188)
with the highest so-called "top middle class enterprises" ranking.
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".
Mittelstand companies benefit from
Germany's apprenticeship system, which provides highly skilled
workers; 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
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. 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. 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"
Mittelstand model is most specifically defined in the 2015
publication "The Best of German Mittelstand", 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."
Strategy: Global niche dominance
Governance: 'Enlightened' family capitalism
World class performance in core processes
Locational advantages: The German microeconomic business environment
Financial Success of the Mittelstand
Small and medium-sized enterprises (SMEs) are financially
well-positioned. According to studies by IfM Bonn and the University
of Siegen in 2016, their equity ratio has been rising steadily for
years. At the same time, SME liabilities to banks are falling in
relation to their total assets. For the first time, small and
medium-sized enterprises as a whole have a higher equity ratio than
large companies. Only micro-enterprises continue to have lower
capitalization despite high growth rates. One reason for this
development lies in the stricter requirements under Basel II or III.
To prevent their debt conditions from deteriorating, many small and
medium-sized enterprises—as well as the larger family
businesses—have increased their equity capital through retained
earnings. This was also positively supported by the reduction in
corporate taxes. At the same time, many small and medium-sized
enterprises are reducing supplier credits and short-term bank
liabilities. Although SMEs continue to prefer bank loans, despite
alternative means of financing, the importance of equity financing is
likely to increase. For example, almost all companies will have to
face increasing digitization with additional investment in information
technologies to maintain their future competitiveness. However, to
protect bank loans, IT technologies are not well suited due to the
company-specific solutions and the generally high loss of value.
Mittelstand in Britain, sometimes called the Brittelstand or
UK Mittelstand (Mc
Mittelstand in Scotland) plays as important a
role to the UK economy as they do in Germany. Figures from the British
government state that they employed 14.4 million people in the U.K. in
2013. Furthermore, the European Commission's performance review of UK
this year estimated their gross value added at 473 billion euros
($595.4 billion) or 49.8 percent of the U.K. economy. The
Confederation of British Industry
Confederation of British Industry (CBI), has long urged for the
backing of the British Mittelstand.
Help to grow schemes have been
invested to help the British
Mittelstand to grow as a result it
has since been growing rapidly, and in some cases has outpaced its
Whilst continuing to grow, a recent study which performed a
comparison between German and British 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 can endure over time in the same manner as the German
equivalent, something the British government hopes to work on by
embracing a longer term place.
Mittelstand's main sectors
Mittelstand is heavily concentrated in:
Main article: Industry 4.0
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
Internet of Things
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
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."
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. 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.
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