The German Mittelstand

Cortent article for VIPsight.eu

“The German middle class is well prepared for 2013”

The German economy got off with a black eye again last year. Initial calculations by the Federal Statistical Office in January show gross domestic product up 0.7 per cent in 2012. However, the economic slump has not yet bottomed out. For instead of the previously announced growth of one per cent in 2013, the federal government now only expects 0.4 per cent growth for the current year.

This is not good news for domestic companies. And certainly not for the many SMEs, which are said to have economic disadvantages compared to large, global corporations particularly in economic downturns. The lack of internationalization and rather thin capitalization on average are seen as evidence for this theory. But is that really so?

Here is a view of the business landscape in Germany. As defined by the Institute for Small Business Research in Bonn, small and medium enterprises (SMEs) make up 99.6 per cent of companies in Germany. They generate nearly 37 per cent of taxable turnover and employ at least 60 per cent of all social-insurance contributors. In addition, these figures show that the bulk of sales comes from only a few large corporations. In other words, the decisions of a small number of top managers significantly influence the development of the German economy.

At least in terms of international business, German heavy industry is very well placed. Not without reason, Germany is one of the leading export nations worldwide. The flagship automobile and engineering industries are the driving forces. For a typical SME, however, high export quotas are almost impossible to achieve. It would be too costly to build structures for a powerful international business, or to set up their own foreign branches. Added to this is the financial risk of potential failures. SMEs benefit instead from indirect export. Thus, although medium automotive suppliers predominantly deliver to domestic automobile multinationals, they will benefit, even without their own international business, from their customers’ high export propensity. Therefore is not only crucial which customers are sold to directly, but also which markets the products are ultimately intended for.

It is thus not surprising that despite the rather subdued economic outlook the mood among German SMEs is not at all bleak. In a survey by the Association of Medium-Sized Enterprises (BVMW) 28 per cent of SMEs surveyed expect that their financial situation will improve in the first half of 2013. 53 per cent expect at least steady development. After the crisis years of 2009 and 2010, the German SME sector is well prepared. Those active in promising niches may well happen on a boom in 2013.

VIPsight will in future bring the SME sector in Germany too into the spotlight for readers. Especially companies that are not always in the focus of public interest often deserve a closer look. As regards the capital market too, these companies are very interesting, as in their industrial variety, technological orientation and strategic approach they offer a broad picture of the German economy. Of course, we also want to look beyond the borders of Germany and illuminate issues that face small businesses in other European countries.