With most accepted business wisdom traditionally coming from America, it makes a refreshing change to look to Europe for exemplars of good business models and practice. You may have never heard of a Mittelstand company, yet these companies have been one of the driving forces behind the German economy, and also help drive the German export market forward. If you are looking to expand overseas, it may be worth looking at some of their strategies for growth.
In Germany, Mittelstand companies help the country to export more than £1 trillion of goods every year, securing it third place in the list of the world’s largest exporters (only behind China and the US).
So what are Mittelstand companies? Quite simply, they are small or medium-sized businesses that are usually family-owned, and often based in small communities. Yet, despite their humble roots, these businesses are export-orientated, and concentrate on innovative and high-value manufactured products, enjoying niche market leadership positions in many B2B sectors around the world. In fact, 90% of them are in the business to business market and these companies alone are responsible for 70% of Germany’s exports. The Mittelstand business model is so successful that many other countries are now looking to Germany for inspiration.
It was during Germany’s post-war period that smaller companies really took off. With a move away from big business, these smaller firms flourished. And flourish they did. So much so that Mittelstand businesses now make up around 60% of the German workforce and play a key role in keeping German’s economy afloat.
As testament to the success of the Mittelstand companies, the German economy grew by 3% in 2011 – double the expected average for both the EU and the Eurozone – making it one of the top performing economies in Europe in 2011. And in March 2011, export figures stood at £87bn, almost 16% higher than the same month in 2010, and the highest monthly total since records began in 1950. This is no surprise considering that Mittelstand companies focus on exporting, rather than selling to their own country; a key factor that the UK is now starting to recognise, with the recent focus on exporting as a way of driving growth. One Mittelstand example is the printing company Koenig & Bauer, which generates 95% of its revenues from outside Germany.
So what exactly can UK businesses learn from the Mittelstand model?
Some key characteristics of these companies include:
- A cautious but steady approach to business
- A strong emphasis on long-term profitability and steady growth from retained profits
- A close working relationship with universities
- Substantial investment in research and development
- Close attention paid to supply chains
- A focus on developing sophisticated, innovative goods that cannot by easily replicated
- A determination to open up new markets
Mittelstand companies also place a huge importance on customer service, including the ability to communicate effectively with their customers. They might do this by employing multilingual staff or by utilising the services of a translation company. In fact, at Comtec, we even work with some Mittelstand companies ourselves! The success of these companies shows that investment in languages really pays off when it comes to doing business.
It is worth revisiting the point that Mittelstand companies look for niche markets. Many tend to focus on just one product and market it worldwide. A slogan favoured by Mittelstands is: ‘Don’t dance where the elephants play’. In other words, avoid competition with the global giants. It’s an approach that has certainly paid off for the Germans, so it might just be worth looking for that international niche market for your company’s products.