Frequently Asked Questions (FAQ)
In the answers below, we give a brief overview of the German Mittelstand.
What is meant by "Deutscher Mittelstand"?
The IfM Bonn defines Mittelstand enterprises by the unity of ownership and management. According to this definition, the terms Mittelstand, family enterprise and owner-managed enterprise are considered as synonyms.
Difference SME and Mittelstand
What is the difference between SMEs and Mittelstand?
There is a large overlap between Mittelstand enterprises / family enterprises and independent small and medium-sized enterprises (SMEs). Nonetheless, also large enterprises with more than 500 employees or an annual turnover exceeding 50 million € are classified as Mittelstand / family enterprises if they fulfil the above mentioned (qualitative) criteria. By contrast, small and medium-sized enterprises which are (dependent) constituents of an enterprise group do not meet the Mittelstand definition.
Do you have detailed statistics on the size distribution of German SMEs?
Please visit the section Statistics Macro-economic significance of SMEs on our homepage.
Definition of SMEs and MEs
Are there any further thresholds in size of SMEs which you consider to be meaningful?
You can also use the definition of the European Commission which classifies all SMEs into micro companies, small companies and medium-sized companies. You find a brief explanation of this definition in the section SME-definition of IfM Bonn and more complete information in the User guide of the European Commission regarding the definition of SMEs.
How does globalization impact the SMEs in Germany?
The predominant competitive advantage of German Mittelstand companies is to provide superior value for the customer rather than low prices. A special characteristic of the German Mittelstand is the relatively large number of innovative and highly internationalized companies which are global market leaders. Many of these companies have adopted a strategy of niche leadership: They are producing highly specialized products and services which are sold on global markets.
By solving key customers’ (technical and organizational) problems, they enjoy a distinguished competitive position which cannot be copied easily by competitors. In order to be able to understand and satisfy customer needs, German companies often have established close and long-standing relationships with their clients. One important instrument to achieve this is to build up and use their own sales and service subsidiaries abroad. This allows them not only to offer integrated packages of products and accompanying services. The close cooperation with customers also serves as a valuable input for the joint development of customer-specific innovations which help to strengthen the competitive advantages of the Mittelstand companies.
Hidden champion model
Is the "hidden champion" model of German SMEs exportable to other countries?
In contrast to many industrialized countries and emerging economies, middle management and production units in Germany are mostly staffed with skilled employees who have completed a dual apprenticeship training and have often acquired further consecutive training degrees.
The two- to three-year dual apprenticeship training is marked by a well-balanced combination of practical training on the job in approved and authorized enterprises and theoretical education provided by vocational schools, both according to national standards. This high skill level in terms of both practical and theoretical knowledge facilitates the broad diffusion and "fine-tuning" of innovation in a company through close cooperation and good (technical) understanding between academic R&D experts and skilled middle management and production workers. Another aspect of decisive importance is a favourable work culture and company climate, illustrated by the low number of strike days and working hours lost in German enterprises.
Main motives for investments
What are the main motives of German SMEs to undertake foreign investments?
While in the early 2000s, German industrial companies mentioned cost savings as the primary motive for foreign investments, the importance has steadily decreased since then. At the same time, offering sales and customer services abroad has become the main motive followed by market development motives.
These developments can be partly explained by the increasing export orientation and competitiveness of German enterprises but also by the positive effects of economic reform policies which have been undertaken since 2003/04 and which have reduced the labour cost pressure on enterprises.
Which role do young companies play in research-intensive manufacturing sectors?
Very often young (up to 10 years old), technology-oriented companies pick up or create themselves new scientific knowledge and develop new technology and products. In these sectors, approx. 45% of young companies develop completely new products. This is more than twice the share of companies aged 11-20 years (19.9%) and older companies aged 21 years and older (13.9%).
The much larger share of young firms which introduce market novelties can be explained by their stronger involvement in continuous R&D. While 58% of young companies carry out R&D on a regular basis, this applies only to 51.2% of enterprises aged 11-20 years and to 37.1% of firms aged 21 years and more. With increasing age, companies derive their innovations to a higher degree from their accumulated know-how and production experience or from close relations and cooperations with customers. For these firms, continuous R&D is less relevant and is often replaced by only sporadic R&D or non-institutionalized innovation activities.
German R&D system
What are the specific characteristics of the German R&D system?
A specific feature of the German R&D system is the close and well-established cooperation between enterprises and public research institutions. Public R&D on behalf of companies as well as R&D cooperations between enterprises and public research institutions become increasingly important and are also financially promoted by special public R&D support programmes.
Another special characteristic is the existence of four large nationwide public research institutions (Max-Planck-Gesellschaft, Helmholtz-Gesellschaft, Wissenschaftsgemeinschaft Gottfried Wilhelm Leibniz, Fraunhofer Gesellschaft) with different research profiles and areas of expertise. They are engaged in basic research and applied research, the latter often in cooperation with business enterprises. These institutes are an important source of new scientific knowledge and of technology transfer into the business community.
House bank system
Why is the so-called "house bank" system so important for SMEs?
The financing of German SME strongly relies on relationship banking. The so-called "house bank" system is regarded as a particular strength of the German financing model. Not only larger sized enterprises, but also small and medium-sized firms maintain a close, confidential and long-term oriented relationship with one main bank, their "house bank". This close relationship provides the house bank not only with information about the financing needs of its client enterprise, but also about the quality of the management as well as about the economic situation and perspectives of the enterprise. This type of long-term relationship banking reduces information asymmetries between lenders (banks) and borrowers (SMEs) and thus reduces the so-called agency-costs of bank financing.
German SME support policies
What are the characteristics of the German SME support policies?
One striking feature of the German economy is the large number of public support programmes and measures offered by government and policy makers at the Federal-, State- and even local level. For almost any specific enterprise need there is a support measure. A data base on the website of the Federal Ministry of Economic Affairs and Energy (BMWi; http://www.foerderdatenbank.de) provides a comprehensive and up-to-date overview of available EU, federal and state support programmes (including programme guidelines and contact details).
Is a regulatory framework for SME support policies?
In order to unlock the full potential of SMEs, governments would need to shift the focus of their SME support policies from firm-level interventions towards creating an enabling environment. Often, the SME support still focuses on innovative and high-growth businesses. Such targeted policies will only reach a small minority of firms. Governments can best facilitate the development of small business through an enabling (business) envoronment. With this, they contribute to creating a more inclusive policy approach, which takes into account the heterogeneity of the SMEs.
SME in Germany and in other EU countries
What are the differences between SMEs in Germany and in other EU countries?
While there are less micro-enterprises with up to 9 employees in Germany than in other EU Member States, the share of small and medium-sized enterprises (SMEs) with 10 to 249 employees in the entire business population is higher. As a consequence, the average number of employees in German SMEs is considerably higher than in other EU countries. Compared to an EU average of 4.0 employees, the average employment size of German SMEs amounts to 7.7 employees (2015).
According to Eurostat estimates, 99.5 % of German enterprises can be classified in 2015 as SMEs. These companies employ 62.8 % of all employees and generate 53.1 % of total value added. The density of SMEs is, however, much lower in Germany than in other EU countries: While there are 2,749 SMEs per 100,000 inhabitants in Germany, the EU average is 4,517 SMEs. A particularly high density of SMEs can be found in the Czech Republic (9,419 SMEs), Portugal (7,550 SMEs) and Slovakia (7,522 SMEs).
Due to their strong competitiveness and dynamic growth on national and international markets, many successful German SMEs have been growing into large enterprises, though maintaining the typical characteristics of Mittelstand/family enterprises. From 2008 until 2015, for instance, the number of large German enterprises (according to Eurostat's Structural Business Statistics) has grown by 11%, while in the EU-28 (including Germany) their number has decreased by 1%.
On behalf of the European Commission, Eurostat compiles each year (widely) harmonised SME statistics for all 28 EU Member States. However, Eurostat's so-called "Structural Business Statistics" do not cover all economic sectors: i.e. not covered are agriculture and forestry; education and arts; human health and social work activities; arts, entertainment and recreation; other service activities; as well as financial and insurance activities. Thus, Eurostat's SME statistics clearly differ from IfM Bonn's German SME statistics which are based on the German company register and include all economic sectors with the exception of agriculture and forestry.
The EU-wide key figures are updated annually on this website of the Institut für Mittelstandsforschung (IfM) Bonn.