Frequently Asked Questions (FAQ)
In the answers below, we give a brief overview of the German Mittelstand.
Who belongs to the Mittelstand?
In Germany, Mittelstand is often reduced to the medium-sized industrial companies. In fact, there are various companies that belong to the Mittelstand: members of the liberal professions and the self-employed, as well as independently operating handicraft businesses, high-tech producers of special series as well as owner- and family-run companies.
A cruvial factor for belonging to the Mittelstand is the unity of ownership and management. The majority of small and medium-sized enterprises (SMEs) fulfil this criterion. Exceptions are those small and medium-sized companies that are dependent on another enterprise. At the same time, large enterprises fall under the definition of the Mittelstand if they are owned by a maximum of two families who are also part of the management.
Secret of success
The "German Mittelstand" is internationally considered as a role model for other economies. What is the secret of success of the “German Mittelstand”?
The German Mittelstand has several key strengths. These include, above all, the fact that the companies are firmly anchored within their respective home regions and that the local managers do not only perform entrepreneurial tasks, but also maintain close contact with all their stakeholders – in many cases also with a bank ("house bank system").
In the study "Firm goal systems: Do Mittelstand companies differ indeed from non-Mittelstand companies?", the IfM Bonn compared the corporate objectives of family and non-family companies. The result: Compared to non-family companies, members of the Mittelstand attribute a higher significance to those corporate goals that are generally considered characteristic for them, i.e. their autonomy and employee satisfaction. The Mittelstand entrepreneurs also consider themselves bearing significantly more responsibility for creating and maintaining jobs than managers in non-Mittelstand companies. However, due to their ownership and management structure they also find it easier than manager-led companies live up to this self-established claim.
The Mittelstand’s high innovation-orientation, close cooperation with universities and public research institutions as well as the dual training system also play an important role.
Distribution of companies
How are the companies distributed in Germany?
Around 3.65 million companies are small and medium-sized enterprises – that is 99.6% of all private sector companies. Among these companies, the smallest companies and the so-called "solo self-employed" currently represent the largest groups. More statistical data here.
What competitive advantages does the German Mittelstand have over small and medium-sized enterprises in other countries?
The competitive advantages undoubtedly include the networks that have developed between Mittelstand and large companies: For example, in various regions there are not only clusters of suppliers, but also numerous small and legally independent companies and freelancers who carry out administrative, sales and service activities on behalf of large companies. This development will increase in the course of industry 4.0.
Who belongs to the so-called "hidden champions"?
Behind many hidden champions, there is an owner family – often for several generations. The companies are usually active in the manufacturing sector and are not listed on the stock exchange. They manufacture technologically highly complex products and are ambitious to maximize their market shares – also internationally.
Hidden champions focus on their core competencies, quality and the continuous improvement of key business processes. Accordingly, they also motivate their employees with targeted support measures which in turn leads to a high level of satisfaction and loyalty to the company.
However, a key success factor of the hidden champions also lies in what is understood as "glocalisation": they are regionally rooted as well as specifically targeting foreign (niche) markets. In doing so they have only successively become active at globalmarkets. Thus, they have gained experience in neighbouring countries in a first step before they startet to systematically expand their export activities. Nevertheless, most hidden champions always keep a close eye on their domestic core business.
History of Mittelstand
Since when does the term "Mittelstand" exist?
There is evidence that the term "Mittelstand" was first used in Silesia in April 1695 in a statement of claim of the Royal Hereditary Principalities and Cities with regard to tax burdens. In the 18th century the word was increasingly used in fiction and philosophy. In 1919, the term was also established by law in Article 164 of the Consitution of the German Reich, according to which the independent "Mittelstand in agriculture, trade and commerce, in legislation and administration were to be promoted and protected against overburdening and exhaustion".
Has the Mittelstand in Germany slept through digitalisation?
The digital transformation in the Mittelstand is rather incremental and mostly demand-driven. This is especially true for smaller companies. It does not mean, however, that they have slept through digitalisation, as is often suggested in public. So far, small and medium-sized family businesses have used digital technologies primarily to simplify internal processes and to realize potential savings.
In addition, the evaluation of opportunities offered by digitalisation requires a basic understanding of the technology and the interrelationships. But only about one in six small and medium-sized enterprises (SMEs) employs its own information and communications technology specialists. Although this is roughly in line with the EU average, it is well beyond the means of large companies of which 77% have access to such skilled workers.
Nevertheless, managers in smaller companies also need to regularly check whether they should adapt their corporate strategy or even their business model to the digital markets. However, it must also be borne in mind that there are business models for which the digital transformation plays little or no role at all.
A temporary cooperation with an innovative start-up could be an economically viable alternative to develop a corresponding in-house solution. At present, rather large companies tend to cooperate with such start-ups compared to SMEs. There is evidence to suggest that both the established companies and the start-ups benefit from such cooperation: While in the best case the established companies receive a concrete solution for a specific (technical) problem through the start-up at the same time the start-ups benefit from the network of the established company.
Economic relevance of the Mittelstand
Why is the Mittelstand considered to be a main pillar of the German economy?
Even in the start-up phase, Mittelstand companies contribute to the economic development: According to calculations by the IfM Bonn, the founders invest an average of 66 cents of every euro of turnover in initial outlay, e.g. furnishings, equipment and production facilities.
Current statistical data on the economic relevance of small and medium-sized enterprises can be found here.
How attractive is Germany as a company location for the Mittelstand?
Germany continues to rank among the top positions in terms of general location factors. These include, for example, the dual training system or the low level of corruption.
The "Made in Germany" label undisputedly still is a location factor because it stands for high quality as well as innovative and reliable products. Not without a reason around 50% of all hidden champions worldwide can be found in Germany – that is companies that are world market leaders in certain niches. In comparison: In the USA, the share of hidden champions is only at 14%, in Japan at 8% and in Austria and Switzerland at only 4%.
Challenges for the German Mittelstand
What are the greatest medium-term challenges for the German Mittelstand?
New technologies, demographic developments, increasing tertiarisation and internationalisation represent continuous challenges for companies which can only be met with appropriately trained and educated staff. In addition, the prices of energy and raw materials also remain an ongoing issue. Industrial companies are less concerned about geological availability of resources than they are about rising global demand and the often politically unstable situation in resource-rich countries.
Moreover, the topic "Industry 4.0" is also important for the Mittelstand: It offers opportunities especially for small and medium-sized companies that owe their business success in the past to custom manufacturing. However, they must take a proactive approach to the challenges associated with Industry 4.0 (e.g. suitable business model, design of innovation processes, further training, internal organisation).