View from Europe: the truth about the mittelstand

In the late 1990s and early 2000s, Germany was derided as the “sick man of Europe”; today Germany, and particularly the small and medium-sized ‘mittelstand’ companies, are seen as economic superstars and a template for the future.

But was Germany really such an economic failure in the 1990s, and is it as strong today as the business press is suggesting? And is the mittelstand really the revolutionary new path into a glorious future?

Arguably not all that much has changed with mittelstand companies since the 1990s. The fourth generation may have given way to the fifth generation, but essentially the firm is still in family hands, as it has been for well over 100 years. The product portfolio is still relatively narrow, but world class in terms of quality and innovativeness. In order to grow, mittelstand companies still seek to enter international markets rather than dilute their product expertise by expanding into technologies they do not manage to technically dominate. Essentially the business model, the DNA of these firms, has not changed all that much over the years.

What has changed are the macroeconomic conditions we are living in. The late 1990s and early 2000s were a time of rapid growth for most countries in the world. Germany, on the other hand, working through the effects of reunification, was going through a difficult phase. mittelstand companies posted relatively meagre growth rates compared with the figures everyone had grown accustomed to. Today, with a less buoyant global economy, the growth rates of mittelstand companies look positively impressive.

The cautious approach of the mittelstand – focusing on stability and long-term orientation – made them look like dinosaurs in the New Economy age around the millennium. Zero-hour contracts and shareholder value were the buzzwords of the time. A story well told was enough to go public with the most flimsy of ideas. Today, with the world in turmoil, the stability and long-term orientation of the mittelstand seems like an anchor in an ever more unpredictable and choppy world.

So, the next time you read about Germany or the mittelstand, just remember they weren’t as abysmally bad as they were made out to be, nor are they are supremely good as they are painted today. They merely run a different business model than Anglo-Saxon hardcore neoliberal countries. And this invariably produces different outcomes.

Martin G Kaspar is head of business development at a German mittelstand company within the automotive industry. E-mail: martin.georg.kaspar@gmail.com