



Germany’s midsized companies have a lot to teach the world

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Could another factor be that gigantic publicly traded companies eventually attract the rock star managers who are good at spinning their success? Its not too hard to maximize quarterly profits for a while at the expense of everything else. Once the company has been destroyed, they can quickly move on to destroy the next company before they get blamed for it.

Coffee Cup

Who dares say software is sexier than mechanical Engineering?? Excuse me but working in engineering for Porsche attracts more girls than being an IT guy at SAP!

Michael Dunne

Richard46 - This is a good point - "The level of cooperation and trust tends to be very high"

I got the same sense when touring small firms within Japan's equivalent Mittlestand (the chuu shoo kigyoo I mentioned).

Michael Dunne

Excellent article. I liked the humor about gurus, although I found it a little unfair to Japan - I recall an Economist article on Japan dominating key niches (unless I am mistaking it for the NY Times). Also the Japanese their Mittelstand equivalent (I think, from personal impressions), with the Chuu Shoo Kigyoo.

I found it interesting that Simon-Kucher is referenced since they are notable in providing consulting on pricing strategies. The Germans seem to provide real world examples of value based pricing (build something that is needed, of good quality, in areas difficult to commoditize, and earn a premium price).

Maybe it was Tony Judt in his book "Post War" that indicated that Germany managed an export drive in spite of its highly valued Mark because it made things people need.

Otherwise, I don't think everyone should try to replicate Silicon Valley, especially not on national scale - The region was charmed by good schools, an unique venture capital culture and electronics industry initially stimulated by aerospace/military concerns. It is also chaotic, with the software side quite variable in quality, and produces waves of start ups that don't make it.

Now I worry about this statement - The third lesson is that Western companies can preserve high-quality jobs in a vast array of industries so long as they are willing to focus and innovate. I just don't think the finance culture in its quest for returns is interested in this in the US.

Otherwise was Faber-Castell the inspiration for the name of Faber College (or university) in that very unGerman movie, "Animal House"?


All claims for indemnification in litigation processes in Germany are capped at a certain amount. This amount depends on the organizational form of your partnership.
The most common form for the "Mittelstand" is the GmbH, which stands explicitly for "Gemeinschaft mit beschränkter Haftung" / "Society with limited liability". Litigation caps are much lower than for comparable partnerships in the US. Furthermore, judges in Germany tend to be far less generous with indemnification claims than in the US.
Hence, once your society made it through the first years it is highly unlikely that you'll lose it due to litigation costs.


As a retired corporate/tax lawyer in Texas, a major problem I experienced in developing a Mittlestand business culture is our litigation process. Your business grows and prospers but your entire value is tied to the business. One mistake could cost you the whole thing, so many owners sell to a conglomerate type parent to secure their asset value. The main skill the conglomerate brings is risk management, not product quality and not commitment to employees or community.


Reading such an article warms my cockles and makes my day.

While I don't believe the Mittelstand will be able to keep its present level of economic promincence for long (in this day and age's savage world order) I do hope the German system will allow the country to prosper in the future and only decline *relatively* and not *absolutely*.

However, I caution any German managers that might be reading this comment: Don't fall victim to hubris. Just because things are running smoothly for now doesn't mean the party's never going to end.

Remain humble and flexible. Stay the course, innovate, work hard and for the love of God do *NOT* offshore jobs to China/Asia. Don't go down that road - it will end in tears both for you yourself (once the Chinese have stolen all your secrets they'll eat you for breakfast) and your (German) employees.

As for the UK/US:

Both the UK and US have allowed their industries to wither. Does anybody know how they are now supposed to jumpstart a new manufacturing base?

The only solution would seem to me to be found in...tariffs. If I was
Obama or Alistair Darling I'd do exactly that: End the freetrade mania, reintroduce some stiff tariffs and watch with glee as all those smarmy multinationals come crawling back to mama...


Oh how amusing to hear from a British that just any German could teach anything to the world.
My opinion is quite the opposite.
Being regarded especially by the British and all English speaking countries as a nation of stupid Nazi-drunkards I can conceiv ethe contribitution in a Brizish magazine only as a bad joke and typical for the British humour.
Getting compliments from a British or American should be the most alarming moment for each German because German can never trust any British or American.
So I regard this article nothing but as typical British humour and a covered rant against the Germany.
It would be quite new if any Britsh or American would say within the last 100 years anything positive about Germany.
Anayway I had my pleasure and I thank for the sophisticated joke.


Kudos, as usual, to German industry, proving once again that less in more - more or less.

The USA, the U.K. and others should go back and read their Drucker, and only then try to do the same as Germany's mittelstande.

mr north

As Nirvana-bound points out, this article misses out on the biggest reason for the German success, namely the oustanding quality, reliability & durability of german product.


Excellent article. One of the points not mentioned is their particular way of talent management. These companies are very thoughtful in recruiting - and they are very careful whom they keep on board. These decisions are normally made within the first 18 months of employment. However, once somebody is "part of the family" they tend to stay. Employee turnover is very low.
While the big directions are decided by the family owners there is significant autonomy in the "how to". As Peter Drucker has pointed out, knowledge workers can bring their potential to bear if they are given the right level of freedom in the way they achieve their objectives. The level of cooperation and trust tends to be very high - in particular compared to the average listed corporation. Wall Street's concern for short term results does not help to foster a climate of trust and collaboration within companies. Finance becomes the dominating function with all the consequences this has for company culture. As the late CK Prahalad used to say - "there must be a better way". Corporations need to look at other models and learn from them. Management innovation is more important than ever in the corporate word. Management thinkers like Gary Hamel, Julian Birkinshaw and Jeffrey Pfeffer are diving into this subject. But we are just at the beginning of this dialogue, as shown last week at the Global Peter Drucker Forum in Vienna.


Your article is excellent.
I do differ on one fundamental. Software is very much a part of mittelstand. Case in point on one end of the scale is SAP, which has definitely learnt how to grow from a small company to a giant in the last 30 years. On the other end of the scale, as it grew, it has spawned a legion of specialized german-based and owned software SMB's which cater to key niche un-addressed requirements in most every major functional area of the application. As an IT project manager for supply chain and manufacturing systems I can definitely point to 2 examples of this(out of a host available) which are Brose and 4Flow. You might want to explore these SMB's further in a follow-up.


German industries were generally known for their impeccable quality control, reliability & durability. Mittelstand entities continue to foster this noble tradition unquestionably, unlike their more indolent competitors, around the globe.

Kudos to German professionalism & dedication. The rest of the industrial world could certainly take a page or two from their industrious book.

Hail Mittel-management!


As noted, these Mittelstand companies are spread all around Germany. Combined with the devolved political structure of the Länder, this has created a large number of nicely-sized and prosperous regional cities from Hamburg to Munich with none of them especially dominant and many of them very attractive paces to visit.

Contrast that with the highly London-centric economy of the UK and the dismal appeal of most of the other main cities. Check the list at http://www.ukcities.co.uk/populations/ and see how many of the top 20 you'd actually want to go to.


The tortoise turtles along independent of the "national champion" support that governments often misguidedly bless the hare with. So long as "things" are needed (as contrasted to "knowledge"), that turtley approach is going to survive and prosper.

John Pope

Many of those mittelstand companies are still in the small towns, and sometimes even villages, where they started. They provide high-value local employment and are often philanthropic. Their presence reduces the amount of travel-to-work and broadens the local economy, making it less dependant on agriculture. They provide greater stability, unlike the subsidiaries of larger organizations which are more likely to be chosen for closure when times are hard for the parent company. German planners do not seem to be as averse to industry being in a rural area as UK planners seem to be. A model worth trying in the UK.


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