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Automation Technologies 4/2015

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Automation Technologies 4/2015

NEWS AND MARKETS

NEWS AND MARKETS Mittelstand: The one German product you can’t import Sushen Doshi Hidden Champions: The German mittelstand are widely regarded as the ‘hidden champions’ of the German economy. But why ‘hidden’? Nowhere in the world, other than Germany or the German speaking part of Europe, will you find highly successful and technologically strong companies with a global presence, tucked away in the small towns and bucolic corners of the region. Technically, the German ‘Mittelstand’ is defined as the small and medium sized, family run businesses generating annual turnovers of upto € 50 million with work force less than 250. But these quantitative indicators do not do justice to the actual meaning of the word. In fact there are a few large corporations with more than 40,000 employees referring themselves as ‘mittelstand’, which suggests the qualitative aspect is more important than the quantitative definition. Tradition, values, ownership structures and owner-employee relations that influence the decision making gives us the better understanding of the term. AUTOMATION TECHNOLOGIES 4/2015

NEWS AND MARKETS next page Why are they so important? Well, the numbers speak for themselves. Of the 3.7 million companies in Germany, 99 % of them are mittelstand companies. With 52 % of the entire nation’s economic output, they contribute a lion’s share to the German economy and not only that, they employ 16 million people in Germany, that’s 60% of the German labor market. The various training, internship and skill development programs offered by these companies usually located in small towns of Germany helps keep the labor pool skilled and employed. Even when the world’s economy shrank and unemployment was peaking in double digits, Germany managed a mere 7.9 % unemployment, well below as compared to other larger economies. A major factor for this relatively low unemployment rate were the German family owned business that stuck by their employees during tough times. (Source of statistics: Federal ministry of Economy and Technology) Why are they so successful? What is it that they do that makes them successful for generations after generation? Innovate, not imitate, is what they do. They develop products with great quality, and tremendous efficiencies. They occupy a ‘niche’ in a certain product category generally so narrow that they attract very few rivals. R&D and innovation has a very high place in the German system all together. Not just companies, but also the various stake holder groups such as the state and federal government that assist the companies with investment and subsidies in R&D, a research society like Fraunhofer with more than 67 research institutes in various fields assists the private sector with high levels of R&D. To compensate for their razor thin focus on just a single product category, they diversify internationally and enjoy the economies of scale. For example, an equipment manufacturer in a small town of Paderborn makes processing equipment like mixers. They have achieved tremendous efficiencies and precision in mixers specially required for biscuits and confectioneries. And now they are exporting their machines at premium costs to food giants in China and India. Even in the international markets, The ‘Mittelstand’ are innovatively successful and successful in innovation German mittelstand and their products are placed in the premium price segment, justifiably so, on account of their technological strength and the above average after-sales-service that most of them are able to provide. There are a few other factors that make them so successful, first of which is the commitment towards the business by its owners. Of all the mittelstand companies in Germany, more than 85 % of them are run by their family bosses. The bosses generally avoid organizational complexities and intricate structures resulting in lean management hierarchies. The family ownership also brings quick and responsible decision making. Take Beckhoff Automation for example, the company which posted the annual turnover of € 510 million has 2,800 employees worldwide and is now represented in more than 70 countries but completely managed by its family boss, Hans Beckhoff. Long term benefits, not short term profits To be successful in innovation and innovatively successful are 2 different things, but both of them require one common resource. The highly skilled young as well as experienced work force. Most of the Mittelstand companies rely heavily on their AUTOMATION TECHNOLOGIES 4/2015

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