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Automation Technologies 4/2015

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Automation Technologies 4/2015


NEWS AND MARKETS previous page skilled workers. The tie-up between industries and technical, academic institutions at regional level creates a factory of skilled employees. The vocational training and skill development makes the younger generations more relevant in the job market. The mittelstand already employees 83 % of Germany’s trainees. Majority of these companies are micro multinationals with their operations now in most of the world’s important markets, but their business culture has deeper provincial roots. Consider Miele, 113 year old manufacturer of kitchen equipment, located in a small bucolic corner of Westphalia. They offer ‘academic apprenticeship’ with hands on experience at their facility combined with a technical education in the university. Being located in a small town has not affected the company whose annual sales reach more than € 3 billion. There are a few things old fashioned in the way these family owned companies run their business. One of them is their approach to ‘borrowings or debt’, it’s simple to define their approach to debt ‘They are against it’. Their view is not to maximize the short term profits but to prepare for long term benefits and sustainability. Thou this might be old fashioned, It definitely keeps the company healthy. Market structure The industry has developed a pyramid like structure with 3 fundamentally different quality and price segments. n Premium segment: with 10-30 % market share, components are generally imported and then assembled locally, product design with the best features satisfying international standards and high price range. This segment is generally dominated by the German mittelstand. n Mid-range segment: 30-40 % market share, products with similar design that of the premium segment but with less features, higher localization and only the most important components are imported. 30-50 % cost advantage as compared to premium price segment. n Low cost segment: 30-60 % market share, less innovation in design and limited lifespan. This range has prices as less as 30-50 % of the mid-rangesegment. This segment is totally dominated by volume requirements and local manufacturers. Alternatives for future sustainability There is no doubt that the German mittelstand has thru out the world enjoyed success. But where do they go on from here, what does the future look like? With markets in the developed countries remaining saturated and rising challenges from the local players in developing markets it will be increasingly difficult to maintain high growth rates in the future. Apart from strengthening or defending their market share in their specialized product category, the German mittelstand has a few options for future sustainability and growth. n Deeper penetration into larger emerging markets like China and India. China and India are large countries, in order to tap the complete potential of these economies the presence should not be limited to Ahmedabad-Mumbai-Bangalore corridor in case of India and the Guangdong-Jiangsu corridor for China. Increasing the presence in other rapidly developing regions is definitely one of the key factors for sustainable growth. n Acquisition or Joint Venture: Forming a partnership of acquisition with a local company from mid-range segment can be very progressive option in order to consolidate their position in the high growth mid-range segment. However this a high risk zone as well, as the german mittelstand with western mindsets will find it difficult to adapt to the business models and competition from the local players. Another important factor is the time. The further the local manufacturers progress the larger their cost advantages and higher will be the hurdles needed to overcome in order to catch up. Recent Trends To solidify their place in these developing markets, the most recent trends that are catching up are the concepts of ‘frugal engineering’ and ‘reverse innovation’. n Frugal Engineering: It simply means reducing the complexities, getting rid of the nonessential AUTOMATION TECHNOLOGIES 4/2015

NEWS AND MARKETS features of the products, hence reducing the cost of the product itself and consequently the cost of manufacturing. In this way, the firms do not compromise on basic quality of their product by procuring cheaper raw materials and resources. So the german mittlestand can hold on to their ‘niche’ and still manage to lower the costs considerably. n Reverse innovation: The reverse innovation process begins by focusing on needs and requirements of the consumer from countries like India and China. Then these products are developed and sold at low costs in these countries itself. And then by upgrading them slightly they are sold in the western or developed markets at low costs, hence creating a new market and new uses of these innovations. Conclusion: You can study the mittelstand model on an intellectual level, you can even understand it. But you can not emulate it. Even the Germans themselves are somewhat struggling to emulate the success of the mittelstand in eastern regions Germany. Photographs: Beckhoff Automation, Teaser Fotolia z Statement With our PC Control technology based on German engineering we are very successful in different market segments worldwide. We always try to be state of the art in our field in order to use the most advanced developments in the hardware and software in our products. However, the core of our innovation culture is simply people: Nobody here is afraid to speak openly about their ideas whenever and wherever. We cultivate a truly friendly development atmosphere. And ultimately, we want to develop technology to serve the needs of people, to use a big phrase. With automation technology, we want to produce products more quickly, more efficiently and less expensively, with greater efficiency in the use of resources. Especially, in conjunction with Industry 4.0 PC control is now successful in taking full advantage of the convergence of IT and automation. Hans Beckhoff, Owner and Managing Director, Beckhoff Automation


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