The German Mittelstand

Research and Development – a guarantee for competitiveness

Asia discovers its own “German Mittelstand”

“German Mittelstand” is a term coined some time ago by British investors that has subsequently been adopted in Asia as an idiom for the success story of mid-sized companies. The Institute for Mittelstand research (IfM – Institut für Mittelstandsforschung) in Bonn reports that pundits on the economic power-houses of South Korea, Taiwan, Japan and China are working to identify what lies behind the German successes.

The factors involved are many and, according to the IfM , offer little likelihood of replicating elsewhere the successes reaped in Germany. The German Mittelstand has strong links with its home region, and fosters consensus-seeking relations with its stakeholders. Furthermore, there is a “whole family” banking structure embedded in the system that makes loans easy and affordable. Another secret of success must assuredly be company culture strongly characterised by rewards and support for dedication to performance, especially in family-led companies who view their employees as a source of innovation, growth and competitiveness. This is a long-term perspective by which Mittelstand companies going through hard times by and large tend to hold on to their staff. These are all factors that have no (or very little) profile in company accounts

There is, however, one item that does stand out to the investor’s eye in the accounts, and that is the amount invested in Research and Development. German Mittelstand is number one in Europe in the quest for innovation, the long-term key for growth in competitiveness and job creation.  At 12.4%, Germany’s was the highest private sector investment in 2008 for R and D among all the OECD countries where the average was 5.4 %.  Granted not every cent spend on R and D will automatically bring market success, but innovation will always be a winning factor, particularly in markets in which high-level competition has reached saturation point. The example of German Mittelstand, therefore is not only for economists in Asia, but above all for investors.