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Five things New Zealand’s mid-market companies can learn from Germany’s Mittelstand economy

Medium-sized companies are the backbone of Germany’s economic success. "Mittelstand" companies – which means "middle group" and refers to the mid-market sized enterprises as well as a certain mindset about business – have a lot in common with New Zealand’s medium enterprise sector and, as such, there’s a lot we can learn from the Mittelstand way of doing business.

Ranked as the world’s fourth-largest economy, Germany is one of the few western countries that can say manufacturing contributes nearly a quarter of the country’s gross domestic product, and they have mid-market companies to thank for it.

Germany is also the country with the most, almost half, of the world’s mid-market champions. Overall, Mittelstand companies contribute 52% of Germany’s economic output and provide almost two-thirds of its jobs, according to the German Federal Ministry of Economics and Technology.

As in New Zealand, mid-market companies make a significant contribution to Germany’s economy.

It’s true that in New Zealand we have some challenges that Mittelstand companies do not share, including our smaller local market and our remote location – which contributes to low levels of competition – and our low productivity, relative to other OECD countries.

But one could also argue that Mittelstand companies don't have some of these problems (other than local market size and their European location) precisely because of the mindset and business model that they employ.

1. Government recognition and investment in the Mittelstand

Mittelstand companies in Germany do not suffer from the mislabelling of mid-market companies under the broad umbrella of SMEs, which originally stands for small to micro businesses and which does not represent the significant contribution of mid-market companies at all (for more information about this, read SMEs – The label that’s killing our growth).

In fact, much of the extraordinary success of Germany’s Mittelstand – the mid-market engine room of the German economy – is due to Government support on key issues like investment in research and development, financing, skills shortage, company hand-overs and foreign trade and investment.

2. Highly specialised and niche

Germany’s Mittelstand companies are fiercely niche. Take, for example, PWM – a 120-employee company that’s more than 200 years old after originally starting out in the textiles business. Today, PWM manufactures electronic petrol station price signs – a short messaging product designed to grab the attention of passing traffic.

PWM will only sell to gas stations, despite the fact that its product applies to any number of retail businesses. But they won't diversify because they ‘don’t want to lose focus’ on their core product and market. The mindset is simple: ‘They want to be the best in their niche’, and they want to be able to build the best customer relationships in their niche. You only get that with focus.

But isn’t New Zealand too small for such a high degree of specialisation? If you listen to most Mittelstand companies, even Germany is too small for them.

3. Go global fast

Mittelstand companies are focused on export and international market leadership.

A good example is a tunnel boring machines manufacturer Herrenknecht AG, which has one mission, and that is to be the global leader in mechanised tunnelling technology. It was Herrenknecht AG’s X-Large TBM Alice that bored the 2.4-kilometre tunnel tubes for Auckland’s Waterview Connection.

Flex is another Mittelstand company that makes only one product, dog leashes. But, as they say, they make them better than anyone else, and they’ve grown their market by opening up subsidiaries in other countries.

4. Family owned or with a family atmosphere

Many, if not most, Mittelstand companies are family owned or they work hard to create a family atmosphere. It’s a philosophy that fits well with the Kiwi mindset.

Koenig and Meyer, which manufacturers music and microphone stands, is led by third generation managing director Gabriella’s Koenig. The earlier example PWM has a seventh-generation owner at the helm.

As such, the companies have developed strong rules for dealing with family conflict and, on the flipside, they believe the family connection is essential for enduring customer relationships as well as better staff relations.

Mittelstand companies have the lowest staff turnover rates in the world. They have a reputation for employing people young and holding on to them for life.

5. Top-down strategic approach to technology

Mittelstand companies embrace technology solutions – the Internet of things and software as a service, for example – only where it contributes to their overall strategic direction. Technology decisions are made from the top down, not bottom up, for example by your IT support company, and they are often made with a competitive advantage in mind.

Here in New Zealand, Aparangi Retirement Village in Te Kauwhata is a good example of how this approach can benefit your mid-market business.

Attaché Software’s payroll solution has freed up staff to spend more time with the residents (workload has reduced by seven days).

Being a retirement village where the staff spend more time with the residents is certainly a competitive advantage in an industry that is all about the quality of care you provide.

There are a number of other Mittelstand practices and philosophies not covered here, but ‘specialisation’, ‘going global fast’, ‘familial atmosphere’ and a ‘top-down strategic approach to technology’, in particular, offer New Zealand companies an opportunity to build small (on a global scale) niche companies that are sustainable, enduring and thriving on the world stage.

Brent Irvine is the New Zealand Country Manager for Attaché Software. He is an expert on helping mid-market businesses improve their performance. Described as “roll your sleeves up and give it a go” person, Brent is well known for his experience and expertise in business systems, and his entrepreneurial passion for solving mid-market business problems with a view to improving overall performance through smart technology solutions.