Angela Merkel arrives at passport control at Athens airport. She is asked “Name?” The German Chancellor replies “Angela Merkel”. “Occupation?” “No,I’m only here for three days.” I was told that one by a German friend by the way before you accuse me of old stereotypes. But at a time when relations are very tense between the successful Germans and the struggling Greeks, it might be worth considering how Greek and British small and medium sized businesses might benefit from the Mittelstand way of doing things.
Next week a sell out conference is being held here in the north by the German British Forum. Business people will find out how middle sized and small companies are supported in Germany by the mighty Mittelstand. If George Osborne is serious about Britain becoming economic top dog by 2030, he should try and squeeze into next week’s conference.
Not that it will be all about knocking the British way of doing things. The Germans admire our creativity, customer service and economic growth. However our productivity, lack of skills, short term shareholder focused approach to investment and lack of bank support hold back our SMEs.
So what is this mighty Mittelstand? It describes a middle sized company but has also come to stand for a particular German way of doing business which might commend itself to many northern businesses if we could get the economic framework right to support it.
95% of Mittelstand companies are family owned and 85% owner managed. They are customer, employee and community focused whereas many of our companies are obsessed with the short term need to reward the shareholder.
How is it possible not to worship at the alter of the shareholder? After all in this country it is they who are investing their cash. The German system is rooted in the regions or lander, the highly successful system of sub national government that we created for the Germans after 1945 but seem incapable of having here.
Mittelstand companies finance themselves from retained profits with bank debt and equity funding making up smaller components of the mix. Crucially they are supported by a network of three thousand independent banks. The UK has a dozen business banks. These banks have managers who know the local businesses.
There is a close relationship between business and education ranging from school visits at an early age and a well thought out apprenticeship scheme. 67% of German youngsters go into apprenticeships and there is no snobbery about vocational training with 50% training in trade, crafts and technology and 50% in administration and service.
This system of locally based finance has led to major export success particularly for the so called “hidden champions”, middle sized companies exporting all over the world and contributing 200bn Euros to the German economy. For instance Brita Water Filters rose from nothing to now having a 7bn Euro turnover. The “hidden champions” are founded on innovation, excellent product standards, and long service senior management.
As we debate how the northern powerhouse might look in terms of organisation and democratic structures, it would be good to build in some “mittlestand” thinking. Perhaps our Local Enterprise Partnerships could be part of the banking structure for our SMEs or possibly a Bank of the North with local managers in our towns and cities bringing their local knowledge to investment decisions.
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