The middle way forward

By March 19, 2015Opinion

David Nicklin takes a look at the German concept of Mittelstand and why it’s increasingly being seen as the answer to longer term economic prosperity here in the UK.

Business-wise, Germany is perhaps best known for its powerhouse global brands – the ubiquitous names like Mercedes, Siemens and Bayer, synonymous with high quality and excellence in manufacturing and innovation. Yet at its core, the German economy is founded on the so-called ‘Mittelstand’, a hugely diverse group of small and medium sized enterprises that form the backbone of the country’s continued economic success story. In statistical terms, the numbers are compelling. Virtually all German companies (99%) are classed as SMEs, numbering some 360,000 firms offering more than 60% of the country’s entire employment opportunities. They span the full range of sectors offering a huge variety of products and services and many are family run organisations. Typically, what sets them apart is their mindset and thirst for innovation through manufacturing excellence and technology. SMEs in Germany are famed for their focus on long term prosperity and placing great value of the importance of enduring relationships with customers, suppliers and the wider business community. Furthermore, they more likely take a keen interest in the local communities around them by sponsoring education, culture and sport.

The UK of course has its own flourishing SME sector or “Brittelstand” as it’s being called but there are varied accounts of just how well it performs compared to Germany. Some studies of UK business culture have shown mid-sized companies falling behind their larger rivals following an investment drought triggered by the financial crisis. But in another recent report by HSBC, the UK’s “Brittelstand” of middle-market companies with a turnover of more the $50m (£33m) but less than $500m (£325m) make up 17.2% of economic activity, compared with 16.3% in Germany and 13.2% in the US.

Either way, with the Budget looming there are increasing calls for the chancellor to introduce a suite of measures designed to help UK mid sized firms do better business. Indeed, just last week,the CBI urged the Chancellor to give more support to mid-sized firms through increased investment allowances and by “super-charging innovation” through an extension of the research and development (R&D) tax credit. Any budget giveaways to business are of course to be welcomed so finance directors up and down the land will have a keen eye on proceedings on 18 March.

As a century old medium sized business ourselves, we know all about the many benefits of increased scale and the contribution it can make to the local economy. Our size means we’ve been able to recruit successive generations of employees from the local economy and expand over time our support of community initiatives such as grass roots junior football. Crucially, our product and service offering is always evolving to take into account longer-term client needs and consumer packaging trends. It can be all too easy to rest on your laurels within an established, profitable medium sized enterprise but we recognise the need to be always looking to the future as tastes change and competitive packaging materials and processes grapple with us for market share.

As things stand currently, it’s the UK economy that is outperforming Germany and the eurozone but there’s little doubt that UK SMEs would do well to emulate the time-honoured traditions of their German counterparts over the longer term. For our own part, we’re confident medium sized operations in the UK will prove more sturdy than brittle over the years to come…

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