The German Mittelstand: An Economic Success Model

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Medium-sized and family-owned companies make up over 99 percent of all companies in Germany. In a "fact check", numbers, data and facts make tangible what medium-sized and family-owned companies mean for Germany as an industrial and business location.

The key figures show: medium-sized companies account for about 35 percent of total turnover and almost 60 percent of all employees subject to social security contributions in Germany.

Various definitions try to determine what constitutes a medium-sized business. One criterion is the number of employees. For example, the Institut für Mittelstandsforschung Bonn (IfM) assumes that every company with up to 500 employees belongs to the SME sector. According to the definition of the European Union, however, the limit is 250 employees. This makes clear that it is hardly possible to put small and medium-sized businesses into a rigid definition and tie them to fixed, measurable criteria.

Mittelstand between facts and feelings

Many companies that exceed the defined limits remain medium-sized in terms of quality and feel that they are medium-sized. Beyond quantitative criteria, medium-sized companies are characterized by the economic and legal independence of the company and the intertwining of ownership, control and management. Small and medium-sized businesses think in generations, not quarters. The middle class is firmly rooted in a region – be it the Eichsfeld, Black Forest or Sauerland. Medium-sized companies offer jobs and training positions and create tax revenues that enable public services. They assume social and societal responsibility in their region, for example in promoting education, culture and sports.

A study done by IfM shows impressive empirical results concerning the field of tension between facts and feelings. Especially in very small and very large companies there is a gap between facts and feelings. Overall, there is an interesting coherence of formal SME definition and self-assignment (see above: 65,3 percent vs. 77,1 percent). In summary, the German Mittelstand cannot be pinpointed by a single characteristic (e.g. number of employees, coincidence of ownership and leadership) due the spectrum and heterogeneity of company sizes.

Success factors in medium-sized businesses

There is no clear formula for success with regard to medium-sized industrial companies. Internal and external factors influence, from the point of view of medium-sized companies, whether entrepreneurial activity is successful. In order to survive as a medium-sized company, it needs reliable networks, financial independence and clear strategies on how to deal with challenges such as the digital transformation, digitization, internationalization, globalization, innovation or shortage of skilled workers.

Politics must set a reliable framework

It is up to politicians to create reliable and projectable framework conditions so that small and medium-sized businesses can develop fully. For example, it is necessary to ensure a resilient infrastructure in the fields of transport, energy and telecommunications. Energy must remain affordable. Laws must be made unbureaucratic and manageable. Taxes should not jeopardize the competitiveness of the location in international comparison. Family entrepreneurs in particular need appropriate inheritance and exit tax laws in order to be able to pass on companies safely to the next generation.