Over the years, doubts have grown about the international competitiveness of German industry. Take, for example, the photovoltaic sector, where Germany had the lead, but the real action has long since shifted to East Asia. Similarly, its renowned automotive industry is rapidly losing ground, especially compared to China.
Yet some German giants remain global leaders, including SAP, Europe’s largest software provider, Deutsche Telekom, the leader in telecommunications, and DHL Group, the world’s top logistics and international express shipping firm.
Despite cuts to growth forecasts, Germany is still among the world’s top five largest economies. It may have lagged behind the United States and China, but it remains “best of the rest.” This fact is not only due to a few big names, but also small and medium-sized businesses.
hidden champions of germany
And there are a lot of “hidden champions” in Germany. For several years now, not even half of German workers have been employed by a large company. Most work in and for small businesses – that is, Germany’s small and medium-sized enterprises (SMEs).
“More than 99% of companies in Germany are small and medium-sized enterprises, and 50% of the net value comes from the SME sector,” Bastian Pöfl told DW. He is the chief executive of the CDU-affiliated MIT (SME and Economic Union), Germany’s largest party-political trade union.
The example of Zeiss, a technology company specializing in optics and optoelectronics, shows that a company does not have to be a global corporation like Taiwan’s leading semiconductor manufacturer TSMC to play a significant and defining role in the value supply chain.
Maximilian Fleig, spokesman for the German Mittelstand association, told DW that the hidden champions could combine several strengths: “a globally unique dual education system, high technical expertise, exceptional reliability and remarkable adaptability.”
But the most important factor, he insists, is this: “German medium-sized companies, known as the Mittelstand, think long-term, act responsibly and stay close to their markets and employees. This is their central competitive advantage.”
Germany’s medium-sized companies are confident
When asked about their companies, medium-sized business leaders paint a fairly consistent picture. Martin Herrenknecht, founder and CEO of Herrenknecht AG, a manufacturer of tunnel-boring machines, lists several advantages of the hidden champion.
“High innovation, strong industrial expertise, quality and reliability. These are recognized and valued all over the world,” said Herrenknecht. Germany remains “the land of tinkerers and do-gooders,” he told DW.
Another advantage, he said, is the close relationship with customers, which a larger company can’t offer. He said, “For us, the customer is king – and if something gets stuck, we will even drive to the construction site at night to solve the problem. For us, it is a matter of entrepreneurial respect.”
Ottobock is another hidden champion and global leader in prosthetics. The company provides prostheses, orthoses or wheelchairs to almost all athletes in the Paralympics. Company spokesperson Merle Florstad said the company “stands for its combination of solid training, strong innovation and high quality.” Most of all, he said, they can “adapt quickly to different international markets, regulatory frameworks and customer needs.”
money flows out of germany
There are many German innovations that have been internationally successful to date. These include the audio compression format MP3 or the magnetic levitation train – which no longer runs in Germany, but in China.
However, while much growth has occurred in Germany, company strategies have often failed to prevent wealth from flowing elsewhere.
Still, according to experts who spoke to DW, German medium-sized companies are looking to the future with optimism. “We are strongly convinced that those companies can continue to withstand international competitive pressure,” said Mittelstands- und Wirtschaftsunion’s Popfl.
Flagg of the German Mittelstand Association made a similar point. “Driven by a stable network, regional roots and a clear long-term strategy, Mittelstand remains a reliable engine of growth,” he said.
German politics needs to do something
However, as oil prices rise and the broader economy struggles, Herrenknecht has clear ideas about what changes are needed.
“We now need the courage to pursue real and comprehensive structural reforms. This includes, above all, credible and accelerated investment in our infrastructure – rail, road and digitalisation,” he said.
“It also means competitive energy prices, stable and flexible supply chains and investment security,” said Elisa Meglio of specialty glass manufacturer Schott AG. “If these conditions persist, we will also see good long-term prospects for continuing to be successful in the international market.”
Ottobock spokesperson Florstedt put it succinctly: For Mittelstand to remain internationally competitive in the future, it is important to maintain a high level of innovation speed and adaptability.
This article was originally written in German.