What Works: Success in Stressful Times

That leads to a third characteristic. They tend not to have grand strategic visions but instead work in great detail with their customers to meet market demands. They are helped by the good technical training in Germany, so are able to draw on an innovative and educated workforce. The main competitive advantage this seems to give the firms is that they offer better customer service-something that enables them to justify their higher cost base.

Finally, many of these companies are located in small towns, where they are the dominant employer, rather than in large conurbations. This binds the workers into the company because they have fewer options for alternative employment. You could argue that it is dangerous for any town to become too dependent on one company, but the effect has been to align the interests of staff with those of the business, which probably makes management easier and fosters innovation by workers.

These characteristics were highlighted by the author and consultant Hermann Simon, who in the early 1990s identified more than 450 ‘Hidden Champions’-companies that had global leadership despite their small size. His book, published in 1996 with that title, still offers the best description and analysis of the sector.

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My own introduction to the Mittelstand came rather earlier, as from the 1950s onwards my father had the Irish agency for a number of German companies. He had a little one-man business as a textile agent, selling material on commission to Irish shops and clothing manufacturers. The most important of his agencies was a textile producer in Augsburg called Christian Dierig-you could almost say commission from the firm paid for my education. As it happens, this has proved a very good example of the longevity of German companies.

The company, named after its founder, dates back to 1805, and since then there have been six generations of the same name. The family still controls the company and it is still in textiles. That said, it is atypical in several ways. It was founded in the very early years of the Industrial Revolution, long before the notion of Mittelstand companies was conceived. At one stage it was one of the largest companies in Germany: just before the Second World War it employed nearly 19,000 people, whereas now it has some 200. But it survived wars, it survived the partition of Germany, it survived the decline of the European textile industry. And while its product mix has changed radically and it now makes quite a lot of its money from property development, it is still in the business in which it set out more than two centuries ago.

Boasting somewhat less longevity but a prime example of how the Mittelstand can touch our daily lives while remaining invisible is Webasto. Indeed many of us literally touch one of its products when we get into our car. You might think that if you bought a BMW then most of the car, aside from obvious components such as the electrics, would have been made by BMW. Not true. That goes for the vast majority of European-made and US-made cars and many others around the world. If a BMW has a sunroof that will have been made by Webasto-until quite recently it had more than half the world market for sunroofs, though as China has ramped up its car production that proportion has come back to about one-third. (Webasto started work on a factory near Shanghai in the middle of 2009, so expect it to garner a larger share of that market too. Mittelstand companies retain their German roots but think global for their future.)

Webasto has been making car sunroofs since 1932, when it invented the first folding roof for saloon cars. The company itself goes back even further, to 1901, when it started making things out of sheet metal. It moved to its present headquarters, in Stockdorf near Munich, in 1908 and has been a family-run business ever since. In 1935 it started making heaters for cars with water-cooled engines, and after the war branched out into products such as heating units for buses, electric steel sunroofs and parking heaters (so you can get into a warm vehicle on a cold morning). Now it has two broad product ranges. One category comprises the various car-roof products, from a simple tilt-and-slide to the complex glass roofs for MPVs. The other product line is made up of heaters and air-conditioning units, like parking heaters and heaters for boats and ventilation for lorries. It has some 7,000 employees, mostly in Germany but also in the USA and Asia. Its turnover in 2007 was $2.4 billion, so it is a sizeable operation.

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An equally sizeable company that most people have never heard of is Körber AG. But if you smoke cigarettes, what you have in your hand almost certainly involves the work of Körber, because more than 90 per cent of the machines in the world that make cigarettes have been built by the company.

Körber only goes back to 1947, a stripling compared with the other two companies. Its founder, Kurt A. Körber was born in Berlin in 1909, but when the war broke out he was an engineer at J. C. Müller, a cigarette-machine manufacturer in Dresden. He survived the bombing of the city in 1945 and after the war managed to get from Russian-controlled Dresden to Hamburg, in the British sector, where there were three cigarette factories. He helped them re-establish production and then got the licence from J. C. Müller to set up a cigarette-machine factory under the name of Hauni. That was the basis of the present business, which now dominates the world market.

But it kept on diversifying, adding business lines in which it could build a similar degree of brand leadership. So it went into paper processing in 1970 and then, as demand for cigarette machines declined, added an electronic manufacturing unit that produced a machine for extracting oxygen from the air. In the 1990s it developed a system for cutting small pieces of paper (such as cheque books) and has 90 per cent of the world market for that. But cigarette machines are still its largest division.

Kurt Körber died in 1992 and since then the business has been owned by a non-profit foundation that he set up, so it remains a ‘family’ business in this sense. And like many other Mittelstand family firms, it is run by professional managers, who report to the foundation. So in terms of ownership it is as secure as any commercial company can be.

2. WHAT ARE THE LESSONS?

Germany did not make some sudden collective decision that it would dominate the world market for certain types of manufactured products or that it would create a collection of medium-sized companies to help it do so. The development of the Mittelstand was not the result of any policy but rather derived from an attitude that technical education and commercial competence were essential for economic prosperity. That emphasis on technology and education goes back at least to the emergence of Germany as a modern state in the second half of the nineteenth century, under, most notably, the chancellorship of Otto von Bismarck. But one of the companies highlighted here precedes that, for Christian Dierig can trace its roots to the early days of the Industrial Revolution in Germany.

Attitude, it would seem, matters more than policy. Germany has created some huge companies, as have all developed nations, for that is part and parcel of the process of economic development. Nor has the country sought to restrict the size of its companies so they remain medium-sized; that would be absurd. For some reason, though, no other nation has managed to sustain such a body of excellence, and the special characteristics that have permitted the Mittelstand’s companies to thrive despite huge military, political and social upheavals carry messages for the rest of the world.

There are, I suggest, a number of these messages.

The first is that dominance matters. To be successful over a long period, a business has to be a leader in its particular market segment. In fast-growing economic conditions, many indifferent companies can thrive as they simply get carried upwards by the tide of growth. The German economy has had its periods of rapid expansion, including the Wirtschaftswunder, or economic miracle, in the years after the Second World War.

(#litres_trial_promo) But it has also gone through the fire and, particularly after the unification of East and West Germany in 1990, struggled with slow growth and high unemployment.

(#litres_trial_promo) For medium-sized companies to survive such times they must have deep strength-and one of the sources of strength is dominating the market they serve.

That also means serving niches, the second message. If you are only medium-sized and want to dominate your market, you are bound to pick a few narrow areas of excellence. You cannot compete on price so you have to be better, in your chosen field, than anyone else. You have the advantage that you can know all the possible customers in the world, and they will make you aware of any potential competition. If your customers want some new product or service, you are in the best position to supply it.

This leads to a third message-that although most of the Mittelstand is in manufacturing rather than services, much of the added value lies in adding service to the product. Most of these companies are selling to other companies, not to the end user, so there is less need for conventional marketing skills. Instead the quality of service they give, in terms of back-up, sticking to delivery times, fixing problems and so on, makes it worthwhile to pay the additional cost of German wages. How does Germany remain the world’s largest exporter, while having about the highest wage costs anywhere? One of the answers is that back-up is superlative. That is very deep-rooted. I recall as a child that my father found his German suppliers were much better than his British ones at attention to detail, from little things such as responding to customer queries to the rather larger one of paying his commission on time!