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Topic - SME Policy

The German Mittelstand as a model for success

Introduction

The success of German business is driven by its SMEs, a group to which more than 99 per cent of all firms in Germany belong. These companies account for more than half of our economic output and almost 60 per cent of jobs. Approx. 82 per cent of apprentices in Germany do their vocational training in an SME.

Germany's SMEs, also known as the 'Mittelstand', are the country's strongest driver of innovation and technology and are renowned across the world. Companies that want to keep their competitive edge must be at the forefront of new developments. A recent study on SMEs has shown that innovative SMEs will continue to drive the success behind the 'Made in Germany' trademark. Provided that they embrace new trends, particularly digitisation, and that they find ways of recruiting the skilled labour they need, even in times of a skills shortage, SMEs have every opportunity to remain successful in their chosen specialised niche markets.

The Federal Ministry for Economic Affairs and Energy wants Germany's SMEs to embrace new challenges and remain vibrant, strong, and innovative. This is why the ministry is working on many levels to strengthen the Mittelstand's competitiveness, its capacity to innovate, and its ability to create jobs.

Four figures on SMEs

58,5
Symbolicon für Menschen

Percentage of jobs
in Germany that are created by SMEs

99,6
Symbolicon für Bürogebäude in Deutschland

Percentage of German firms
that belong to the Mittelstand

35,3
Symbolicon für Eurostapel

Percentage of total sales
in Germany that are generated by the Mittelstand

81,8
Symbolicon für Statistik

Percentage of apprentices
in Germany that are employed by SMEs

Diverse, dynamic, pioneering

SMEs are a recipe for success

Germany's small and medium-sized companies (SMEs) play a defining role in the country's economy. Our economic model derives its strength not from a small number of dominant players, industries, or industrial regions, but from the fact that we have a wide range of companies – small, medium-sized and large – that are based in locations all across Germany, specialise in all sorts of different sectors, and often form close networks with one another.

Germany's SME sector, the 'Mittelstand', is extremely diverse. Family-owned companies that were established generations ago, trendy start-ups, traditional crafts firms, self-employed people and service providers, retailers and freelancers, pioneering high-tech companies, regional suppliers and global players. The size of our SMEs ranges from one person to several hundred employed across the globe. The Mittelstand has many well-established brands, but also newcomers and lesser-known brands that still deliver the same standard of quality, precision and innovation. It is this high level of diversity that makes it so strong.

The Mittelstand – a strong partner for large corporations. The Mittelstand acts as a strong partner for large corporations, across the entire value chain. Mittelstand companies are often highly specialised and produce the type of up and downstream products that enable large corporations to create innovative and complex products, services and systems solutions

The German Mittelstand is internationally strong. Some 44 per cent of German companies export their goods or intermediate goods to other markets, thereby contributing to the success of the German economy. At least one in two German firms that turn over 2 million euros or more per year are exporting companies. Even small companies benefit from venturing on foreign markets. This is attested by the fact that even very small firms generate an average of over 20 per cent of their turnover from exports.

SMEs are a driver of innovation and technology. Among European SMEs, German Mittelstand companies have been found to be very strong on innovation. More than 42 per cent of German SMEs brought a product or process innovation onto the market in 2014, compared to an EU average of just over 30 per cent. Indeed a huge number of high-tech German SMEs, which are often family-owned, are classed as 'hidden champion', i.e. as world market leaders their respective niche markets or in supply chains for large companies.

Mittelstand companies have a Mittelstand mindset. The one thing all Mittelstand companies have in common is a special business culture that stems from the fact that these firms are managed by their owners themselves. This means that the management carries full responsibility for the firm and also shoulders all of the risk. It also means that decision-making is fast and does not involve a large hierarchy, which has the advantage of allowing firms to respond swiftly to changes in the market. Mittelstand companies are known to favour continuity and aim for long-term success. This means that they are highly responsible in their dealings with staff, customers and business partners. It also means that these firms are strongly attached to their region. They interact with their customers and cater to their needs, which also means that they are among the first to learn about and respond to changes in the market.

Internationally, the German Mittelstand has become a brand of its own. Among the world's hidden champions, the number of German firms is extraordinarily high. These are companies that work very closely with customers around the world and supply them with highly specialised products and services that are often at the cutting edge of technology. What makes a hidden champion is top quality products, processes that add a great deal of value, and a strict focus on core capabilities.

Diverse, dynamic, down-to-earth and innovative.These are all characteristics of the German Mittelstand that have helped these companies weather many crises, remain competitive, and create a large number of jobs. Mittelstand firms tend to pursue a long-term human resources policy and invest in their staff, even when faced with a tough global economic environment. Indeed it is to the Mittelstand that we owe much of the economic and social stability we enjoy in Germany, including our low unemployment rates among young people.

The Federal Ministry for Economic Affairs and Energy wants to enable Mittelstand companies to continue to play this vital part in our economy. This is why our economic policy is designed to create an environment in which these companies can thrive. The ministry is following a modern SME policy that seeks to create a positive start-up and business environment and encourages companies to adopt strategies for long-term success.

File; Source: mauritius images/Wolfgang Filser

© mauritius images/Wolfgang Filser

"Future of SMES" Action Programme

Shipshape for the future

Demographic change, the energy transition, digitisation – these are just some of the challenges our SMEs are facing. But the same challenges also open up tremendous opportunities. There are entire fields of business that have sprung up around demographic change and the energy transition. Digital solutions can help companies streamline their processes, increase their productivity, and become part of international value chains.

10 focal areas in the ministry's SME policy

Promoting entrepreneurship

Start-ups and company hand-overs are of immense importance for the German economy. More than 300,000 new businesses are set up in Germany every year. The businesses create additional economic drive and new jobs. Today's innovative startups will one day form part of our Mittelstand. And whenever a company is successfully passed on from one generation to the next, this helps safeguard tried-and-tested business models, retain expertise, and secure jobs.

The overarching 'New Age for Entrepreneurship' initiative seeks to kindle a spirit of entrepreneurship in Germany, especially among groups that have so far been underrepresented in the startup scene, such as women (through an initiative for women entrepreneurs) and potential entrepreneurs with a migrant background (through a mentoring programme).

Anyone interested in setting up a business in Germany can find all the information they need on the www.existenzgruender.de and www.existenzgruenderinnen.de websites. Our 'nexxt' corporate succession exchange brings together company owners who want to hand over their business with potential takers. The EXIST programme, which was made even more attractive last year, seeks to promote entrepreneurship at university, not least by providing scholarships for young startups in science. The ministry also has operates accelerators that support young startups as they go international and help them gain a foothold on the US market. The German Accelerator Life Sciences was opened in Boston in 2015, becoming the third German accelerator to be set up after the ones in Palo Alto and New York. Find out more.

Strengthening the financing of start-ups and growth

Access to suitable financing is a key requirement for SMEs to be able to invest and remain innovative, which in turn allows them to remain competitive.
Germany has a strong culture of loan-based SME financing. For this reason, the ministry closely looks at the impact of financial regulation on SME financing for SMEs, its availability, and the exact conditions. Our goal is to ensure that large listed companies do not receive preferential treatment over SMEs; the interests of SMEs must be taken into account.

The ministry has deployed several instruments allowing it to add some 2 billion euros of venture capital to the market. These instruments include the new ERP/EIF Growth Facility, which is worth 500 million euros, a new co-investment fund called coparion, which is worth 225 million euros, and the ERP/EIF Fund of Fund whose volume has been increased to 1.7 billion euros (including funding from the European Angels Fund). We are also working to improve the fiscal environment for venture capital and to facilitate the listing of young, fast-growing companies on the stock exchange.

Securing skilled labour, bringing refugees into vocational training and work

One of the most important challenges for German companies today is to ensure that they have the skilled labour they need. Firstly, Germany as a whole is facing tougher international competition to attract the brightest minds; secondly, SMEs have to compete with large companies as they seek to recruit skilled workers. This means that a modern SME policy must be designed to better harness the potential that exists within our country, and to also attract skilled professionals from abroad.

The Federal Ministry for Economic Affairs and Energy has joined forces with the Federal Employment Agency, businesses, unions, and the German states to strengthen the attractiveness of dual vocational training and boost public acceptance for it. Under the 'Perfect Match' programme, SMEs are given advice as to how they can find apprentices that fit in well in the relevant profession and in their company. Employers' and employees' organisations are closely involved in the regular work to update training regulations so that they prepare apprentices for new challenges waiting for them in the job, including the need for digital skills. There is also a programme that seeks to raise intercultural awareness amongst apprentices. This programme is called 'vocational training without borders'. Find out more.

There are several programmes designed to attract skilled professionals and students from abroad and to provide information about living and working in Germany (www.make-it-in-germany.com website, the 'Living and working in Germany' hotline). Find out more.

The ministry has teamed up with several partners, including the 'firms for the integration of refugees' network, to provide information and advice that will help place refugees in work and vocational training. Around 150 refugee recruitment advisors based within the regional business chambers and organisations support SMEs that are offering work experience, vocational training and jobs to refugees. Find out more.

Pressing ahead with efforts for better regulation and less red tape

Any economy that wants to be competitive needs to ensure that its governed by modern, effective regulation and that its administration is working efficiently. This is to ensure that companies, startups, and those who have recently taken over an established firms can focus on their core business and spend as little time as possible dealing with administrative work and bureaucratic procedure.

By implementing a break on bureaucracy, which follows the principle of 'one-in, one-out', drafting legislation for two Cutting Bureaucracy Acts, and by modernising public procurement, the ministry has drastically reduced the cost of compliance for companies (by some 2 billion euros in total). Similarly, SMEs will find it easier to secure public contracts. Furthermore, an SMEs test has been introduced to ensure that the financial impact of new regulation and legislation on SMEs is assessed before any such measures are taken. Find out more.

Harnessing and shaping digitisation

The digital transformation is transforming our society and our economy, and is doing so at break-neck speed. Smart products and services are being combined, producing entirely new value chains. This allows companies to develop new business models, but also creates new challenges.

The ministry is supporting digitisation within the skilled crafts sector, not least by running ten 'Mittelstand 4.0 Centres of Excellence' that are based all across Germany, a Digital Skilled Crafts Centre of Excellence, and another four 'Mittelstand 4.0' agencies. In the 'Mittelstand 4.0 Centres of Excellence' funded by the ministry, companies can test their own technical developments and interfaces with products and clients before they invest in customised systems. Within its funding activities, the ministry has made it a focus to support SMEs as they introduce modern information and communications technologies, digitise and network their processes, and become part of Industrie 4.0. These funding activities are subsumed under the heading of 'SMEs going digital – strategies to promote the digital transformation of corporate processes'. There are also dedicated programmes to raise awareness of issues including data protection and data security. Find out more.

Boosting innovation

A company's future competitiveness depends on its present ability to innovate. As we address societal changes and global challenges including climate change, the digitalisation of all parts of our lives, and demographic change, we need to develop innovative responses and sustainable solutions – something that our SMEs are extremely good at.

The ministry is working to support businesses' capacity to innovate by creating a pro-innovation environment and market-driven funding programmes. Furthermore, the ministry makes use of its Central Innovation Programme (ZIM) to provide grants for market-driven research and development programmes in the field of technology. The ministry also uses this programme, as well as the 'go cluster' programme, to foster the formation of innovation networks, which bring SMEs and research institutes together .Find out more.

Using the opportunities afforded by globalisation

The German Mittelstand is internationally strong. Some 44 per cent of German companies export their goods or intermediate goods to other markets, thereby contributing to the success of the German economy. Even small companies benefit from venturing onto foreign markets. As a whole, they generate a significant share of their revenue from exports. Experience also shows that SMEs which export do better on the domestic market than their rivals.

The ministry has put a whole range of flexible and demand-driven instruments at SMEs' disposal. This toolbox, which is called 'Mittelstand going global' helps SMEs go international. The programme caters to forward-looking industries such as energy, environmental technology, healthcare and civil security, but also to other industries. Under the programme, the ministry provides information about foreign markets via Germany Trade Invest (gtai), financing for Germany's bilateral chambers of commerce and industry, for German stands at international trade fairs, and for export credit guarantees. It also runs export initiatives, which see companies go abroad on fact-finding missions. The ministry is also additionally working to facilitate trade and conclude bilateral and multilateral free trade agreements. Find out more.

Playing an active role in defining European SME policy

With more than 93 per cent of exporting SMEs catering to the European market, the single European market has become hugely important for the German Mittelstand.

At European level, the ministry is a strong voice for SMEs and their interests. It is working to ensure that the single market works in SMEs' favour, that gaining access to EU funding programmes is as straightforward as possible, and that unjustified barriers to trade are removed. At the same time, however, the ministry also advocates that structures that have proven to work must be retained. This includes the private sector's ability to exercise self-governance, a concept that includes the fundamental principles of dual vocational training, the requirement for owners of crafts businesses to have a master craftsman's certificate, the system of mandatory membership in certain professional chambers, and the notion that employers and employees must act in a spirit of partnership. The ministry takes care to notify German SMEs of any relevant EU initiatives that may affect them (e.g. by means of the EU SME monitor), and encourages them to make use of EU funding programmes (including COSME) and to participate in procurement procedures. Find out more.

Strengthening SMEs in less-favoured areas

There is something quite unusual about the way SMEs are spread across Germany. Unlike in most other countries in the world, SMEs can be found everywhere in Germany, including in small towns, and not just in the capital. The ministry wants to keep it that way, which is why it is using its targeted regional policy to improve the business environment in less-favoured areas.

Funding provided under the Joint Federal/Länder Scheme for the Improvement of Regional Economic Structures (GRW) is used to support investments by trade and industry, investments in local commerce-related infrastructure, measures designed to encourage networking and cooperation between local players, and measures designed to improve SMEs’ competitiveness. In addition to the GRW scheme, there are also other programmes that promote the formation of networks between SMEs and between SMEs and non-for-profit industrial research facilities that have been set up in less-favoured areas (e.g. Cleantech Initiative for Eastern Germany, INNO-KOM-Ost). Find out more.

Supporting the development of new fields of business deriving from the energy transition

Germany’s energy transition offers major opportunities to small SMEs in particular to expand into new markets, like energy services or improving the energy performance of buildings creating local jobs, e.g. in construction and the skilled crafts. The ministry is providing advisory services and financing opportunities for SMEs to enable them to break into these new markets. Furthermore, the ministry supports SMEs as they undertake efforts to make their production processes more energy-efficient and introduce energy-efficient technology. Find out more.

For more details and information on specific policy actions across the 10 fields of action, please consult the 'Future of SMEs' Action Programme.

Further information

  • 29/09/2016 - Joint press release - Funding of SMEs

    Press release: Germany and Austria present joint proposals for improved SME financing

    Open detail view
  • 20/07/2016 - Press release - Fostering Innovation

    Press release: More venture capital for innovative firms - a 1 billion euro increase in start-up funding from the German Economic Affairs Ministry and European Investment Fund

    Open detail view
  • 01/10/2014 - Brochure - SME Policy

    Publication: The German Mittelstand: driving the economy

    Facts and figures about German SMEs

    Opens PDF "The German Mittelstand: driving the economy" in a new window.
Ornamental plants decorating the page on SME policy; Source: mauritius images / euroluftbild.de / Hans Blossey