Member Article

The Key to success? Be more German!

If you ask most people what they thought the reason was for the success story that is the German post-war economy, most would probably tell you that it was due to the car giants – VW, BMW and Mercedes Benz, or Siemens perhaps?

However whilst these businesses have been phenomenally successful the real bedrock of the German economy has been, and continues to be, the Mittelstand – effectively their SME sector. Typically these businesses, of which there are around 3m, employ fewer than 500 people and have a turnover of less than €50m. Over 70% of the German working population is employed by these businesses and they account for around €2.4 trillion in turnover.

There are several lessons we could learn from the Mittelstand -

These businesses which are predominantly family owned take long term decisions when assessing investments. Instead of taking a 3/5 year project payback period, 5/ 10 years is more common which places far less strain on the business and allows for far greater levels of investment and innovation.

In the most part these businesses tend to be debt averse which of course means that their break-even is lower than comparable businesses in the UK allowing them to weather recessions without having to cut staff or other costs so savagely.

The Mittelstands tend to be highly effective in stakeholder management. The shareholders are kept informed of developments and are encouraged to forego dividends in favour of strengthening balance sheets. This is at odds with investors in the UK who seem to desert businesses as soon as dividends are cut – which I see as evidence of short-termism - Just ask anyone who has asked shareholders in the UK to waive their dividend.

They have an enviable reputation for employee relations with high levels of staff retention. It is not uncommon for these businesses to be embedded into the fabric of their local community and to have strong links with local colleges for training and apprenticeships.

It is interesting that in the 10 years following the fall of the Berlin Wall there was an almost complete wage freeze – The workers, shareholders and management boards of these businesses agreed that it was in their shared interest to work together to build a strong resilient sustainable economy.

These businesses have to a great extent built their success around exports through a policy of careful, considered expansion into Europe and the rest of the world. It is this policy which has made Germany such an export-led success story.

My view is that when writing a business plan, or doing any form of business planning, it is worth thinking like a German.

Phil Dibbs

Managing Director

Hawkmoor Associates Limited

www.hawkmoorassociates.com

www.twitter.com @hawkmoortweets

This was posted in Bdaily's Members' News section by Phil Dibbs .