Member Article

Mid-Sized Companies as the example to follow

A recently published research report prepared by the Warwick Business School claims that the medium-sized businesses in the UK, the so-called mid-market, looks set to grow faster their than counterparts in Germany, France and Italy. But what are these European “mid-sized companies“ specificities, and how did they pass through the recession of 2008-2011?

The study comprised of a survey of around 1,000 mid-market companies across the four nations. It concluded that UK firms are predicting growth of 4.9% next year, while German and Italian firms are looking for growth of 3.8% and French firms expect growth of 2.7%.

This study was led by Professor Stephen Roper, of Warwick Business School and director of the Enterprise Research Centre. While trying to explain why mid-sized companies in UK, Germany and France outperform the global economy, this report has particularly brought out the growing importance of this segment to the economies of these countries.

These firms are known by many names in Europe. In Germany, they are known as “Mittelstand” while in the UK they are often referred to as ‘hidden champions’ of business and, in France, they are better known as the “Entreprises de Taille Intermediaire” or “ETI” (i.e. “mid-sized enterprise”).

All of them referred to medium sized business which has traditionally played a very important role in the economies of these countries. Technically, the concept of “ETI” or “Mittelstand” companies was developed and proposed in the 1990’s by management theorist Hermann Simon. Such companies would be essentially family run, be the leader continentally or be in the top three globally of its market, with a workforce of 250 and 1000 and be barely known from the public.

Numerous such companies can be found all over Germany, France and the UK. It is assumed that Germany has the largest number of such companies that are generally family run businesses.

Max Krawinkel heads one such company in Germany. He heads a more-than-200 years old business with just 120 employees - PWM, the world market leader in electronic gas-station price signs. Most of the major oil companies are its clients.

The company has always been run by the family, Max Krawinkel being the seventh generation. PWM started off as a textile producer specializing in undergarments and children’s sailor suits and diversified into electronic price signs only in the early 1980s.

“I know I could use my technology for a lot of other applications,” says Krawinkel. “People always ask, ‘Why don’t you go there?’ But I don’t want to lose my focus.” Max Krawinkel can be described as the fittest example of the German Mittelstand with a family-owned, midsize manufacturing company and being a global leader in its segment.

Brenna Sniderman, in an article titled Three Things Mid-Size Companies Do Better, explains that “their relatively larger size compared with small companies provides them with deeper pockets for weathering difficulties, funding innovation and hiring key talent. And their relatively smaller size compared with larger enterprises makes them more agile, puts them in closer contact with customers and enables them to retain a bit of that entrepreneurial spirit”.

Such a description can be given about Oberthur Fiduciaire, a French firm specializing in banknote printing and being a worldwide leader in its field with just 800 employees. The company was founded in 1842 by printer and lithographer Francois-Charles Oberthur and has been a family-run business since it was acquired in 1984 by the Savare Family. Since that date, the company has worked hard in R&D with the intention of remaining at the forefront of anti-counterfeiting technologies.

But an entrepreneurship culture is not the solely criterion explaining the cheeky health of mid-sized companies. “The successful characteristics of Mittelstand companies – or micro-multinationals as they can be called – are family ownership or independent ownership,” says Will Stirling, from Meet The Mittelstand, a series of conferences and events aimed at fostering and strengthening business relationships between German and British manufacturers.

Lothar Späth, a former CEO of Jenoptik while describing the characteristics of the Mittelstand, shares this point of view: “these firms are run by their owners, not by managers hired from the outside. Rather than absolute asset maximization, the owner’s main concern is to place the firm on solid footing for the future being totally committed to both the company and its workers”.

One such company is pencil maker Faber Castell which does not chase quick profits and high risk investments and instead invests in their people. “Partially it is simply being far-sighted and smart,” said Count Anton Wolfgang von Faber Castell, chairman and chief executive of the company. Faber Castell, a family run business, has been making pencils on the outskirts of Nuremberg since 1761 and is a global leader in pencil making today.

There are obvious advantages of being a mid-sized global company and many family-run businesses prefer to remain in that segment. Thomas Savare CEO of Oberthur Fiduciaire, for example, removed the company from the stock market in 2008. “With independence and stability being afforded by its family ownership, Oberthur Fiduciaire has the opportunity to pursue strategic goals methodically (…) We do the same job as before, with the same passion as before, but constantly using new processes, new technologies, all that in order to maintain an irreproachable level of quality”.

The growing influence of theses “unsung champions” in Europe is best exemplified in the words of Richard A. Laxer, President and CEO of GE Capital EMEA: “this important group of companies matters not just for their massive contribution to the European economy but also for the way they run their businesses. These companies persevered through the credit crunch, growing revenues and head count through the toughest recession in a generation and if Europe needs an example as it looks to recover, perhaps theirs is the best to follow.”

This was posted in Bdaily's Members' News section by Kevin Wright .