Introducing German Mittelstand Lecturer: Introducing German Mittelstand Seite 1 DRESDEN Dresden, 2018
Table of content # Thema Page 1 What is Mittelstand?... 4 9 2 Macro economic figures... 10 13 3 Macro economic figures... 14 17 4 Management characteristics... 18 21 5 Current challenges and federal support... 22 25 6 Findings and conclusion... 26 28 Introducing German Mittelstand Seite 2 Dresden, 2018
Section 1 What is Mittelstand?
What is meant by German Mittelstand? Terms of Mittelstand The terms: Mittelstand SME Small- and mediumsized enterprises Family enterprises are often incorrectly used as synonyms. Mittelstand is the generic/over-arching term Mittelstand SME Small- and mediumsized enterprises Family enterprises Introducing German Mittelstand Seite 4 Dresden, 2018
Definition Mittelstand Quantitative perspective by numbers of business SME-Definition of the European Commission (EU) SME Small- and mediumsized enterprises SME-Definition of IfM Bonn (IfM) German law by 267 Handelsgesetzbuch (HGB) Quantitative borders (up to) 249 249* 43 Mio. 20 Mio.* 50 Mio. 50 Mio. 40 Mio.* 499 Employees EU IfM HGB Total assets EU IfM HGB Turnover k.a. EU IfM HGB In German law (HGB) only two of three have to be fulfilled to be an SM Sources: ifm Bonn; HGB 267; European Commission Recommendation 2003/361/EC Introducing German Mittelstand Seite 5 Dresden, 2018
Definition Mittelstand Quantitative perspective in detail (EU/ifM) SME-Definition of the European Commission (EU) SME Small- and mediumsized enterprises SME-Definition of IfM Bonn (IfM) Sources: ifm Bonn; HGB 267; European Commission Recommendation 2003/361/EC Introducing German Mittelstand Seite 6 Dresden, 2018
Definition Mittelstand Qualitative perspective by characteristics Unity of risk and management Family enterprises Link of the economic existence of the owner with the existence of the enterprise Decision responsibility of the owner for all decisions considering the enterprise Sources: ifm Bonn; HGB 267; European Commission Recommendation 2003/361/EC Introducing German Mittelstand Seite 7 Dresden, 2018
Definition Mittelstand Qualitative perspective in detail (EU/ifM) Family enterprises IfM Bonn Family enterprise, where up to two natural persons or their family members have at least 50 % ownership of the company and. these natural persons are also involved in the management of the company. Prof. Gonschorek, T. (2009) Family enterprise, where owner as natural persons through management and/or shareholder position significantly determine the strategy of an enterprise. Sources: ifm Bonn; HGB 267; European Commission Recommendation 2003/361/EC Introducing German Mittelstand Seite 8 Dresden, 2018
Distinction Mittelstand from others What firms are Mittelstand? Mittelstand includes family firms and non-family firms that are SMEs by quantitative factors Family firms are not Mittelstand naturally Family firms run by managers Mittelstand For example big German family firms Family firms run by owner SMEs Non-family firms Big entities Introducing German Mittelstand Seite 9 Dresden, 2018
Section 2 Macro economic figures
Macroeconomic factors of German Mittelstand German SMEs generated an annual turnover of approx. 2,215 bn in 2015, which represents 35.0% of the total turnover of German enterprises. Approx. 16.85 million employees subject to social insurance contributions were employed by SMEs in Germany in 2015, accounting for 58.5% of total employment (subject to social insurance contributions). Source: Statistisches Bundesamt, Figures of 2015 Export turnover of German SMEs added up to approx. 206 bn in 2015, accounting for 17.1% of the total German export turnover. German SMEs had a share of almost 54.9% in total net value added in Germany in 2015. Businesses with less than 500 employees spent 11 bn on R&D, equal to a share of 13.2% in total R&D expenditures in the business sector in 2015. Introducing German Mittelstand Seite 11 Dresden, 2018
Economy structure in Saxony Corporate concentration by districts Classification by districts/county 1 2 3 4 5 Very low concentration (< 4.000 Corporates) Low concentration (< 4.000 5.500 Corporates) Average concentration (< 5.501 7.000 Corporates) High concentration (< 7.001 10.500 Corporates) Very high concentration (more than 10.500 Corporates) Source: Creditreform Introducing German Mittelstand Seite 12 Dresden, 2018
Economy structure in Saxony Average corporate turnover Classification by districts/county 1 2 3 4 5 Very low Ø Turnover (< 800.000 Euro) Low Ø Turnover (800.000 Euro 1.000.000 Euro) Ø Turnover (1.000.001 Euro 1.200.000 Euro) High Ø Turnover (1.200.001 Euro 1.500.000 Euro) Very high Ø Turnover (more than 1.500.000 Euro) Mostly small businesses - about 87% have turnovers less than 500.000 Euro Source: Creditreform Introducing German Mittelstand Seite 13 Dresden, 2018
Section 3 Micro economic figures
Micro economic figures (1/3) Branches of Mittelstand 2015 Source: https://www.kfw.de/kfw-konzern/kfw-research/mittelstand.html Introducing German Mittelstand Seite 15 Dresden, 2018
Micro economic figures (2/3) Development equity ratio of German Mittelstand 2002-2016 Source: https://www.kfw.de/kfw-konzern/kfw-research/mittelstand.html Introducing German Mittelstand Seite 16 Dresden, 2018
Micro economic figures (3/3) Development of owners age that run business 2003-2016 36% 60%! Source: https://www.kfw.de/kfw-konzern/kfw-research/mittelstand.html Introducing German Mittelstand Seite 17 Dresden, 2018
Section 4 Management characteristics
Specific management skills/topics of family enterprises 4 Areas and 4 challenges What do need a manager to act successfully in a family business? Which management skills are needed? What topics should be managed? Enterprise Ensuring of liquidity Ensuring of independence Ensuring of long-term existence Stamina Personality Drive of self-realisation Joy of the task Independence Wealth Protection of family wealth Keep/create/expand profitability Manage diversification of business Family Create trust in the family Avoid and solve family/ business conflicts Source: Weissman Institut Introducing German Mittelstand Seite 19 Dresden, 2018
Management challenges and skills Specific characteristics of Mittelstand Legal and economic independence of the enterprise Lean organisational structure, short ways of information Good corporate citizenship A small business is not a little big business High customer and market orientation Unity of ownership and management Management by improvisation and intuition (experience) Source: John A. Welsh/Jerry F. White, HBR, 7/8-1981 High loyalty to employees High flexibility Identity of owner (entrepreneur) and enterprise Source: Projekt Frühwarnsystem Introducing German Mittelstand Seite 20 Dresden, 2018
Mittelstand and family enterprises Why a special management approach? Strengths Customer orientated and innovative Ensuring of business and financial independence High employee orientated & high expectation on loyalty Sustaining of enterprise existence Short decision paths Less formalization High flexibility Regulations Increasing role of international accounting standards Increasing requirements on management due to bank regulation like Basel II + III Results in: uncertainty, limited resources, time pressure Weaknesses Limited technical capabilities Limited financial resources Limited personnel resources Less formal structure Markets Globalization of business activities More national and international competitors Change of market structure (digitization) Fast change of whole economy structure International conflicts, war s and rising uncertainty Introducing German Mittelstand Seite 21 Dresden, 2018
Section 5 Current challenges and federal support
Current key challenges of German Mittelstand SMEs are particularly exposed to the impact of the megatrends of our time We need more entrepreneurs and entrepreneurship The handover of Mittelstand companies to the next generation is in full swing Mittelstand companies need start-up and growth funding that can match that available in other countries Mittelstand companies are particularly affected by skills shortages Compared with large companies, Mittelstand companies are far more burdened by red tape (bureaucracy) Source: http://www.bmwi.de/redaktion/en/dossier/wirtschaftspolitk/aktionsprogramm-zukunft-mittelstand.html Introducing German Mittelstand Seite 23 Dresden, 2018
Current key challenges of German Mittelstand Mittelstand companies must become aware of the opportunities and risks of digitization We need to enhance the capacities of Mittelstand companies to innovate Even more Mittelstand companies need to grasp the opportunities of globalization We need a more Mittelstand-friendly business environment in Europe Mittelstand companies in structurally weak regions need special assistance Mittelstand companies should make more use of the opportunities deriving from the energy transition Source: http://www.bmwi.de/redaktion/en/dossier/wirtschaftspolitk/aktionsprogramm-zukunft-mittelstand.html Introducing German Mittelstand Seite 24 Dresden, 2018
Government reactions - SME Action Programme 10 fields of action promote the spirit of entrepreneurship, strengthen the financing of start-ups and growth, tackle the skills shortage, press ahead with better regulation and cutting red tape, utilize and shape digitization, strengthen innovative capacities, support SMEs as they globalize, actively shape European SME policy, strengthen SMEs in structurally weak regions, and support the development of new fields of business deriving from the energy transition. Das Bundeswirtschaftsministerium in Berlin; Source: BMWi Source: http://www.bmwi.de/redaktion/en/dossier/wirtschaftspolitk/aktionsprogramm-zukunft-mittelstand.html Introducing German Mittelstand Seite 25 Dresden, 2018
Section 6 Findings and conclusion
Emperical findings and conclusions Empirical findings Enterprise management, especially in small family firms, is always not consistent with the enterprise target Deficit in knowledge about management accounting instruments in small family firms and specific organisational business structure Deficit in usage of more formal and complex management accounting instruments Deficit in cope with the high daily complexity because of limited personnel, financial and organisational resources Conclusions Influences by ownership and leadership structure on organisation of management system Influence by company size on complexity of the management system More intuitive decision behaviour - especially in owner-managed enterprises based on experiences Caused by: o Personality of owner o More technical background of owner o Disregard of business aspects as rational anti pole of intuition Sources: Geeraerts (1984), Daily/Dollinger (1992), Kosmider (1994), Sadler-Smith et al. (2003), Ossadnik et al. (2004), Schäfer/Kunz (2006), Schachner et al. (2006), Hofmann (2007), Schlebusch (2007), Gonschorek (2009) Introducing German Mittelstand Seite 27 Dresden, 2018
German language and economics Source: Twitter.com Introducing German Mittelstand Seite 28 Dresden, 2018