The dead efficient German Small/Medium sized businesses: Mittelstand

It has become very clear that for the longest time Germany has become the power house in Europe and in the world in general. German companies are famed for their efficiency, extremely high quality, eye for details and their comparatively low debt. One of the unsung aspects is the small and medium sized businesses,collectively named Mittelstand. Its roughly a philosophy that has its roots in the workshop culture of the pre-1800s age where family businesses were created to manufacture and sell products. The whole concept  continues to evolve with these small nimble companies sneaking into the niche areas and producing cutting edge products that much larger corporations are unable to fit into.

The most important aspect of these firms is that they keep their debt very very low. They are known to avoid taking loans even if it means slower growth for the companies. This leads to a significantly greater care when companies invest in more capital. Traditionally the investments are funded by company savings which are very precious, especially if they do not amount to much. The question is what would you do if you have to use your own savings to buy a house? You would have worked a great deal to earn that amount of money an indeed you would be really really careful about where your money goes. A bank loan never offers the same incentive to be really careful about the money.

Anyway, many of these companies have existed for more than fifty years in the hands of one family. There is a great deal of stability there as there tends to be a focus on one entity. It might have its downsides. A person who inherits the company may not be naturally gifted to lead the company. Nevertheless it removes most of the uncertainty surrounding the transition of leadership other non-family based businesses have to suffer. The central focus of the family might be sufficient to bring employees together because of the human value.

Whatever one may say about German Small and medium sized businesses, one has to acknowledge that they indeed are incredibly successful.

Interesting links:: http://www.economist.com/node/2179115

http://www.economist.com/blogs/schumpeter/2012/04/germanys-mittelstand

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