Being the largest national economy in Europe is a mixed blessing for Germany, especially now that sweeping changes are coming for the country’s family businesses. Michael Finnigan takes a look
Germany’s economy is led by the Mittelstand – a tier of small to medium-sized family businesses that follow the mantra of patient capital. They are so pervasive that around 99% of all companies are part of the Mittlestand. While the concept applies mainly to operations that have annual revenues up to €50 million ($57 million), the Mittelstand is held in such high esteem that many of the country’s largest family businesses, such as engeneering and electrical group Bosch, claim membership. Is the time right for a new subsection aimed at large family businesses?
Georg Blaha, researcher at Stiftung Familienunternehmen [The Foundation for Family Businesses in Germany and Europe], explains: “Compared to many other industrialised nations, there is a striking number of very large family businesses in Germany. So much so that 41% of all large companies in the country are family owned. Among the top 500 family firms in Germany, 170 have sales of more than €1 billion ($1.14 billion). The best known include Volkswagen, Aldi, Henkel, and Bertelsmann. They operate on an entirely different scale from many businesses in the Mittelstand.”
But what is the secret to their success? Blaha says part of it comes down to history and culture. In the decades following 1945, when the German economy thrived from the rebuild of its war-torn country, an undervalued deutsche mark helped family businesses to grow through exports. At the same time, the German government used tax incentives to encourage growth in markets that it believed to have growth potential. This legacy has helped Germany to produce a manufacturing sector that today is twice the size of the UK’s, according to the World Bank.
That said, family businesses in Germany face a significant challenge in 2016: the absorption of more than 1.1 million refugees. While businesses in the country have long bemoaned Germany’s ageing population, the influx of young workers is unlikely to solve the skills gap. Even the country’s lauded on-the-job training schemes are unlikely to bring the refugees up to the required standard. There are also concerns that the Volkswagen emission scandal could exacerbate the effects of the slowdown in the Chinese and US economies. The irony now is that arguably the biggest threat to the German economy comes from its largest family business.
Alternatively, view the German Family Businesses infographic here