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The Success of the German Mittelstand: Lessons for India #1

German Mittelstand India

Germany is, undeniably, the engine of the European economy. And Germany’s position in the European Union will only continue to grow post-Brexit.

When you think of German companies, which names come to mind? – Automobile manufacturers like Mercedes-Benz, Volkwagen, BMW, Audi, Porsche? Electrical and multi-product giants like Siemens and Bosch? Chemical companies like Bayer and BASF? Insurers like Allianz, Muenchener RE? Consumer products manufacturers like Adidas, Beiersdorf, Henkel? ... Deutsche Bank? ... Lufthansa?

There is no denying the contributions these world-famous, world-class corporations have made. But the backbone of German economy is its huge, silent, and publicity-shy German Mittelstand.

German Mittelstand by Definition

Mittelstand is the term used vaguely to describe Germany’s highly successful, ingenious, and down-to-earth small-and-medium-sized enterprises. If you were a German professor of economics, or a German bureaucrat, you would disqualify a company with sales revenue of EUR 50.1 million, and/or 501 employees as being a member of the Mittelstand. But in a broader sense the term “Mittelstand” is often used to include much larger companies if they are run in the same spirit as the Mittelstand.

More commonly, the term Mittelstand is used to loosely describe highly specialised, locally ingrained, not exclusively profit-oriented, selling below EUR 2 billion, unlisted, mostly family-owned, long-term oriented, predominantly manufacturing companies. Sound complex? It really isn’t!

The beauty of the Mittelstand is that they are less complex and more focused, less hierarchical and more flat, less transaction-oriented and more relationship oriented. That last point is essential to understanding what sets the Mittelstand apart, as the Mittelstand places significant emphasis on building and sustaining long-term relationships with customers, vendors, employees, and the communities in which they operate.

German Mittelstand India

Relationships are Key

Take Auerswald GmbH & Co. KG as an example, an abas hidden champion customer for 25 years. Auerswald is a family-operated business founded in 1980 and located in Lower Saxony, Germany. They are experts in the field of telecommunication systems. But if you ask them what they do, they won’t tell you that they sell telephones or telephony systems. Instead they’ll inform you that they deliver tailored communication solutions, including specialty product lines for doctors, lawyers, and retirement homes. This emphasis is at the core of what Mittelstand represents. Mittelstand companies focus less on the number of products they sell and more on the quality of service provided to their customers, this is why their customers stay loyal. It’s also why many Mittelstand companies measure their success by the number of long-term customers they have rather than year-to-year revenue increases.

The Indian Context

Comparatively, the Indian industrial context has seen it become one of the world’s fastest growing large economies and under new leadership India wants to unleash its inherent strengths which have remained underexploited so far. The Indian model has thus far mimicked the US corporate model and although that has been good on a services export front the local manufacturing arena has not seen the same level of Western discipline transferred. The lessons that indian companies can learn from the German Mittelstand firms on the other hand are numerous, stemming from a deep rooted traditional background as many Indian firms tend to be. The value placed by Mittelstand firms like Auerswald upon their customers is unparalleled in this regard and this is a major lesson that Indian manufacturers can learn where working with customers creates real value rather than simply producing widgets in mass.

The main focus areas of improvement in the Indian context should revolve around increased customer cooperation and care, real quality, true employee value, and adoption of global best practice systems and processes.

Author: Manoj Barve
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