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The Success of the German Mittelstand: Lessons for India #2

Mittelstand Lessons India #2

German Mittelstand companies are extremely focused. They may do only one thing, but they do it in the best way possible.

Thanks to the extreme focus, they have no need of complex processes, expensive equipment, underutilized and expensive resources, multi-level hierarchies, matrix structures and comprehensive reporting. Lesser breadth (product groups) but more depth (product offering) combined with global reach within that niche - leads to enormous economies of scale. And achieving such economies is particularly important for a country known for high wage levels, longer holidays, unlimited sick leave, less than five-days’ work-week, flexible working hours, job-sharing and work from home arrangements in order to stay cost competitive.

The principal sales argument for their products and services, though, is not one of price, but the quality and the large number of innovations that have found practical implementation. Mittelstand, or for that matter German industry, has mostly exited from low-tech daily-used products with short shelf life, or use-and-throw kind of products. The Mittelstand often engages with manufacturing, maintaining and servicing of capital equipment, machine tools, measuring and testing equipment etc.

The Indian Story

Slowly but certainly, Indian SMEs are learning from the German Mittelstand. More and more companies are getting focused on what they do. They are trying to be the best in the country in a particular product segment, rather than being an “also-ran” in many. They are getting quality oriented – and commanding high margins – rather than focusing on volumes. They are training employees in acquiring newer and relevant skills, and making efforts to hold them longer. They are working closer with the colleges and vocational training institutes. They are trying to forge long-term relationships with their customers and vendors. R&D and Innovation initiatives are looked upon as necessary investment rather than discretionary expenditure. ERP (Enterprise Resource Planning), PLM (Product Life-cycle Management), IoT, Machine-to-machine, Lean Six-Sigma, ISO certification are not alien for them any more with an expected boom in ERP system requirements to enhance efficiency and productivity going forward.

Author: Manoj Barve

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

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