Small is Beautiful

The strength, versatility and innovative power of small and medium-sized companies in Germany makes this market segment interesting for foreign investors, says Martin Wansleben, CEO of the Association of German Chambers of Commerce and Industry.

November, 2017

Mr. Wansleben, many companies of world renown are based in Germany. But the vast majority of Germany’s 2.5m companies are SMEs. Are these companies therefore the backbone of the German economy?

Martin Wansleben: I don’t want to explicitly highlight one segment. It is our unique mix of companies that provides the strong backbone of our economy. There are corporations of world rank and there are many successful small businesses. In addition there is a broadly established and internationally successful group of medium-sized companies, many of which are run by the families who own them. Many SMEs are involved in networks with research and science. They partner with large companies and can often be world market leaders in their sector.

Is there a reason why so many medium-sized companies in Germany are strong?

Wansleben: Family-run businesses tend to be oriented towards long-term, sustainable growth. They’re not just thinking about the next quarter, but to the next generation. This is the foundation of a culture of self-responsibility and reliability. Added to this is the fact that German SMEs feel closely linked to their core region, but have always been internationally committed. This provides a stabilizing factor – problems in one market can be offset by increases elsewhere.

In which sectors are German SMEs particularly vigorous?

Wansleben: Many of the 1,300 world market leaders from the SME sector are manufacturing companies. However, there are many service providers that work with larger medium-sized companies – for example in aiding digitization. There are also many successful retailers, caterers, tradesmen and other service providers. Our economy is founded on a broad, cross-industry base made up of medium-sized businesses.

We often hear it said that SMEs are Germany’s innovation and technology motor. Is this true?

Wansleben: With their “Made in Germany” products, many SMEs are our “hidden champions” and represent Germany internationally as a location. They make a significant contribution to innovation performance. Recent figures show that German companies invest €62bn a year in their own research and development – more than ever before.

How open are German SMEs to foreign investment and joint ventures with overseas companies?

Wansleben: It depends on the kind of cooperation. Often it is more than purely financial. Does a joint venture complement the existing product portfolio? Can the company open up new markets or customer groups? Are additional investments made in new technologies? Ultimately, it is like many partnerships: the benefits must be a priority for both parties.

Many owners of German SMEs are due to retire in the next few years, which will result in a generational fluctuation. Is this an opportunity for foreign investors?

Wansleben: Small companies in particular tend to look for their successors in their own family. However, this is becoming increasingly difficult as a self-assured young generation is taking its own path. Another factor perhaps is that fewer young people are seeing opportunities for entrepreneurial independence within the family business. In the future, German SMEs will therefore have to be more open to succession regulations, in which investors from abroad are involved.

Photo: Martin Wansleben, CEO of DIHK | © 2017 Deutscher Industrie- und Handelskammertag e.V.

The Association of German Chambers of Commerce and Industry (DIHK) is the central organization for 79 chambers (CCIs). All German companies (with a few exceptions) are required to join a chamber.

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