Management Practices of Germanys Mittelstand-Champions Prof. Dr.

Bernd Venohr
In the Zone 2011: The geography of global prosperity Contours of advantage: innovation, human capital and industry focus The University of Western Australia Perth, March 10, 2011

2011 Prof. Dr. Bernd Venohr

German Mittelstand Champions

Germany leading exporter:
Share gain in world trade since 2000 Top 3 position in 2/3 of all industry sectors

1,500+ world-leading companies, thereof 1,350 "Mittelstand" ("State of Mind") Key characteristics:
85 % active in B2B markets Annual Revenues: 100 m (median); 62% foreign sales (60 countries) Large worldwide footprint (10 -20 wholly owned subsidiaries) 650 employees (median) Age of Enterprise (median): 70 years 70% Family ownership 70% located in rural communities

2011 Prof. Dr. Bernd Venohr

Deutsche Weltmarktfhrer

Three typical examples

Rescue Operation San Lorenzo Copiap mining accident 2010

2011 Prof. Dr. Bernd Venohr

Deutsche Weltmarktfhrer

Management Made in Germany

Strategy: Dominating global niche markets

Governance: Enlightened family capitalism

Operational effectiveness: World class in key processes

German microeconomic business environment

2011 Prof. Dr. Bernd Venohr Deutsche Weltmarktfhrer 4

Appendix

Germany has a leading position in international trade

Germany and China are the only large countries gaining shares in world trade
325%

German companies employ a top 3 position in 2/3 of industries

No. of top positions

Development of 1995s share in world export

300% 275% 250% 225% 200% 175% 150% 125% 100% 75% 50% 1995
Japan 2 1

China

Rank

Country

No. of sectors with Top 3 position

% of all industry sectors

1st

2nd

3rd

Germany

67

40

35

142

61.21%

China

72

19

16

107

46.12%

Germany

USA Italy France UK

USA

34

37

26

97

41.81%

1997

1999

2001

2003

2005

2007

2009

Source: Own estimates; ICCP, UN Comtrade DB, 2007

Country share in worldwide exports; 1995 = 1; Source: UN Comtrade DB

2011 Prof. Dr. Bernd Venohr

Deutsche Weltmarktfhrer

About 90 % of the 1500 German world market leaders are in the B2B segment
Renewable Energy Software Logistitcs & other Services Diversified without industry focus Food & Beverages Commodities & Natural Resources Heavy Machinery Retailing and Wholesaling Media Products Financial Services

Machine Equipment

Chemical Products

About 1,500 German world market leading companies in total: top 3 position (revenue / volume) worldwide About 1,350 small and large mid-sized companies / Mittelstand (annual revenues less than 1 bn )

High-Tech (e.g. Photonics) Pharma & Medical Technology Construction & Building Products

Cars & Car Components Consumer Products

Electrical Engineering
Industrial Products

Large companies with a number of leading positions / large number of microleaders

Source: Database German World Market Leaders 2.2.2 (01.10.2010) World Market Leader (narrower sense) 2011 Prof. Dr. Bernd Venohr Deutsche Weltmarktfhrer 7

Profile of a typical German mid-sized world market leader

100.0 m 600 62%

70%+ family ownership 70% based in small cities/rural communities Average company age: 70 years

Revenues Median

Employees Median

Export Revenue Share Median

Source: Database German World Market Leaders 2.2.2 (01.10.2010) World Market Leader (narrower sense) 2011 Prof. Dr. Bernd Venohr Deutsche Weltmarktfhrer 8

Unique corporate culture driven by family ownership

Long-term survival and intergenerational transfer as key objective (stewardship idea) Profit as inevitable by-product of serving customers better the anyone else Focus on long-term sustainability with key stakeholders: customers; employees; suppliers; community at large Companies as communities: high degree of mutual trust and loyalty, leading to an implicit life-long contract (long tenures) Lead through example love for the business
domain knowledge

Flat hierarchies and informal channels of communication

bottom-up management style high degree of cross compartmental cooperation high degree of flexibility and market focus
2011 Prof. Dr. Bernd Venohr Deutsche Weltmarktfhrer 9

Institutional framework fostering long-term perspective and cooperation: top location for high value manufacturing
Corporate Governance Financial System Industrial Relations

Two-tier board system Co-Determination (Stakeholder Model)

Bank-centered system Important role of savingsbanks and credit unions

Sector-level bargaining Restrictive labour laws Plant-level work councils

Domestic Competition

Factors of Production

Related and supporting industries

Demand conditions

Cooperation between companies

Training/Education

Norms / Standards

Technology Transfer

Employers Associations

Apprenticeship system Decentralized university system

DIN VDE

Fraunhofer-Gesellschaft, Steinbeis-Stiftung Numerous local technology centers

IHK / AHK BDI / BDA

2011 Prof. Dr. Bernd Venohr

Deutsche Weltmarktfhrer

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