Germany’s Mittelstand:A lesson for the India MSME sector

STEPHEN FERNANDES

IMC’S conference on “MAKE MITTELSTAND IN INDIA” held in Mumbai recently was a wake up call for Indias MSME policy makers, education and skill development policy makers and a host of other government and quasi-government bodies that drive the MSME engine

Mittelstand — a word meaning the middle group or section, and encompasses world leaders within its fold — can add to the Indian description is formidable international presence and competitiveness.

Virtually all German businesses are small to medium-sized companies and therefore fall into the “Mittelstand” category. They range from small, innovative software-smiths to globally operating mechanical engineering firms right through to venerable old artisan businesses, and beyond. In purely statistical terms, any business with fewer than 500 employees is an SME. But the term “Mittelstand” is often used to include much larger companies too if they are run in the same spirit as a small or medium-sized enterprise. In that case, it means that the owner or owners take the business decisions largely on their own – and assume the risks and liability. In these companies, the boss usually has close ties with the business and the employees and bears a particular responsibility for ensuring job security.

Mittelstand companies are the backbone of the German industry and its economy and are world market leaders in their domain and possess cutting-edge technologies. By nature, Mittelstand companies are highly risk averse and therefore reluctant to enter into ‘challenging’ markets. Though they possess high-end technology, they are not big investors.

Germany’s industrial achievements rest upon a combination of state-supported entrepreneurship, decentralised administration, and a strong traditional appreciation for skills and craftsmanship. Each is relevant in the Indian context given the country’s engrained entrepreneurial ethos, family firm tradition, vast micro, small and medium-sized enterprise (SME) sector, and federal political system.

This model has three long-term benefits —one, an increased manufacturing base, since Mittelstand companies focus on developing expertise in one area; two, creating vocational and skill-based jobs and gearing up for the huge number of employable youth population coming into the workforce; and three, allowing for resilience, even growth during recessions etc, using traditional structures.

, Indian policy-makers should examine the structural features that sustain Germany’s system of industrial innovation and investment.The characteristic most commonly associated with Mittelstand companies in Germany is that they are usually family-owned, a unit with which India is very comfortable. Both the Income-Tax Act and the Micro Small Medium Enterprises (MSME) Act, 2006 for instance, recognise the Hindu Undivided Family as a viable business unit. Since family-run enterprises are usually in it for the long haul, the other identifier of the Mittelstand is also present.

The enormously successful German Mittelstand, , has been sought to be copied around the world, but with limited success.This is because its core philosophy is difficult to recreate. But this exists in India and should be nurtured. It allows for smaller enterprises to participate in creating a successful manufacturing base for economic growth, instead of relying on the ever-growing might of a few huge business megaliths.