A recent Schumpeter Commentary piece published in The Economist provided an insightful perspective on why Germany’s midsized companies, the Mittelstand, have a lot to teach the world. The tenets that were outlined have lots of applicability for supply chain management readers among SMB businesses.
In Germany, Mittelstand firms have been one of the engines of growth, and have embraced globalization. In terms of market and supply chain presence, 90% operate in B2B market sectors and 70% are based in the countryside. They are managed by conservative, non-flashy management and they have come to understand that growth comes from a focus on market niches, areas where bigger companies choose not to compete. The column notes a favorite slogan: “Don’t’ dance where the elephants play.”
Their global presence includes the growth regions of Russia, Eastern Europe, China and India in areas such as printing presses, license plates, industrial goods and cleaners. They do not fear competition, but they understand all too well that they need to always be innovative to stay ahead of the competition. They view the world as one marketplace. We noted in a previous commentary that a MPI funded study of U.S. regionally based SMB’s noted over 50% of respondents indicating not having any direct focus on global business activities.
Schumpeter notes three lessons to be gained from the track record of the Mittelstand, which I will take license to slant somewhat to a supply chain lens. First, each company needs to build its own center of innovation, even when that innovation is within traditional industries. The focus is on constantly understanding customer needs and building increased value, whether product or services related. Second, niche markets can be huge on a global scale, since multitudes of niche sales do add to a larger number. The unstated premise, however, is that a global market requires global distribution, service and fulfillment capabilities. That also implies more savvy capabilities in leveraging available technology or utilizing global distribution and logistics specialists.
The final lesson is that small and medium businesses can indeed be an engine of employment growth, providing that they each have an unwavering focus on operations excellence and continuous improvement in every process. In the MPI study, 57% of respondents reported no organized measurement systems or reviews, with only 17% indicating regular monitoring and review of operations metrics with the CEO, senior staff, or key customers and suppliers.
A lot can indeed be garnered from the Mittelstand model of small and medium business and supply chain management.