Is Germany’s Mittelstand a Model for Rockford’s Manufacturing?

The WSJ article “The Engine’s of Growth” in Monday’s Special section highlighting Germany caught my eye.  As I read it, I reflected on the Mittelstand and how it compares to the Rockford area. Traveling through Germany in the past also brought back memories.

Germany is recovering from the global recession with an annual rate of 6.1% in the first quarter of 2011 alone.  It’s budget deficit is a small fraction of those in the U.S., Britain and Japan and it’s jobless rate is at a 20 year low. Much of the credit is given to the Mittelstand.

Mittelstand refers to small and medium-sized enterprises in German-speaking countries, especially in Germany, Austria and Switzerland. They are dominant global players in valuable niches – tools, parts and components – that are critical to the manufacturing process.  Mittlestand companies ship products to, on average, 16 different countries; Rockford area companies export 22% of our value added production as shown in my previous post.

More importantly, they are companies with fewer than 500 employees or revenues less than $60 million and make up 78.5% of the German workforce.  80% of their companies employ 0 – 9 employees; only 0.3% of companies employ 500 or more employees.When I looked into the Rockford area’s manufacturing make-up a few years ago, I found that 80% of the manufacturing companies employed less than 100 employees.  Many of our local companies are also niche players in markets such as components, tools, and various manufacturing process such as machining, welding and surface treatments.  During the past 10 – 20 years with the exodus of large companies from the region, we’ve become more like a Mittelstand!

Mittelstand is the backbone of the German economy says the chief economist of the German chamber of commerce.   Locally, our manufacturing workforcestill accounts for 21% of the workforce; I’d say that’s a backbone hereas well.

Most Mittelstand companies are family owned and thoroughly rooted in old economy products such as machine tools, but many operate in a mode not unlike high-tech start-ups. Innovation, doing it smarter and faster than competitors is similar to our regions’ emphasis on the same principals.  just follow the programs and courses offered by several local organizations.

Personal relationships within and between Mittelstand companies kept them anchored in their region.  Instead of closures and layoffs, they employed cost cutting measures that allowed them to retain their highly skilled workforce.  I know many companies locally who went through the same process during our great slowdown.

We share another characteristic: a growing shortage of engineers and technicians making it harder to pass on the family business to your heirs.

If we’re looking for a economic model centered around manufacturing, the German Mittelstand is worth watching.