Mittelstand: A Lesson from Germany

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A recent post on the Economist blog suggests that despite high labor costs and a strong euro, Germany is the world's largest goods exporter after China. This engine is being driven by durable, focused businesses defined as Mittelstand.

Business Week tells us these are "family-owned companies with fewer than 500 employees and annual sales of less than 50 million euros"-- and, get this -- they employ over 70 percent of German workers and contribute nearly half of the country's GDP. And in the field of clean technology - in which Germany is a leader - more than 75 percent of German cleantech companies fall under this category.

The Germans themselves have been studying these Hidden Champions for years. Academicians Bernd Venohr and Klaus Meyer point out that while the same approach has been observed in a handful of other firms around the world, including the US, it is most pronounced in Germany.

How do they do it? Again, the Economist:

Mittelstandler have not only focused on sophisticated niches that are hard to enter. They have thrown their energies into building up ever more powerful defences. They constantly innovate to stay ahead of potential rivals. They are relentless about customer service. Their salespeople are passionate about their products, however prosaic, and dogged in their determination to open up new markets ... [They] typically have subsidiaries in 24 foreign countries, offering service and advice. Many get the bulk of their revenues from service rather than products. Hako, which makes cleaning equipment, generates only 20% of its revenue from sales of its machines.

In short, many of these companies are focused, service driven, customer intimacy businesses.

My belief is that future growth for the U.S. lies in pursuing true customer intimacy led by services or solutions. Yes, I do agree that we do need to build back a level of manufacturing here at home, but it is customer intimacy which will drive performance.

If you look at the remarkable successes of IBM Global Services or GE Health Care, you'll see they follow a customer intimacy model for service.  I'd like to see our mid-sized companies follow this proven path to growth and profitability. It's a sustainable edge.

MORE INFO >> Download: Customer Intimacy as a Business Model by Dean McMann

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This page contains a single entry by Dean McMann published on January 25, 2011 7:41 PM.

Ingersoll Rand's Larry Wash on High-End Services was the previous entry in this blog.

The Software Industry: The Value of Customer Intimacy is the next entry in this blog.

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