Meet the Mittelstand

While pontificating about how the UK can best imitate German industry models has started to receive groans from even the most committed of Deutschland enthusiasts, it remains a fascinating area of discussion. The general feeling in Britain when looking towards Germany’s middle market is one of admiration; how has Germany got it so right?

Meet the Mittelstand, an event ran to explain this and engage with UK manufacturing, took place in the confines of JCB’s headquarters in Rocester, Staffordshire. The impressive surroundings served as a glowing reminder of the world class capabilities of British manufacturing. JCB, once a mid-sized company itself, has long grown into something a lot bigger.

But the JCB’s of British manufacturing are seemingly the exception, rather than the rule. While nearly half of Germany’s GDP is accounted for by the Mittelstand, the British middle-market has largely gone unnoticed. And now is the time to explore its vast potential.

The trade minister’s vision for the mid-market

Compered by BBC reporter Nick Higham, proceedings began with an address from the new minister for trade, Lord Livingston. The Scotsman, previously chief executive of BT, takes the UKTI reigns from Lord Green, who relinquished the role last month after three years. His focus? The strength of the Anglo-German trade partnership.

This is an area Livingston believes has been overlooked by successive governments more focused on attracting investment from larger companies while aiding SME growth. “It is true that we do have a Mittelstand in the UK, but it’s just not as successful as it could be,” he told delegates, adding the middle market should now be at the forefront of government policy.

While praising the UK’s start up culture, Livingston cited education as a key area in getting what he called “the right conditions,” and issues such as whether we have the right management skills. Livingston revealed the department for Business, Industry and Skills (BIS) plans to contact every British middle-sized business by May.

With the middle market possessing the potential to grow £20-50bn over the next decade, it’s a good time to become acquainted with one another. Other issues afoot lie in exporting, a hot topic of discussion throughout the day. 60% of mid-sized businesses export less than 10% of their turnover, with a goal set of doubling exports to £1trn by 2020. While there is 27,800 companies providing a third of the UK’s GDP, the work to take this further provides an illustration of the work ahead for Livingston and his team.

How does the Mittelstand work?

While the prospective strengths of the UK mid-market and the German Mittelstand was presented, how exactly does the model work? Joachim Secker, CEO of GE Capital Germany, was next up to explain just how. Having grown by 6% since 2010, 4/5 apprentices are carried out through medium sized companies.

After contrasting the UK and Germany’s differing ends of the youth employment scale, Secker was quick to add that he was not here to criticise UK business, but rather share in ideas he believes could be successfully implemented on these shores. Secker laid out the facts and the differing categorisations of what makes a Mittelstand business. Typically, it is anything with 50-249 employees and a turnover exceeding €50m. It is also a common practice for Mittelstands to re-invest 5% of turnover into R&D. But how have they been allowed to be successful underpinners of the German economy?

The answer, according to Secker, lies in cultural attitudes and blue collared jobs. “Social acceptance of these types of profession is one advantage Germany has,” he explained. There is also a culture of de-centralisation, with 4-5 ‘strong’ cities rather than one outstanding one, extending to its regionalised, three-tier banking system.

The skills comparison

But like the UK, Germany is not short of its own issues. While it is assumed apprenticeships are plentiful, finding trainees with the right skillset can be challenging. Currently there are 70,000 engineering positions in Germany that cannot be filled. This was discovered by a pre-lunch panel discussing the topic of engineering and skills. On the panel was a 21-year-old female apprentice at German medium sized automotive Daimler, who chose to become an apprentice rather than take a university degree. “It’s important to have some experience, and it’s not enough to just know something, but rather learn it from a practical standpoint.”

Despite having only been to England once, she spoken fluent English. Panelist Bob Bischof, vice president of the German British Chamber of Industry & Commerce, said the lack of language flexibility in the UK hampers “Everyone can come to this country and take the jobs due to language mobility, but our youngsters generally don’t speak as many languages, and that restricts their ability to go out to somewhere like Germany and learn.” Rather pessimistically, one panel member added: “In the UK, CEO’s are accountants, whereas in Germany, they are engineers.”

Living proof

The highlight of the afternoon addresses were from Alan Foster, operations director at McLaren Automotive, and Bernard Molloy, who occupies the same role at family-owned Unipart. Foster, based at McLaren’s HQ in Woking, spoke of the trade opportunities for a mid-sized company like the one for which he works. Like JCB, McLaren are a mid-sized success story. Employing over 1,000 and with 85% of its products manufactured in the UK, it has found success in regions such as North America, accounting for 50% of exported cars.

Unipart, described by Prime Minister David Cameron as “the John Lewis of British industry,” operates on core principles of process efficiency, continuous improvement and elimination of waste. Molloy, who ran two German Mittelstands previously, cited a successful British link up between his company and Jaguar Land Rover, where the former took “hundreds of thousands” out of the automotive’s supply chain, while increasing inventory by 50%.

Both men extolled the virtues of Britain’s sense of innovation pioneering outlook. While there is clearly much to be addressed in the realms of export, skills and government policy to really exploit the mid-market’s potential, companies such as Unipart and McLaren are living testament that British owned companies manufacturing in this country can work as efficiently as German ones.

Does the UK actually need a Mittelstand?

Closing out the day was an animated panel discussion featuring two heavyweights of British industry: JCB chairman Lord Anthony Bamford and Lord Digby Jones, former head of the CBI. At the centre of discussions was did Britain need a Mittelstand, and if so, how could it go about manufacturing one? Wider issues affecting UK manufacturing, including the possibility of a manufacturing minister and the British habit of putting its engineering capabilities down were discussed.

The industrial strategy and the potential appointment of a minister for the sector was roundly dismissed by all five panel members, echoing recent dissenting that such a move would be a largely token gesture. Lord Jones stated his fear that it would politicise industry, something he feels “needs cross party consensus, long term planning.”

While the day conjured up many differences, it also highlighted the great opportunities prevalent. Not just in the exchanging of ideas, but for British industry to work closer with Germany and embrace its middle market. With a potential economic upturn in the UK continuing to gather apace and emerging as a business priority of government, 2014 could tbe year the spotlight is placed on the quiet yet robust middle man.