SUCCESS SECRETS SHARED: LEARNING FROM THE BEST MITTELSTAND AND BRITISH GLOBAL NICHE CHAMPIONS
By Alessa Witt, PhD student & Chris Carr, Professor of Corporate Strategy, both at Edinburgh University Business School
Globalisation opens up new and exciting opportunities for businesses, but for many it can be more of a death sentence. Larger multinationals may sometimes thrive, but many smaller players become victims of increasing global consolidation. One winning strategy, particularly appropriate for smaller businesses is to pursue a global niche strategy.
Germany of course benefits from its well-known large companies such as BMW and Siemens. Less fully appreciated is the unique contribution of its mid-sized businesses. It is these companies that have pioneered global niche strategies and it is this which has been the real key to Germany’s competitive success. Germany inherits several unknown global niche companies such as Wanzl, W.E.T. and 3B Scientific. Primarily found in B-2-B markets they are leading manufacturers in niches such as shopping trolleys (Wanzl), automotive heating systems (W.E.T.), and medical teaching aids (3B Scientific). These companies may be considered to be the backbone of the German economy due to their outstanding international performances. These global niche companies are mostly part of the German “Mittelstand”. The Mittelstand approach has received enormous attention internationally and has become an ambition of many neighbouring countries. George Osborne recognises the importance and suggests, “we should all learn the lessons of the successful Mittelstand Model.” But what exactly is the German Mittelstand model?
The term loosely translates to mid-cap companies but it causes a lot of confusion in a strategic context. Even larger businesses such as Bosch would consider themselves part of the Mittelstand. The notion of the Mittelstand proves difficult to interpret, as it is as much to do with a mentality reflecting deep-rooted German traditions, rather than just a question of size. What they share is their philosophy of longevity, family ownership, and innovativeness. So what can Great Britain really learn from Germany here?
Our research at the University of Edinburgh Business School focuses on an elite group of Mittelstand companies, which are global niche champions. These companies operate in small quirky niches securing at least one of the top three global positions in their defined market. Whilst the world is their market, they remain just below the radar of large multinationals. They achieve this by selling typically unsexy but highly specialised products. Global niche champions are often lone wolves in their segments due to their unique and thus indispensable expertise. We find evidence of global niche champions selling products in 120 markets, often achieving monopolistic positions even achieving global market shares as high as 95%.
These types of companies are primarily found in Germany but our research also identifies several global niche champions in Great Britain and indeed Scotland. Kilfrost for example, is the globally leading manufacturer of de-icing fluids exporting to airports around the world. Global niche champions can be found in various industries including several British service companies. Roughly 60 companies can be found in Great Britain, though Germany benefits from some twenty times more of these unique global niche champions. So why is Germany doing better than Great Britain here and what exactly are they doing differently?
..These companies operate in small quirky niches securing at least one of the top three global positions in their defined market.
In both countries we find outstanding champions following a global niche strategy but slightly different strategic approaches are required in each country, reflecting differences in terms of ownership structure. These lead to differences in international market entry choices and outsourcing behaviour.
German companies remain family-owned and privately held, whereas the British counterpart is predominantly publicly traded. Whilst Germans enjoy their financial secrecy, especially for their long-term investments, British companies have to thrive in the face of stock market pressures. Germans prefer organic international growth and choose high-investment entry modes such as green-field sites enabling full control over foreign subsidiaries. The British, on the other hand, primarily venture abroad using acquisitions, which allows them to move considerably faster. Distinct differences are especially found in their value-chains. Whilst German businesses preen themselves with their “Made in Germany” labels, national production facilities and supply chains, we find that more British companies are outsourcing production to low-cost markets.
So why is Germany doing better than Great Britain here and what exactly are they doing differently?
Our German champions inherit exactly those Mittelstand values. Their loyalty towards their home country is reflected in many of their strategies. The social benefits of national production, for example, are reflected in redundancy and increasing apprenticeship. Close ties to local universities foster skilled, and especially young workforce paving a path for increasing employment in future. More importantly, it encourages cluster formation in Germany. The density of businesses found in Germany triggers the emergence of more specialised business but more importantly it attracts foreign direct investment.
British businesses in contrast are generally more willing to move their headquarters overseas. The exception here is many often Scotland-based oil and gas associated businesses. Whilst headquarters might remain within national borders, we find alarming evidence of Scottish and British companies shifting their production to low cost destinations. Absolutely unlike German counterparts, there are successful British champions lacking any home production facilities at all. More needs to be done to foster the home base to secure Britain’s economic future. Ultimately, the longevity of German companies may be an indication of more sustainable success stories. And they contain lessons that all of us can learn from.
Alessa Witt is a PhD student & Chris Carr is Professor of Corporate Strategy, both at Edinburgh University Business School
By Alessa Witt, PhD student & Chris Carr, Professor of Corporate Strategy, both at Edinburgh University Business School
OTHER ARTICLES IN THIS ISSUE
- Editorial
- Children - Putting Policy Into Practice
- Worth more than the First Minister? Senior Salaries in Scottish Quangos
- Success secrets shared: Learning from the best Mittelstand and British global niche champions
- Remembering John Muir
- Internship Can be Good For You
- Planning for Human Rights in Scotland
- Power to the People?
- Evidence exchange: sharing social policy lessons between neighbours
- Helping to build stronger communities across Scotland
- How Can We Engage The Disengaged?
- Pay as you Go?
Issue 8: January 2014
SMART CITIES: SMART SERVICES: SMART WORKING
Smart Cities: Smart Services: Smart Working Editorial
In focusing on 'Smart Cities' let's start with a few teaser questions (answers at the foot of this column)...
- Connecting the Unconnected
- Smarter cities, greener cities cost less to run
- The Future of Mobility - Economic and Transport Opportunity
- Will 2014 be the year that cities become even smarter?
- Geographic Information for Smart Working
- Smart Accelerator: Accelerating action to create smarter cities and regions
- Public Service Reform in an Enabling State: It's about people - not just curly cables
- Data's the way to do it as Glasgow fast forwards to the future
- Time To Start Powering Public Services?
- A 'Smart' Move for Scotland? Edinburgh Napier University's role in the EU Smart Cities Project
- Transport for Edinburgh - Integrated Transport for a Smart City
- "Smart" Opportunities for Scotland's Cities
- Co-ordinating Investment to Deliver 'Smart Places'
- Delivering a sustainable rail future
PREVIOUS ISSUES
Looking for a previous issue? Use the menu below to select an issue.
MOST READ ARTICLES
- Bringing alive the Digital Participation Charter for Scotland's citizens, communities and businesses
- Transport for Edinburgh - Integrated Transport for a Smart City
- Worth more than the First Minister? Senior Salaries in Scottish Quangos
- A Planet of Smart Cities: Scotland's digital challenge
- Dundee: From Waterfront redevelopment to city economy regeneration
- Social Business Can Transform Public Services
- Success secrets shared: Learning from the best Mittelstand and British global niche champions
- Public Services Reform and Public Opinion
- Increasing digital participation levels in Scotland - what needs to happen next?
- The Evolving Public Sector Response to Budget Challenges