Modest Investment

Standing Still Means Moving Backwards

Joerg ZEUNER Chefvolkswirt der KfW
KfW Development Bank's Jörg Zeuner believes Germany's mid-sized companies can't get complacent.
  • Why it matters

    Why it matters

    While Germany’s mid-sized firms are currently in good health, they are not investing enough in future-proofing themselves to stay competive on the global stage.

  • Facts

    Facts

    • The Mittelstand are Germany’s small- and medium-sized businesses – companies with 50 to 500 employees and up to €50m annual turnover.
    • Germany’s government-owned development bank, KfW, surveyed 2,200 mid-sized businesses in 10 major industrial and emerging countries.
    • Only mid-sized firms in the U.S. are more optimistic than German firms about competing in international markets.
  • Audio

    Audio

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Things look rosy for Germany these days. It has the only growing major economy in the euro zone, employment is increasing and ‘”Made in Germany” is considered a mark of quality all over the world. The state and companies are generating solid profits and have a golden opportunity to prepare for the future.

A new survey of 2,200 mid-sized businesses in 10 major industrial and emerging countries carried out by Germany’s government-owned development bank KfW says that German companies see themselves as well prepared for global competition. Only those in the United States have a higher estimation of their competitiveness. However wild optimism may best be avoided as, according to KfW’s chief economist Jörg Zeuner, there is no guarantee that international initiatives will be successful and, in fact, these companies’ future competitiveness is endangered.

If investment and innovation activities remain weak, German firms risk being beaten in global competition by emerging countries like Brazil.

Mr. Zeuner told Handelsblatt that only companies that continually invest and develop new products and processes will survive international competition in the long run, noting that standing still is effectively taking a step backwards. He believes that Germany’s mid-sized companies have “a large backlog of catching up to do.”

“Companies that make investments and innovations face increased global competition with considerably more optimism,” Mr. Zeuner said.

The KfW survey found medium-sized German companies invested too little. The percentage of small- and mid-sized companies that have implemented product and process innovations were “accordingly modest,” putting Germany near the bottom of the countries polled.

“In an export-orientated national economy, in which mid-level companies play a crucial role, the low potential should be a warning signal,” said the KfW.

If investment and innovation activities remain weak, German firms risk being beaten in global competition by emerging countries like Brazil or innovative competitors from industrial nations like the United States.

In the current ranking, the United States and Germany are followed by Great Britain and France in third and fourth place while Japan is number five. The emerging countries of Brazil, Russia, and China rank in the bottom half of the list, which crisis-burdened nations like Spain and Italy coming in last.

KfW Competitiveness Indicator-correct

Axel Schrinner is an editor at Handelsblatt, specializing in tax and fiscal policy.  To contact the author: schrinner@handelsblatt.com

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