How German Mittelstand Companies Approach Growth

Growing a business is a complex process, but German Mittelstand companies have developed a unique approach that emphasizes quality, control, and sustainability. Unlike some American firms that may prioritize rapid expansion, these smaller, privately-owned enterprises often choose a more deliberate and controlled path.

Quality Over Speed

Raul Castro, a well-known business consultant, emphasizes that German Mittelstand firms do not pursue rapid growth, especially if that growth comes at the cost of quality or control. This philosophy is deeply ingrained in the German business culture, where sustainability and long-term success are more valued than short-term gains.

Consider the case of Playmobil, a renowned toy company. While Playmobil was trying to enter Target's supply chain, they refused to compromise on their strict quality standards. This decision, although it may have slowed their entry into new markets, ensured that their product remained a preferred choice for consumers.

Global Competition and Strategic Expansion

While many Mittelstand firms prioritize quality and long-term growth, some have chosen to engage in global head-to-head competition. For example, Adidas, originally a small-town shoe manufacturer in Herzogenaurach, recognized the need to compete against giants like Nike by targeting new markets and securing high-profile contracts. As one marketer explained, 'We need to be the first ones into growth markets.' This strategic approach has allowed Adidas to maintain its competitive edge in a crowded market.

Organic Growth and Family Control

Many German Mittelstand companies are family-owned, a fact that significantly influences their growth strategies. These companies span multiple generations and are often deeply rooted in their communities. Unlike publicly traded companies, family-owned businesses are more cautious about debt and external investment.

A notable example is the porcelain manufacturer Villeroy and Boch. After decades of growth, they began to pursue double-digit growth figures in new markets, but always with a focus on organic expansion and self-funding. This strategy allows them to control growth, minimizing financial risks while maintaining sustainable development. As one executive at Villeroy and Boch mentioned, 'Growth is managed with our own funds, and we honor our debts, but we never give control to outsiders.'

German companies are very conservative regarding debt. Credit cards, for instance, are not as prevalent as in other markets, and debt is primarily reserved for purchasing or building one's own home. This mindset is mirrored in their business operations, where they avoid taking on debt to fund rapid growth. They prefer controlling their own destiny, maintaining a high level of internal control, and protecting their family legacy.

In conclusion, while there are opportunities for rapid growth in the global market, German Mittelstand companies have developed a unique approach to growth that emphasizes quality, sustainability, and family control. By prioritizing these values, they ensure long-term success and maintain the integrity of their brands and businesses.

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Conclusion

For German Mittelstand companies, growth is not an end in itself but rather a means to achieve long-term success and maintain control over their businesses. By prioritizing quality, sustainability, and family control, these firms ensure that their growth is not only successful but also in line with their core values and mission.