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German Mittelstand Gives Chilean Miners, Economy Escape Route

The 33 Chilean workers trapped since Aug. 5 in a copper mine deep below the earth’s surface are relying on a German company more than 7,000 miles away to help get them out.

Micon, a family-owned firm with about 60 employees in the northern town of Nienhagen, designs and builds the precision tool that is aiding the rescue effort. The equipment, made to keep deep-drilling machines vertical, is among the Micon products used in mines from Chile to Mongolia.

“We’re engineers at heart,” said Rainer Juergens, 69, who founded the company 16 years ago and owns it with his son. Micon exports more than 90 percent of its goods. “By focusing on technology, we’ve turned a small and highly specialized company into a world leader in our niche.”

Micon belongs to Germany’s Mittelstand -- more than 3 million small- and medium-sized enterprises that form the backbone of Europe’s largest economy. With 82 million people and a gross domestic product of 2.4 trillion euros ($3.3 trillion), sprawling from the Rhine River to the Oder, Germany is the hinge between the European Union’s east and west.

More than 40 percent of German exports are destined for the 16-nation euro zone and 63 percent for the 27-nation EU -- a 12 trillion-euro market with 500 million consumers. While global leaders such as luxury carmaker Bayerische Motorenwerke AG and engineering company Siemens AG may appear to be the locomotive, it’s the Mittelstand -- companies with fewer than 500 employees and annual sales of less than 50 million euros -- that employs more than 70 percent of the country’s workers and contributes about half of its GDP.

Consensual Approach

“Mittelstand is a philosophy rather than an order of magnitude,” said Ralph Wiechers, chief economist at VDMA machine makers’ association, which represents 3,000 mainly medium-sized companies. In September, the group doubled its growth forecast for the year, predicting that German plant and machinery output will increase 6 percent in 2010. “The Mittelstand is the defining element of our economy,” he said.

A blend of high technology, long-term thinking and products built to last bolstered the resilience of German manufacturing through the recession, helping companies emerge less scathed than in other western industrial nations, said Hans Jaeckel, an economist at DZ Bank in Frankfurt, the central institution for cooperative banks.

“The continuity of Germany’s Mittelstand is a pillar of society that’s helped to avoid a surge of unemployment during the latest crisis,” Jaeckel said. “The labor market has been lucky because of the Mittelstand’s long-term focus.”

Mittelstand companies will have created as many as 100,000 jobs by the end of 2010, the German Chamber of Industry and Commerce said on Aug. 6.

Unemployment Rate

As the global recession pushed unemployment in the U.S. to a 27-year high of 10.1 percent last October, the rate in Germany fell to an 18-year low of 7.5 percent last month, according to the Federal Labor Agency.

Government policy helped Mittelstand companies retain employees through the 2009 recession. Rather than fire workers, companies reduced working hours, saving almost 500,000 jobs. Under a government-subsidized short-work plan, or Kurzarbeit, firms were able to temporarily move employees to shorter working weeks. They pay only for the hours worked and the government provides up to two-thirds of the remaining wage.

Mittelstand companies also took advantage of a system that allows them to reduce employees’ working weeks during down periods. The hours saved accrue and can be worked up during booms without adjusting wages.

Apprentice System

Germany’s apprentice system, which doesn’t have an equivalent in the U.S., ensures that Mittelstand companies have a steady flow of qualified workers. They take on 83 percent of all apprentices in Germany, more than their share of total employment. The system has roots in the Middle Ages, when master craftsmen across Europe taught young people the skills of stonemasonry, carpentry a roof-making.

Tital GmbH, a company of 420 employees that makes precision-cast products for the airline and race-car industries in North Rhine-Westphalia’s Sauerland region, trains 16 apprentices. Two will be offered a scholarship to study engineering at a nearby university in exchange for returning to the company after graduation, said General Manager Philipp Schack, who, along with five colleagues, owns 80 percent of the company.

“People who live here usually stay, but convincing somebody to move to the countryside after finishing a university degree is difficult,” he said. “We’re located in the middle of nowhere. We have to raise our own young talent.”

Comparisons With U.S.

Statistically, the corporate landscape in the U.S. doesn’t differ much from Germany. Small- and medium-sized enterprises employ slightly over half of the U.S. workforce and contribute roughly 50 percent to GDP, according to statistics from the U.S. International Trade Commission, similar to the German figures.

“Germany is a tinkering country, where you found a company once you’ve made an invention,” said Volker Wittberg, professor at a university of applied sciences in Bielefeld, which trains future Mittelstand employees. “Mittelstand is about products, not so much about the people.”

The Mittelstand rebounded after World War II, when the country’s destruction required Germans to start over, and small businesses began to flourish again.

Lunor AG, a six-person manufacturer of high-end eyeglasses, generates half its business abroad. South Korea is its fastest- growing market, and customers include Steve Jobs, Tom Cruise and Madonna.

Lessons Learned

A challenge for the Mittelstand is its concentration in four sectors with less profitable products: machine tools, auto parts, chemicals, and electrical equipment.

Mittelstand backers, though, insist they have a winning formula. Micon, the company whose equipment is being used to rescue the Chilean miners, is looking to expand.

“If we can just keep developing our equipment and make it even more reliable than it already is, then I think we have a good chance to keep growing over the next 10 years,” Juergens said.

To contact the reporters on this story: Jana Randow in Basel at jrandow@bloomberg.net; Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

To contact the editors responsible for this story: John Fraher at jfraher@bloomberg.net; Angela Cullen at acullen8@bloomberg.net

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