Women Lead The Pack In East German Startups

As in the U.S., profit is not the No.1 motive

When the Berlin Wall fell, Cornelia Pfaff exploited her newfound freedom by opening a boutique in the east German city of Erfurt. Women jammed in to snatch up the latest in west German fashions. Six years later, the 38-year-old Pfaff runs a chain of five stores with 21 employees and plans to expand to nearby cities. "It was supposed to just be for fun," she says. "But I did it with so much love, it has become a success."

At a time when U.S. women are forming businesses at an unprecedented pace, the same trend is apparent in a place with an altogether different history--the former communist satellite of East Germany. Companies started by women are becoming important players in its burgeoning service sector. With unemployment among women around 20% in eastern Germany, female entrepreneurship is surging. More than half of self-employed professionals such as doctors, architects, and lawyers are female. Nearly a third of all businesses launched in eastern Germany since 1990 were founded by women, compared with 21% in western Germany. Altogether, economists estimate, the 150,000 new female-run companies in eastern Germany have created about 1 million jobs. Some are key additions to the Mittelstand--the small and medium-size manufacturing companies that make up Germany's economic backbone.

Necessity forced many east German women into business. As the region's old-line industries stumbled and folded after reunification, women were hit especially hard. Layoffs in textiles and electronics factories and in agriculture forced more than 750,000 women out of work. Compared with western Germany, where 38% of women work, 94% of eastern Germany's adult women had worked before reunification. While many held menial jobs, others built up careers as administrators, economists, and physicians.

Take Kate Lindner. Under the old regime, she was economic director for a collective of 21 state-owned packaging companies in the southern part of eastern Germany. "Women were equipped with management skills," says the 59-year-old grandmother. Just months after the wall fell, she purchased from the still-extant East German government what remained of the Mittelstand boxmaking company her grandfather had started in the village of Muhlau in 1909. After buying new machinery and replacing the run-down former dance hall that served as a production facility, Lindner now employs 72 people and produces glossy packaging for such clients as CompuServe Inc. and Reader's Digest. Sales have quadrupled since 1991, to $3.5 million.

SELF-SUFFICIENT. Not all female-run companies are so bent on expansion. Researchers who study new-business growth in Germany say that companies run by women develop more slowly than those managed by men. One reason is that the profit motive isn't as pronounced among women entrepreneurs in eastern Germany, a phenomenon also noted in studies of female-owned businesses in the U.S. According to German government surveys, women cite earning profits as a fourth or fifth reason for setting up their own companies, after their desire to be self-sufficient and develop their own ideas. Male entrepreneurs cite profits as the No.1 motive.

Gunhild Haase, for example, is content to see her kitchen design and installation company grow at a modest 2% annual rate. "I don't want to immediately make a huge profit," says the former optical engineer, who set up her business in 1992. She makes sales calls in her eight-year-old Mercedes and employs just five people, two more than when she started. "I'm happy with my business. It's exactly as I imagined it," she says.

To be sure, such a laid-back approach means that the female-owned Mittelstand and service sector of eastern Germany will hardly be able to absorb the region's 1.3 million surplus workers. In addition to small service companies, the region needs more manufacturing jobs to bolster employment, economists say. Nevertheless, the explosion in female-owned businesses has provided an important cushion against devastating joblessness--and has emerged as a surprising consequence of communism's collapse.

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