A Model For U.S. Business In Germany

If you drew up a list of the ailments handicapping U.S. business as it tries to compete abroad, the American preoccupation with the short run would be high on the list. Wall Street's absorption with short-term profits, a comparatively niggardly emphasis on research and development, and managementUs zeal for cutting costs by paring payrolls are all-too-familiar examples of how the pressure for quarter-by-quarter improvement in profits can hurt, not help, U.S. companies.

Try to imagine a company that operates in the following way: It need not worry about quarterly profits since it only reports earnings once a year, and it's probably privately owned, anyway. This enterprise hires employees while they are still in high school and spends $18,000 a year for as many as four years to train them as apprentices. Its R&D outlays are growing by over 20% a year. The export market accounts for over 50% of the sales of this company's technology-intensive products. Hard to imagine? Not really.

In fact, companies such as this exist--in Germany, where they are collectively known as the Mittelstand, or mid-ranking. These companies, all of which employ fewer than 500 workers, produce two-thirds of Germany's gross national product and account for 30% of its exports. And that's not small Kartoffeln: Last year, the Germans sold $421 billion worth of exports--comfortably ahead of the U.S.'s $394 billion and Japan's $286 billion.

The striking success of these German companies has attracted attention from a growing number of U.S. executives who believe the Mittelstand could serve as a model for U.S. exporters. And so they could, if American managers can raise their eyes high enough to take the long view. It is important that these companies are small, fast on their feet, and unbureaucratic, but even more important, that they are farsighted.

Before it's here, it's on the Bloomberg Terminal.