Thursday, February 5, 2015

America’s Mittelstand

“Mittelstand” is a German word used to designate small and medium sized manufacturers who employ 70% of Germany’s workforce1.  These firms are “achieving unprecedented efficiencies by designing a business model with a razor-thin focus and learning to do the one thing really well....To compensate for their razor-thin focus ... they diversify internationally and enjoy great economies of scale...these characteristics make these companies perfect examples of focused business models, which seem to thrive even in harshest economic conditions2."
  

When you read about the characteristics of these German companies it sounds like you are reading about southeast Wisconsin.  The German companies are concentrated in the mechanical equipment, automotive, electrical equipment, chemical and precision manufacturing sectors.  They often cluster themselves around big manufacturers.  They have two primary strategic focal points.  First, they focus on innovation to create competitive advantage and emphasize long-term profitability versus the short-term results.   Where they differ from us is their second equally important strategy - exports!  These German companies have exporting and innovation as their key strategic objectives. 

These two objectives are the key objectives of the Milwaukee 7's Global Cities Export Initiative.

We know from research that companies that sell into multiple countries tend to become much more innovative as a result of this international exposure, thus for German Mittelstand companies, their international transactions play double strategic duty meeting their two strategic goals to innovate and to expand exports.

Are the seven counties of south eastern Wisconsin home to America’s Mittelstand?  The region, called “Milwaukee 7”, is home to thousands of small and medium sized manufacturers.  The region was settled by German immigrants and much of that European influence can still be found in the manufacturing sector.  Many of the region’s small and medium sized firms cluster around larger companies to whom they provide components and parts.   Manufacturing accounts for 82% of exports in the region3.  However, few Wisconsin SME manufacturer make exports a key strategic initiative and almost none approach the levels of exports that the Germans achieve.


For the region to become the American Mittelstand, our companies need to make exporting a key component of their growth strategy.  This is a marvelous opportunity for the region.  Exports have been the primary source of economic growth in each of the seven counties around Milwaukee for the past ten years.  Currently, we do not do nearly enough exporting.  The good new about exporting is that it will also  address our apparent shortfall in innovation and competitiveness in the region as a whole.

1Kajeepeta, Sreedhar. "Finding Hidden Gems in the German Mittelstand By Sreedhar Kajeepeta - Oct 2011." Finding Hidden Gems in the German Mittelstand By Sreedhar Kajeepeta - Oct 2011. CIOInsight.com, n.d. Web. 28 Jan. 2015. <http://archive.today/P1r6W>.

Girotra, Karan, and Serguei Netessine. "Extreme Focus and the Success of Germany's Mittelstand." Harvard Business Review. N.p., 12 Feb. 2013. Web. 28 Jan. 2015. <https://hbr.org/2013/02/good-old-focused-strategy>.

3   "Export Nation 2013." The Brookings Institution. N.p., n.d. Web. 28 Jan. 2015. <http://www.brookings.edu/research/interactives/export-nation>.



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