Why Germany Still Has So Many Middle-Class Manufacturing Jobs

May 04, 2017

Manufacturing - Simon-Kucher

Only about 1.1% of the world population is German. However, 48% of the mid-sized world market leaders come from Germany. These firms, which I call “Hidden Champions,” are part of what makes German economic growth more inclusive: by my calculations, they have created 1.5 million new jobs; have grown by 10% per year on average; and register five times as many patents per employee as large corporations. And they are resilient: my estimate is that in the last 25 years no more than 10% of them disappeared or were taken over, a distinctly lower percentage than for large corporations. Nearly all of them survived the great recession of 2008-2009.

Moreover, Hidden Champions have also contributed to the sustainment of the German manufacturing base, and it is in large part thanks to them that nearly a quarter of the German gross domestic product continues to come from manufacturing. The percentage in most other highly industrialized countries such as the U.S., the UK, or France is only about half of this. The effect on employment is enormous. Manufacturing creates jobs at home and at the time same allows companies, through exports, to participate in the growth of emerging countries.

Given this success, it’s not surprising that many non-German policymakers and economists have looked to the Hidden Champions, or more broadly, the Mittelstand, to try and chart a path to more inclusive growth in their own countries. But how replicable is their success? While other countries could try to emulate aspects of what makes the Hidden Champions so successful, the reasons for their success are the result of a complex network of factors, many of them historical.

A Hidden Champion is defined by three criteria: 1) a company has to be among the top three in the world in its industry, and first on its continent; 2) its revenue must be below €5 billion; and 3) it should be little known to the general public. Germany seems exceptionally good at creating these companies; I have identified 2,734 Hidden Champions worldwide and no less than 1,307 of them are based in Germany. You might argue that my research is deeper in Germany than in other countries, and most likely I wouldn’t be able to prove you wrong. But researchers in other countries have also examined this phenomenon and found far fewer Hidden Champions in their countries. A colleague who looked for Hidden Champions in Japan for years identified only 220 companies, a researcher in France has come up with only 100. With the exception of Switzerland and Austria, the per capita number of Hidden Champions is nowhere near as high as it is in Germany. 

 

This article was published in HBR. Continue reading the full article here

 

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Hidden champions - Simon-Kucher

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