Global Turbulence Caught in the Middle

Many small and mid-sized German companies, the so-called "Mittelstand," have profited handsomely from globalization over the past years, but some now face tougher times.
Physicist and CEO Hans Beckoff wants evolution and revolution.

Hans Beckhoff is a fan of straight talk. "I want one to two evolutionary new developments a year, and I want a revolution in my company every five years," he said.

Beckhoff Automation, which specializes in automation and control technology, broke the €500 million ($569 million) mark for the first time in 2014. Its rapid rise earned the company a spot among Germany’s 10 fastest-growing small and medium-sized companies, according to the latest ranking by the business magazine WirtschaftsWoche.

After Finland, Denmark and Japan, Germany has benefited the most from globalization, according to the Prognos economic research institute. Global trade has brought €2 trillion in revenue into its economy.

But Mr. Beckhoff, a physicist by training, is preoccupied with the question of how he can continue the family-owned company's string of successes.

Many other similar-sized German companies, however, are starting to report declining growth and even stagnation. It appears the wonder years are slowly coming to an end.

The growing number of political hot spots, like Russia, Ukraine, North Africa and the Arab countries, are spoiling business plans. Global competition is heating up, too, as more and more countries are catching up with Germany in terms of expertise.

German companies have to change their organizational structures. They are still too focused on a head office that controls everything. Bernd Venohr, management consultant

Big Dutchman, a German manufacturer of pork and poultry production equipment is one such example. The company had benefitted from regulations to improve animal welfare. Then came the Russian crisis, and its sales declined by 30 percent.

“Because European markets are saturated and our high Russian sales are now history, we are turning to Malaysia and China, and investing heavily in the United States," said company head Bernd Meerpohl.

Many German companies are still feeling the effects of the 2008 financial crisis and have only recently returned to 2008 investment levels. Few are planning to boost investments, according to the report, "Mittelstand 2015 Diagnosis," published by the association of German savings banks, the Sparkassengruppe. Only 16 percent of the businesses interviewed plan to invest more this year than in 2014.

And many of them plan to invest outside Germany, such as auto parts supplier Hirschvogel, which tops the WirtschaftsWoche ranking. Chief Financial Officer Alfons Häscher named Poland, China, India and the United States, as "attractive growth markets," adding that production will shift increasingly to where customers are located.

For many companies, however, expanding abroad means restructuring at home first. "German companies have to change their organizational structures," said management consultant Bernd Venohr. "They are still too focused on a head office that controls everything."

Quelle: Pressebild
Dieter Manz was quick to react when the sun set on his solar division.
(Source: Pressebild)

 

Many of these companies could use some government support if they are to remain globally competitive, according to Thorsten Lang, an economist with the Cologne Institute for Economic Research. "German lawmakers are not doing enough to promote growth,” he said. “Other countries are far less bureaucratic in promoting research and impose lower tax burdens on companies' research activities."

Nor are policymakers in Berlin showing a enough support for open global trade, according to Lang. "The German government was been far too quick to give in to resistance to the Transatlantic Trade and Investment Partnership," he said. "Germany and Europe can't afford to isolate themselves.”

Some mid-sized companies are no longer listed in the WirtschaftsWoche Top 100 for a variety of reasons: some are ailing, while others have exceeded the sales threshold of €1 billion, or been acquired.

Munich-based 3-D specialist Realtime Technology is a prime example. In 10th place in 2013, with sales of about €81 million, the company dropped off the list after being acquired in December by French defense and software giant Dassault Systèmes for €151 million.

Some firms, like machine builder Manz, have been forced to explore entirely new lines of business. CEO Dieter Manz practically reinvented his company after the solar-cells market crumbled. Once a core business, solar panels now account for only 4 percent of the company's total sales of €266 million.

Today, Manz generates more than €170 in revenues from displays for smartphones, notebook and tablet computers. It also produces equipment for laser process technology, vacuum coating, measurement engineering and screen printing. Even the company’s third largest business – machines for battery production with a 5-percent revenue share – contributes more to its bottom line than the solar division. Business is up and the company has returned again to the TecDax.

Quelle: Bloomberg
Peter Lürssen has stayed afloat by being well-prepared.

 

Being able to react to, or better, to preempt market upheavals is what makes many of these German companies successful.

Peter Lürssen’s ship building company has often been battered by the winds of change. The 140-year-old shipyard in Bremen has built the world's longest yacht. At 180 meters, or 590 feet, it is a boat for the super wealthy only.

Yet Mr. Lürssen’s biggest challenge is being prepared to weather downturns, like the bankruptcy of U.S. investment bank Lehman Brothers and the ensuing economic crisis. "That led to significant declines in the yacht business," Mr. Lürssen said. "But we have always managed to recognize difficult times early enough, so that we were able to find creative solutions, together with our employees."

He stopped building freighters in the 1970s, when ship owners were increasingly awarding contracts to cheaper Asian shipyards. To avoid dependence on military contracts, which at one point accounted for up to 90 percent of sales, he started building large luxury yachts. It would prove to be a farsighted decision as military contracts declined with the fall of the Iron Curtain.

"As a rule, the procurement programs for naval vessels and coast guard ships are much more long-term," Mr. Lürssen said. "Depending on our emphasis at a given time, we can shift employees back and forth between naval vessels and yachts."

The Lürssen Group currently employs about 1,400 people and since 2010 has achieved average annual sales of €600 to €700 million.

Accepting that change is inevitable, responding to it is a daily reality for these mid-sized companies. Sometimes, that means diversifying, and sometimes battening down the hatches for a time.

 

Christoph Beumer was inducted into Handelsblatt's Family Business Hall of Fame 2014.

 

Christoph Beumer of the Beumer Group has established a production facility in China to meet growing demand for its conveyor belts, and acquired competitors in Denmark, India and the United States.

The company currently has 4,000 employees and annual sales of €750 million, which are growing.

Every day, hundreds of thousands of suitcases pass through Beumer baggage-handling systems at airports in Germany, Denmark and Singapore. Thousands of packages are carried on Beumer conveyor belts in Deutsche Post package handling centers, and tons of construction materials moved in plants

One of Mr. Beumer’s biggest goals is to equip airports in the United States. But he is a realist and admits the period of aggressive internationalization is coming to an end. "We won't see as much growth as we did in recent years for some time to come," he said. The company's shopping spree is over for now, but, he added, "We are in good shape financially."

Aside from airports in the United States, Mr. Beumer has no plans to enter any new markets. It's time, he said, to take a break and strengthen the company from within.

It may be time for more of Germany’s mid-sized companies to regroup and reorganize themselves, so they can keep taking on the global markets.

 

This is an abridged version of an article that first appeared in WirtschaftsWoche. Mario Bruck, Jacqueline Goebel, Franz Hubik and Hermann Olbermann also contributed to this article. To contact the author: [email protected]