Guest Opinion Column
By Thomas Michael Hogg
In Germany, a lot of small and medium sized enterprises, also known as the ‘Mittelstand’, have been doing exports from the beginning. They are in the forefront of quality and innovation, defining their niche, and then selling on an international level. High value, quality products generate a natural global demand.
The most successful of these German “niche management” companies are world market leaders in their sector. There are more than 1500 German companies leading their market niche. This is unique; no other country in the world has so many top market players.
Especially in the current pandemic, these German niche companies have delivered key quality components in the global value chains and stay relevant or even gain market share. They still capture the international demand due to quality and functionality. In crisis situations, companies depend on the core-business demand and the financial reserves and there is where German companies perform.
Another key secret of German companies is their international footprint. Their leaders have a clear plan for replicating and scaling the business. Each strategy growth plan takes into account improving the company’s geographical footprint. Growing your company means that you should have a plan in which your export revenue share increases to above 50% as soon as possible. The US economy has deep issues due to its trade deficits with China and Mexico. One of the key reasons is the low capability and capacity of many small and medium enterprises (SMEs) to export. Oftentimes, these companies don’t have the need for internationalization due to a strong domestic demand, but without a more international focus many businesses may close in the long run.
There are many entrepreneurs and companies who have a superior product or service, but they stay in their comfort zone and fail to grow internationally. Sometimes it is OK to stay or not to grow if you have other personal goals that have nothing to do with economic growth, but if you aspire to economic growth you need to expand.
Opening national or international branches, developing international alliances and partnerships, designing a distribution model, or selling online on global e-commerce platforms are all great ways to expand for economic growth.
So, what are the secrets of these companies that achieve constant, profitable growth year after year?
There are seven key business practices you will find in these winning German enterprises: Focus, Quality, Niche, Innovation, Export, Finance Budget, and Strategy Plan.
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Focus: These firms emphasize achieving profitable growth by defining and executing on key clients, priorities, people, projects, and tasks.
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Quality is an obsession in the German business culture. A “Quality is King” approach is found in almost every German organization. At my time working for adidas at the headquarters it was common to hear: “If the competitors deliver 100% quality, we deliver 150%.”
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Niche: The target market definition of serving a specific segment, or building a loyal “tribe” is detailed in the niche strategy definition.
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Innovation: One huge difference with German SMEs compared to their US counterparts is the importance of R&D. The budget allocation for innovation with the goal of launching functional products and services is very high compared to most other countries in the world.
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Export: The tight focus on an export strategy to penetrate international markets with your products and/or services is another remarkable business practice of German SMEs, compared to companies of equal size in other markets.
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Financial goal-setting and control is very common as well. How to enter the profitable growth zone has be covered in detail. German entrepreneurs often achieve their profit goals because they spend wisely and they save money to build the future.
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Strategy: A well-developed plan, a common German habit, concludes the process of this holistic and financially successful business model.
Surely, you have already made a certain progress in some of these seven steps, but the challenge is to analyze, plan and execute holistically on each task of this seven-step framework. And, at the end of day, it’s people that make the difference, so be sure to have a qualified and motivated workforce and well-defined structure to execute. With a focus on sound profitable growth by all top employees that are responsible for the business’s success, it is possible to sustain and grow your organization over a long-term period of time.
THOMAS MICHAEL HOGG, author of The Profitable Growth Strategy, is a consultant and mentor with more than 20 years of market and work experience in Germany, Mexico, Switzerland and the USA. As the founder and Managing Director of TMH Consulting and Investing Group, Hogg has been an advisor to global companies such as PepsiCo (Germany), adidas (Germany), Campbell’s Soup, Johnson Controls, Bulkmatic, among other multinational companies, SMEs and nonprofit organizations. He also has been a consultant to the State Government of Nuevo Leon Mexico and the University Tec de Monterrey.