The Germans don=t have big
resource mines and record prices for their products. In fact they are still the
traditional manufacturing economy we have always known. The kind that fell apart in the
industrialised US and west Europe during the
GFC.
So how come they are not in financial trouble and in fact are being
looked on as the saviour of Italy
and maybe even France ?
Passing through Berlin
during my European trip I was impressed at the calm flow of life and business,
not much different from how I remember it in the past. Germans are well fed and
contented, their taxis are brand-new Mercedes, and there seem to be a flood of
new babies in expensive designer strollers.
Obviously, if we Australians have one answer to the world=s economic
malaise of the past four years, they have another. What is it?
They call it the Mittelstand, the solid core of mid-sized companies that
employ the majority of German labour. They give the economy, and the nation,
the stability to weather any storms.
A Mittelstand company turns over less than $60 million, employs less
than 500 people. Most importantly is what it does not have, in general.
It has little debt. Small bank loans. Less than 20% use stock market
financing. Most of a company=s machinery
and assets it owns outright. It pays its costs as its cash flows, and if they
can=t afford
something they don=t buy it.
Which rather sounds like sacrilege in the high-flying, high-debt world of
modern MBA business management.
It is this stubborn, black-hatted protestant ethic that has led
Chancellor Angela Merkel into so much strife with the world=s bankers who
want to see that stash of cash used to bail the rest of Europe
out. Try asking any German whether they are willing to.
But what are the Germans doing to generate all this business, when any
item we try to make is available fully imported from China for half of our manufacturing
cost?
They do what they have always been good at. Quality. Machinery,
engineering, leather goods, software, foods. Made to such a standard of
excellence that price does not matter any more. Reliability of delivery,
constancy of supply, consistency of quality. Once you=re out of the
bargain basement, this is what matters, this will keep the customers coming
back.
In recent years they have taken their products out into the booming
markets of Asia , where quality, once
appreciated, totally overcomes price. And into new territories like South
America and Africa .
As a group they are as cautious as ever. They are advised to not allow
any single customer more than 10 per cent of their business. Because if this
customer departs, for whatever reason, the loss can be withstood. Not when the
account takes 20 or 30 per cent, as with many of our companies.
What do you do if a customer wants more? You say, ASorry we have
no more we can supply@. Now that=s a business
decision worthy of an Iron Cross.
Of course everything I=ve said here
is a generalisation. A very broad picture. But there are enough figures and
research results to justify this view of the German economic battle ship. It=s going to
take a great deal to sink this Bismark.
I=m not so sure
of our own economy. Our Mittelstand has shrunk away, companies sold as soon as
they start making profits, or destroyed by debt. Our own ship of the economy is
faring well now - but is it sailing on shifting dunes of sand and ore?