The Mittelstand, as Germany’s stable of mid-sized businesses is known, is renowned around the world as an economic role model that other countries would love to imitate. Dominated by successful manufacturers and engineering firms, the sector is credited with the country’s rapid rise in the last few decades and for helping it weather the financial crisis fairly well – at least until recently.
But there are signs that Britain is beating Germany at its own game. A report today from accountanty firm BDO says that Britain’s mid-market businesses, which it defines as having revenues between £10m and £300m, have grown their annual revenues by 33% in the past five years to a total of €1.92tn (£1.41tn) – overtaking Germany’s €1.78tn.
In fact, Germany’s powerhouse is even being bested by the mid-markets of France and Italy, which are growing by a respective 20% and 16%, although they remain smaller overall.
Of course there are some caveats - £300m revenues is a high upper limit for defining ‘medium-sized’ businesses and Germans might argue that their Mittelstand is really made up of companies turning over tens, not hundreds, of millions. The strong pound probably skews the figures quite a bit too.
‘The UK mid-market is leading Europe. This is a massive achievement – one that we should be proud of, but not complacent about,’ said Simon Michaels, Managing Partner at BDO UK.
‘Germany has always invested in its mid-market; it has policies directly aimed at the Mittelstand and culturally the Mittelstand stands as the economic backbone of the nation. While the UK’s mid-sized businesses are worth more than the Mittelstand for the time being, there is so much more we can do to cement our position as Europe’s mid-market leader.’
What does BDO recommend? A temporary National Insurance cut for manufacturers, which it says could boost GDP by £3.5bn, and awarding Government contracts to businesses on the basis of their impact on the supply chain and employment, rather than just cost.
It also suggests zero-rating the VAT on supplies sold to exporters – something it says has worked in Ireland. Exports have been a critical ingredient in the success of the Mittelstand and Germany remains the third largest goods exporter in the world.
Britain’s international trade figures have been less than inspiring in comparison and it looks likely that we'll miss the Government's target of doubling exports to £1tn by 2020. Anything it can do to encourage businesses to flog their wares abroad is probably worth a try.