Germany a model for industry resilience

Andrew Wear

Uvex is a family-owned German manufacturer of sporting and personal protective equipment that will soon celebrate the centenary of its founding.

The company’s managing director Stefan Brück says that for Uvex “innovation is part of our DNA,” meaning that new ideas and technological development runs through the business. It is not interested in simply producing different versions of products already on the market. “Everything we launch, everything we do, needs to have a measurable innovation component.”

Almost all of Uvex’s products are manufactured in Germany or elsewhere in Western Europe. “We have built up a know-how in our factories that is really second to none,” Mr Brück says.

“While we don’t necessarily need to produce everything ourselves, our clear strategy is to focus on our own manufacturing units in Germany and in Europe. Our manufacturing competence and the ‘Made in Germany’ brand is part of our business model.”

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The company’s roots are in Germany, and it has no plans to move production to a lower-cost location. About 80 per cent of its sales are in Europe. “We can provide a really first-class service to those customers by being close to our manufacturing bases,” Mr Brück says.

Uvex’s goal is not extremely fast growth, funded by equity investment or by debt, which carries a high degree of risk. “The preference of the family is to have sustainable and profit-oriented growth.

“This will ensure the long-term existence of the business and is a much better guarantee for employees than faster, quicker growth in a short period of time.”

Nevertheless, over the past fifty years the safety group has seen annual growth of about 5.5 per cent, which roughly equates to the company doubling in size every thirteen years.

“A strong and solid number,” says Mr Brück. “The family invests most of the earnings back into the business. It’s interested to keep and maintain the heritage we have built over the years, and to grow the strength that we have.”

Uvex is just one of hundreds of German manufacturing businesses that make up what is known as the Mittelstand – a literal translation is the ‘middle estate’ or ‘middle class’.

These medium-sized companies thrived in the aftermath of World War II, when German manufacturing boomed due to efforts to rebuild the economy.

Mittelstand companies focus on quality products and long-term success. Export-oriented, they are often market leaders in very specific products – think music stands, de-icing fluids or machinery for producing corrugated cardboard.

Focusing on niche products and markets means they do not typically compete with multinationals.

A study undertaken by Swiss professor Christof Müller found that 461 German companies are global leaders. These companies have the highest or second-highest market share in their category, generate annual sales of more than €50 million (A$85 million), operate on at least three continents and generate at least half of their sales abroad. More than half of these companies are still owned by their founding families.

Arguably the most important contributor to Germany’s success is its training system. That’s ‘the big one’, says Dr Jeromin Zettelmeyer, an economist, until recently a senior official in Germany’s Ministry for Economic Affairs and Energy.

About half a million Germans enter the workforce through apprenticeship schemes every year. There is a lot of prestige attached to vocational education. This ‘ensures a flow of relatively talented young people into industry that might not even consider industry in other countries’, says Dr Zettelmeyer.

The apprenticeship system means employees don’t just acquire company-specific skills, they also develop skills and qualifications relevant to an occupation or industry. This means that if their employer goes broke, employees will have an easier time finding a new job.

Dr Zettelmeyer points to the vocational training system as evidence of a particularly ‘German way’ of “blurring the distinction between the state and the private sector.”

“The state provides the schools that these kids go to, and then industry provides commitments to supply training jobs, which are not paid very well, but often come with a permanent job at the end,” he says.

“There is in effect an employment subsidy through the fact that the state provides educational services for free, which enable firms to hire young people at very low wages.”

This is exactly how things work at Uvex. Brück says the company ‘offers a number of students per year the chance to do the practical part of their education at our company. We offer a job to almost 100 per cent of those who finish in our organisation.’

Unlike other countries with a tradition of apprenticeships, such as Australia and the United Kingdom, there is a long history in Germany of providing apprenticeship pathways for all sorts of occupations, not just the standard trades.

German apprentices in manufacturing companies learn a variety of roles, from machine and systems operator to technical product designer to industrial clerk. This enables an apprentice to do a range of jobs, from materials purchasing to marketing.

With this approach, Germany is producing a flood of highly qualified, flexible industrial workers who help to maintain the strength of its manufacturing sector.

Following the financial crisis in 2008, when the manufacturing sector was faced with a sudden, severe downturn, Germany took action that perfectly illustrates the unique relationship between government and the private sector.

Rather than laying off workers, German businesses negotiated with unions and employees to reduce hours.

Through the kurzarbeit (short-work) initiative, employees were able to reduce their hours by up to 50 per cent, with the government reimbursing them between 60 and 67 per cent of their foregone wages.

A full-time worker who cut their hours in half continued to receive more than 80 per cent of their pay. More than 1.4 million – or about one in every thirty – German workers participated in the scheme.

Ultimately, the German economy benefited as many workers used the spare time to undertake training and gain additional qualifications. Another benefit was that because workers were still being paid, they continued to spend on goods and services.

This meant the German economy wasn’t as badly impacted by the recession as it might otherwise have been.

After the crisis, the German manufacturing sector was able to scale back up quickly, as workers – many of whom were now more highly trained – returned to their regular hours. For example, at one point, industrial giant Siemens had 19,000 employees on reduced hours, but by 2010 these employees were all working full-time again.

The OECD estimates that the kurzarbeit scheme saved some 500,000 jobs. While the unemployment rate in countries such as the United States rose dramatically during the recession (from 4.5 per cent in 2007 to 9.9 per cent in 2010), Germany managed to prevent a large increase in unemployment, with the rate rising only slightly, from a low of 7.3 per cent in 2008 to 7.9 per cent in 2009.

This is an edited extract of Andrew Wear’s book, Solved! How other countries have cracked the world’s biggest problems and we can too, which was published by Black Inc. in March.

Do you know more? Contact James Riley via Email.

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