Importance of Medium-Sized Companies in Germany
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Importance of Medium-Sized Companies in Germany
Introduction
The small and medium-sized enterprises (SMEs) usually comprise not only the micro-enterprises that contain just a few employees but also a good volume of enterprises with a large number of employees. There currently isn’t any clear definition of the term SMEs. According to the Federal Ministry for Economic Affairs and Energy in Germany, SMEs are defined as any organization that has less than 500 employees. Another alternative to this definition is for the organizations that generate an amount equal or less than 50 million euros in annual turnover. The European definition, on the other end, defines SMEs as any organization that has less than 250 employees and generates an amount equal or less than 50 million euros. The KfW, a government-owned bank in Germany, argues that any corporation that generates up to or less than 500 million euros in annual turnover is considered to an SME. The creation of employment by SMEs plays are a crucial role in all countries around the world. The employees are usually not just a great source of jobs for the states; they are also an essential source of innovation and increased production of the countries (Association for Manufacturing Excellence, 2019). The effect of the SMEs as a great source of productivity of land is one of the critical pillars of development.
The German SME Sector
SMEs in German is considered to be the backbone of Germany’s economy. Using the definition provided by the Federal Ministry for Economic Affairs and Energy in Germany above, a total of 99.6% of the firms within Germany were SMEs in 2019. These SMEs created a total of about 60% of all the jobs in the country that was subject to social insurance. Furthermore, SMEs contributed to a total of approximately 35.3% of the total sales by the firms in the country.
There is a difference in the productivity of German SMEs in the country. However, these SMEs are not easily comparable to the productivity differentials that exist in developing countries. The state estimates that the value-added per person for the micro-enterprises that have less than ten employees is 42,700 euros. In comparison, small enterprises with ten to nineteen employees are estimated to be 40,800 euros (Herr & Nettekoven, 2018). The enterprises with more than 20 employees but less than 50 employees expect that the gross value added per person is 46,900. From the estimations, the micro-enterprises seem to be more profitable than the small enterprises with 10 to 19 employees.
Why it is essential to discuss the structure of a medium-sized German company
The importance of considering the structure of the medium-sized German companies is to help understand their roles in innovation, competition, and economic dynamism of the states. SMEs in Germany usually are referring to as Mittelstand. The Mittelstand is often depicted as one of the most successful models of the SMEs in Germany. They play a crucial role in being amongst the most significant drivers of economic development. Another essential importance of the German Mittelstand could be easily identified through the characteristics of the SMEs in the German economy. Some of the main components that are unique to the SMEs in Germany include the high degree of specialization, flexibility, decentralization presence, long-term vocational training, as well as the long-term orientation and responsible organizational culture.
The high degree of specialization means that most of the SMEs in Germany often dedicate their operations to specific products, services, and product components. This allows the country to enjoy a high amplitude of innovation from the activities of the SMEs (Renfroe & Smith, 2016). The management and ownership of the SMEs in Germany is often comprised of a single person. This allows the decision-making process to be faster and efficient, and changes to be done quickly. Germany is known to produce quality products, components, and services. This is supported by the long-term vocational training, orientation, and organizational culture for most SMEs. The employees are ordinarily taken through extensive professional training to ensure that they are fully qualified int heir areas of operations. The organizations have also made their time to ensure that they develop long term relationships with the stakeholders, especially with the employees, since they interact directly with the customers. Finally, the majority of the SMEs in Germany have both their head officers and production sites in the rural areas since families mostly own them. This, in return, helps to create new job opportunities making the SMEs be one of the most important sources of job creation in the entire region.
The relevance of SMEs to today’s society in Germany
When considering that a lot of the German economy is made of the medium-sized enterprises, the significance of the SMEs in the community in Germany can be best addressed by understanding the percentage of businesses in the country that is comprised of SMEs, the rate of employment associated with the SMEs, annual turnover, gross value added as well as the apprentices. The SMEs in Germany is quite relevant since they comprise of a total of 99.27% of all the total number of businesses in Germany. This means that only 0.73% of the companies in Germany have more than 500 employees and report a net turnover of 500 million euros annually. Secondly, SMEs are also employers in the country when compared to other businesses. Currently, SMEs in Germany boasts of employing a total of 58.26% of total employees working in various companies.
There are only two portions where other companies in the Germany economy that outgun the SMEs are the annual business turnover and gross value added. The yearly turnover of the SMEs is generally about a quarter of the total net turnover reported by all the businesses in Germany. The gross value added is also relatively high but slightly lower than the value derived from other companies. The reports provided from 2019 show that the gross added value showed that SMEs reported 45.19% of the total gross added value reported by the firms in the country. The turnover and the gross value added may be lower than than the amount indicated by the other businesses. However, these values remain higher than all the values reported by the OECD countries.
The SMEs continue to experience significant constant organizations changes due to the changes in the markets, economies as well as the world at large. It is critical to understand that almost all the large corporations were at one time considered to be SMEs. The change may be positive or negative. Most of the SMEs in Germany have always taken constant research and marketing to develop better quality products and services and to increase their market size. With the proper research, marketing, and the quality of experience among the employees means that the change that occurs in the SMEs in Germany is, in most cases, positive, and they continue to grow over time.
Please also provide a theoretical approach for the topic discussed above
The economy of Germany is quite heavily reliant on the small to medium-sized enterprises since they account for about a third of the total annual turnover by the businesses, as well as nearly half of the gross value added by the companies. With this in mind, there three main theoretical factors that influence the growth and positive change among SMEs in Germany. The factors identified in this case are transformation, assimilation, and prediction as a determinant of the organization’s possibility of being a going concern into the future. Innovation is a crucial factor in determining the success of SMEs. Change for most businesses in the current market structure is best achieved through the successful digital transformation. The business transformation should, however, cover not only the technological and digital part but also the overall image, production, and marketing of the business. The proper business transformation is critical in ensuring that the operations of business become better and more efficient. The transformation of a company should be done to ensure that the design, product development, human resource, and logistics are effectively integrated into a single platform. The technology and digital transformation should be done to complement the already existing efficient systems.
Business assimilation refers to the organization’s ability to adapt to changes by changing different aspects of the business, such as the number of employees and organizational culture, to help the company interact with the client better. Information and communication technology (ICT) are, in most cases, acknowledged as a critical player in the overall growth of enterprises. This is because it usually contributes directly to the overall profitability of the business. The business assimilation identifies ICT as a central requirement for firms to enjoy growth and become more profitable (Matthews, 2007). ICT provides organizations with better and efficient methods of conducting their business. Furthermore, the successful deployment of ICT into the operations of the should encompass several environmental, human, and technical factors. Strategic alliances and marketing options should also support the success of ICT. Better marketing ad quality alliances are, in most cases, critical to ensure that the business continues to advance their products and services by increasing their market reach.
Finally, the prediction of future performance and growth, as well as the current risks facing the business, should be understood to improve the future performance of the company. The future is ordinarily hard for companies to predict. However, there are several factors that the organizations can undertake to mitigate the risks that they face from their operations. The two main factors that should be considered are the market risks as well as customer risks. Consequently, this means that the business should fully understand the market and customer needs and develop products and services that are customer and market focused. Historical data should also be thoroughly analyzed to ensure that the information that the companies hold is sufficient to make a future strategic decision.
References
Association for Manufacturing Excellence. (2019). Lean Certification. Retrieved from SME: https://www.sme.org/leancert
Herr, H., & Nettekoven, Z. M. (2018). The role of small and medium-sized enterprises in-development: What can be learned from the German experience? Global Labour University Working Paper.
Matthews, P. (2007, August). ICT assimilation and SME expansion. Journal of International Development, 817-827.
Renfroe, N. A., & Smith, J. L. (2016, August 08). Threat / Vulnerability Assessments And Risk Analysis. Retrieved July 22, 2019, from https://www.wbdg.org/resources/threat-vulnerability-assessments-and-risk-analysis