Mighty Mittelstand

They may not be sexy but the small businesses that make everything from dog leads to lifting equipment are powering Germany’s economy.


  • März 2013 (Ausgabe 61)


  • Felix Brüggemann

Bargteheide is a town of fewer than 15,000 inhabitants about half an hour north of Hamburg. There is an industrial park at the far end of the town, with a gathering of low-rise glass and concrete buildings. It is entirely unremarkable except for the sign-post that features a chipper fox terrier called Lisa, who turns out to belong to the owner of the company based there. This is the world of Flexi and its retractable dog leads, manufactured here in rural northern Germany and dispatched into the hands of canine-loving customers around the globe.

Manfred Bogdahn, the owner and founder of Flexi, invented the retractable dog lead in 1972. Today the company still makes this single product, albeit in around 400 variations. Flexi has 300 employees, ships to 93 countries and is the global market leader in its sector. Everything is still managed and produced in-house, much of it by hand, and the majority of suppliers are German. The current average length of employment in the company is more than 10 years; it would be even higher but Bogdahn keeps adding new staff. A hands-on, charismatic entrepreneur whose portrait (in a fancy pink scarf) pops up all over Flexi’s head-quarters and website, he is matter-of-fact about his company’s success: “Flexi dog leads offer by far the highest quality in the market.”

Much of the real success of Germany’s economy is rooted not at BMW or Porsche, but in nondescript industrial estates in little towns like Bargteheide, at companies most people have never heard of or really thought about. Flexi, Delo, Klais, Kirov, Heidelberg; these aren’t household names and they don’t make things Germany is known for, like beer or cars. Their output is less glamorous – adhesives, organ pipes, cranes that lift trains onto tracks, printing presses. And dog leads. But these all have a global market, they are all things people need and they are all still made – to an extremely high quality – in Germany.

There are many reasons why the financial crisis hasn’t done as much damage to Germany’s economy. An early deregulation of the labour market certainly helped. Unemployment has remained low, domestic demand has remained high. But none of this would have mattered or been possible were it not for Germany’s strong industrial backbone – its Mittelstand spine – where small-to medium-sized companies, often family owned, with strict ideas about quality control, training and retention of employees, still dominate. They are also referred to as “Hidden Champions”, a term coined by Hermann Simon, a former professor of business administration and marketing who now runs a consultancy firm. It’s a term more Germans are familiar with than most English speakers.

“A Hidden Champion is a firm that belongs to the top three in its global market, has less than €5bn in revenue and is little known to the general public,” says Simon, who also conducts a global study of Hidden Champions. He counts 2,734 worldwide, of which a whopping 1,207 are in Germany. The Teutons also claim the highest number of Hidden Champions per capita, followed by Luxembourg, Switzerland and Austria. At the bottom of the list are Russia, China, Brazil and Taiwan. Simon consults for the latter’s government on how to grow their Mittelstand.

This is no easy task. The reasons for Germany’s strength in this field stretches far into history. Until the late 19th century Germany was still a collection of small states and fiefdoms. An entrepreneur who wanted to grow his business had to operate on an international scale. “Today this is still part of the DNA of German entrepreneurs,” Simon claims. “We have dozens of industrial clusters with fierce competition, which force companies to fight for the global market.” Simon points to the century-old watch-making industry in the Black Forest, “from which totally new sectors have emerged. Today there are 450 medical technology firms in the region.”

The German apprentice or vocational training system is still one of the best in the world, which helps. Add to this the philosophy of making just one thing but doing it exceptionally well and you begin to understand that Germany’s Hidden Champions are more than canny mini-manufacturers that form the bedrock of the economy: they also shape much of German society.

“When 300 employees spend all their time on a single product it is bound to be good,” says Bogdahn back at Flexi. As a young man, Bogdahn read an essay by Wolfgang Mewes, a pioneer of cybernetics in Germany. “In it, he said, ‘Focus on a narrow target group and make yourself the biggest fish in a small pool.” This became Bogdahn’s mantra and soon after, retractable dog leads were born.

Flexi employs an R&D team of eight who develop and experiment on cad workstations. The company has its own graphic design team. All plastic parts are injection-moulded with tools the company has designed itself. There are two halls dedicated to assembly and packaging. In Flexi’s test lab machines imitate excitable puppies tearing at leads, and careless owners dropping casings. Making one thing very well is a start but continually improving it is vital for staying ahead. “You don’t find this everywhere in the world, this meticulous precision and testing for reliability,” says Thorsten Meier, Flexi’s head of production. “It might seem like a simple product but a lot of love can go into the perfect dog lead. We can always improve.”

This type of highly skilled, dedicated, robust workforce can be found in industrial estates all over Germany. Thanks to their singular focus they turn out products that can’t easily be knocked off cheaper elsewhere: snow groomers (Kassbohrer), banknotes and secure ID solutions (Bundesdruckerei), tunnel drillers (Herrenknecht). Even toothbrushes (M+C Schiffer), drawing pins (Gottschalk) and shaving brushes (Muller) have been honed to near perfection.

Unlike so much of the UK or the US, Germany has held onto its manufacturing base. “Until relatively recently this was seen to be behind the times. Now it’s a reason to be admired,” says professor Simon. The Made in Germany label may not carry the same weight in some circles as Made in Italy but, thanks to the Hidden Champions, it’s a strapline that supports the German economy, on which rests rather more.