Magazine

What distinguishes medium-sized companies from large corporations
Focus topic

Aug 17, 2020
Middle class - four fists form a circle over a desk

Small and medium-sized enterprises are regarded as Germany's innovation, technology and economic engine. Its definition is clearly regulated: The term refers to all small and medium-sized enterprises (SMEs) and the self-employed. One classification is: companies with an annual turnover of more than  €1 million or less than €50 million or with ten to 499 employees are considered to be SMEs.

Below are some figures that illustrate the importance of small and medium-sized businesses in Germany:

  • 3.5 million enterprises in Germany are SMEs
  • 99.6 % of all enterprises in Germany are SMEs
  • 83.0 % of all apprentices are trained in SMEs
  • 58.0 % of all employees subject to social security contributions work in SMEs
  • 97.1 % of German exporters are SMEs

However, the special feature of medium-sized companies is not necessarily the size of the company, but its structure. Many small and medium-sized companies are family-owned or owner-managed. This results in an approach that is known in English as "entrepreneurial": it is strongly entrepreneurial. The unity of management and ownership results in sustainable, responsible leadership. The President of the Association of German Chambers of Industry and Commerce (DIHK), Eric Schweitzer, put it in a nutshell:

"Being middle class is a state of mind."

This also gives rise to a special corporate culture characterised by values. The focus is on a long-term vision. Owners of a (family) business usually do their utmost to pass on their legacy to the next generation. They convey consistency and act both cautiously and with long term vision. Leaner structures and flatter hierarchies mean that managers are usually closer and more present than in corporate groups. This also leads to a stronger sense of belonging within the teams and creates a "we-feeling". 

The leaner structures have another important advantage: they speed up the flow of communication and shorten decision-making paths. If a challenge is identified, it usually immediately receives the full attention of the management. And that is what makes medium-sized companies so agile. 

The situation is quite different in corporate groups. Large companies tend to be structure- and process-driven. Decisions must first be made by certain bodies, and the circle of stakeholders is much larger. Moreover, they are usually led by employed managers. While this implies a high level of commitment, it does not necessarily mean a commitment to long-term cooperation. 

And certainly not for sustainable management. After all, growth is all about growth, especially for listed companies. No wonder, shareholders want their dividends, managers want their salaries - often linked to profits. That is why good figures have to be produced quickly. 

Now of course the management of an SME is also interested in profits. But they are more free to use them. If a lot is invested in a year and the profit is reduced as a result, this does not create a storm in a teacup on the stock markets, but serves the company's own growth. 

Growth from within is an option for medium-sized companies. But what to do if capital is also needed beyond that? Digital financing, for example. You can read more about this in our series on this topic.

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