How has Germany's SME sector reacted to the Corona crisis? Which SMEs have found good answers? What potential is untapped and why is cooperation with start-ups so promising?
Germany's world-renowned "Mittelstand" of small and medium-sized enterprises constitutes more than 93 percent of all German companies, employing over 60 percent of the workforce.
Coronavirus leading to new business models
Corona has led to companies worldwide having to adapt their business models within a short time. Small and medium-sized enterprise demand for digitalization in particular has developed a new dynamic. The best example here has been the relocation of many workplaces to the home office. Many companies have recognized the opportunities of working from home as a result of the crisis.
The problem that has existed for years among SMEs of recruiting suitable skilled workers from urban centers for their locations in the provinces has been partly solved by the creation of virtual jobs. Homeworking as a normal case, together with the necessary technical equipment, will allow SMEs to attract qualified specialists from the big cities in the future.
The supposed locational disadvantage of the provinces thereby becomes a locational advantage.
In manufacturing, the shift to the home office only works to a limited extent. Nevertheless, individual steps in value-added chains can be digitalized and release new potential of employees who can be deployed in other areas.
Digitalization in SMEs
However, a KfW study shows that there are sometimes considerable differences in the funding of digitalization in SMEs: The smaller the company, the higher the level of internal funding for service projects. Uncertainty about success, difficulties in evaluating such projects and lack of collateral unusually stand in the way of external financing through bank loans. A rethinking within the financial sector, as well as government support programs, is also contributing to an acceleration of the digitalization transformation process in the Mittelstand sector.
Digital Hub Initiative
In Germany, the Digital Hub Initiative, with its 12 hub locations, provides start-ups with a network made up of co-working offers, accelerator programs, and support for internationalization projects. It’s not just the workplace, but the digital business models of start-ups offer significant innovation potential for German SMEs in particular. Start-ups are typically solution oriented and develop customer-friendly digital applications. Small and medium-sized enterprises can, for example, use these offers to optimize work processes or digitalize parts of the value chain. They can therefore integrate innovations into their companies without having to provide internal resources for this development.
Innovative SME landscape
The Coronavirus crisis also shows that innovations in particular provide a good basis for medium-sized companies to cope with the new demands. The innovation potential of German SMEs has also revealed a lot in this respect. According to KfW, 43 percent of SMEs have made adjustments to their range of products and services, with the heavily affected trade sector being the trailblazer in this respect.
KfW also emphasizes that coronavirus-related adjustments have particularly been made by those companies who have already produced innovations in the past. The ability to develop and successfully implement innovations allows companies to respond to crisis situations at short notice, thereby increasing their resilience in times of crisis. Here too, German SMES are structurally well positioned. The smaller the structures, the faster the ability to react on the one hand, and the structural orientation of business models on the other.
This means that SMEs have small structures and process flows that allow new tasks, sales channels and products to be correspondingly adapted quickly.
SME business models typically pursue long-term goals, whereas listed companies normally have a short-term business orientation with the goal of scaling up new ventures as quickly as possible. Germany’s Mittelstand acts in terms of generations and can also contribute significantly to the sustainable development of the economy and Germany as a business location.
Start-ups – What do they offer the SME sector?
What role can start-ups play in this process of transformation within the German SME sector? And just how do the strengths of start-ups and SMEs complement each other? And what challenges need to be overcome here? Start-ups have much of what many companies have had to work hard to achieve during the crisis. For example, many start-up employees have worked regularly from home prior to the Covid-19 pandemic. Co-working spaces are part of the lived, everyday routine.
The de:hub journey [German only] of the Digital Hub Initiative shows how. “Innovation in Intralogistics: Tapping the Joint Potential of Digital Journeys, Processes and Business Models” is the theme of the de:hub journey which will take place September 24-25, taking in the three hub locations of Dortmund, Hamburg and Dresden. The de:hub journey is a journey for SME owners and decision makers to jointly identify the potential of digital technologies, processes and business models and make them available for their own companies. During the journey, participants gain invaluable insight into the work of digital hubs, visit test labs and co-working spaces. They will also get to know start-ups and potential cooperation partners. The de:hub journey is aimed at companies that derived part of their added value from efficient and innovative warehouse logistics.
SMEs – What do they offer the start-up sector?
What can SMEs offer start-ups? On the one hand, this is usually long-term business relationships and customers at home and abroad. Germany is the export world champion, with many SMEs playing a vital part. This means that, even in the process of internationalizing start-up business models, SMEs can usually offer many years of export experience and access to existing networks and sales structures. Many start-ups, in turn, have an international workforce - this is of benefit to SMEs in their internationalization process.
Covid-19 pandemic accelerating cooperation
The process of cooperation between SMEs and start-ups has been significantly accelerated and, at the same time confirmed, by the Coronavirus crisis.
The corporate cultures of SMEs and start-ups are different, so it is time for both sides to realize that they can only win together by overcoming these "intercultural" differences.
Germany as a business location has every chance of successfully overcoming the current crisis and working towards a sustainable future. The trend of trying new things and taking alternative paths has become a necessary virtue because of the Covid-19 pandemic.