German industry is losing its competitive edge in key sectors such as solar panels, semiconductors, and even automobiles, but the country's small and medium-sized enterprises (SMEs) are proving to be the backbone of the economy, maintaining stability and innovation.

For years, doubts have grown about the international competitiveness of German industry. In the photovoltaic sector, for instance, Germany once led, but the real action has long shifted to East Asia. Similarly, its famed automotive industry is rapidly losing ground, especially compared to China. Despite these setbacks, Germany remains among the world's top five economies, even as growth forecasts are slashed. It may have fallen behind the US and China, but it is still 'the best of the rest.'

This resilience is not solely due to global giants like SAP, Deutsche Telekom, or DHL Group, but largely to the country's 'hidden champions'—its SMEs. Over 99% of German companies are SMEs, contributing 50% of net value added, according to Bastian Pophal, CEO of the SME and Economic Union (MIT). Most German workers are employed by smaller businesses, not large corporations.

The example of Zeiss, a technology company specializing in optics and optoelectronics, shows that a firm need not be a global corporation like TSMC to play a defining role in the value chain. Maximilian Flaig of the German Mittelstand Association highlights that hidden champions combine 'a globally unique dual education system, high technical expertise, exceptional reliability, and remarkable adaptability.'

Business leaders paint a consistent picture of advantages. Martin Herrenknecht, founder of tunnel-boring machine maker Herrenknecht AG, cites 'high innovation, strong industrial expertise, quality, and reliability.' He adds that Germany remains 'the land of tinkerers and doers.' Another key advantage is close customer relationships: 'With us, the customer is king—if something gets stuck, we'll even drive to the construction site at night to solve the problem.'

Ottobock, a global leader in prosthetics, provides nearly all Paralympic athletes with prostheses, orthoses, or wheelchairs. Spokesperson Merle Florstedt says the firm stands for 'a combination of solid training, strong innovation, and high quality,' and can 'adapt quickly to different international markets, regulatory frameworks, and customer needs.'

Many German innovations have achieved international success, such as the MP3 audio format and the magnetic levitation train—which now runs in China, not Germany. However, while development often happens in Germany, corporate strategy has frequently failed to prevent money from flowing elsewhere.

Despite challenges, German SMEs remain optimistic. Pophal is convinced that 'these firms can continue to withstand international competitive pressure.' Flaig notes that 'driven by stable networks, regional roots, and a clear long-term strategy, the Mittelstand remains a reliable engine of growth.'

However, with rising oil prices and economic struggles, Herrenknecht calls for 'courage for real and comprehensive structural reforms, including reliable and accelerated investments in infrastructure—rail, roads, and digitalization.' Elisa Meglio of Schott AG adds the need for 'competitive energy prices, stable and resilient supply chains, and investment security.'

Florstedt sums it up: For the Mittelstand to remain internationally competitive, it must maintain high levels of innovation speed and adaptability.

Source: www.dw.com