Competitive Paralysis

Mittelstand Companies Fail to Innovate and Are No Longer Globally Competitive

To make the scenarios more tangible, multiple signposts were created for each scenario. These can be interpreted as news headlines describing representative events between 2022 and 2042. Therefore, they describe the development towards the future illustrated in this scenario.

Every Second Mittelstand Company Bankrupt Since 2022

Julia Balowski

Dmitry Burlakov

Jakob Ehlert

Katharina Schmid

Lisa Schmierer

Raffaele Tranquillini

21.3%: Rural Unemployment Rate at All-Time High

From Quality to Quantity: Germany’s Former Hidden Champion to Enter Thriving African Market with Mass Home Appliances

2022

Google vs. Volocopter: Google Conquers the Industry and Releases Their First Air Taxi 30th Acquisition This Year: Siemens Buys Mittelstand Company

German Companies Struggle to Comply with Global Sustainability Standards: Agnus CEO Explains Drawbacks of New WTO Reporting Regulations

Final Hurdles for Global Free Trade Fall: World Economic Trade Agreement Comes Into Force

CDTM Has 50x as Many Unicorn Founders per Alumni as Top US MBA Programs: Startups Are Germany’s Innovation Engine

2042

A Day in 2042

Impatiently tapping his fingers on the table, Timo stares at the coffee dripping into his mug. He loves the classic, vintage coffee machine with its noisy, mechanical nature. He inherited it from his grandparents and still uses it despite its energy efficiency lagging way behind current standards. While he waits to finally intake his much-needed caffeine dose, Timo takes a look at the smart screen covering most of the kitchen wall. “Lagos, Nigeria surpasses Silicon Valley as largest startup hub in the world,” the headline states. Not so long ago, he thinks, parts of Germany used to be technological development centers, as Lagos is today. He wonders how it would have been to have lived and worked in such a thriving environment. After rapidly downing the coffee, he prepares to head to work.

The autonomous vehicle, which Timo leases, arrives directly at his front door, pre-heated and with taxi mode already launched. As he watches the car independently maneuver out of the driveway, he rests his hand on the soft, comfortable seat. The premium seats are among the last components in this car to be developed and manufactured by a German supplier. Timo feels proud to own the company that produces them, leading more than two thousand employees.

While propulsion technology has been strongly advancing in recent years, all planes, buses, trains, and cars still need seats. Therefore, his company has been less affected by ongoing technological changes, especially compared to his colleagues who manufacture parts for combustion engines, many of whom already went out of business 15 years ago. Timo remembers when he inherited the company from his father. That was over 20 years ago. He finds it ironic that struggling with the disadvantages of being a very young CEO was one of his biggest problems when appearing credible to investors. Times have changed, and things have become increasingly difficult for Mittelstand companies in Germany. Newspapers and experts keep blaming increased globalization for this crisis. Less protectionist regulations and a growing amount of free trade agreements with countries worldwide have led to increased competition regarding prices, technological advancement, and quality. For instance, companies in China adapt to swiftly changing requirements, which puts pressure on other businesses. Furthermore, companies in Germany are not as protected from the killer acquisition as they used to be. Still, Timo tries to remind himself that there is also a good thing about strong international cooperation. It has significantly reduced the number of political conflicts worldwide, positively affecting resource availability and supply chain stability.

On his way to work, he passes several vacant houses. What used to be a proud suburban town surrounded by beautiful nature has turned into a half-abandoned ghost town. Of course, Timo knows the reasons for this unfortunate development. Since more and more Mittelstand companies went bankrupt, the unemployment rate in rural areas like this has heavily increased. Looking for work in corporations or hoping to found a startup, a large number of people have moved into the big cities.

Arriving at work, Timo heads straight into his office. The day’s first meeting is about the latest revision of the global environmental standards. “I really don’t understand why they’ve tightened regulations again. The last update was only four months ago,” one employee groans angrily. “You know how important it is to stop climate change and find global agreements,” Timo diplomatically replies. The rising temperatures, in combination with increased natural disasters like floods, wildfires, and droughts around the world, have made climate change tangible and observable to everybody within the last 20 years. This has slowly increased the public pressure on politics globally, resulting in legislative measures. Since key players around the world have agreed to fight climate change together, managing the climate crisis has become re-

alistic. The downside is that formulating global environmental standards has led to a tight net of constantly changing regulations that companies must fulfill. Like many Mittelstand companies, Timo’s business has been struggling with updating its processes to meet steadily stricter standards.

Hoping that the impact of the new regulation will not be as extensive as last time, he addresses the head of environmental compliance. “What do we need to comply with –” his smart pad pings loudly, stopping him mid-sentence. Since this tone is reserved for critical notifications, he immediately checks the incoming message. His face freezes as he reads the lines. “I’m sorry, but we need to postpone the meeting,” he says, hurriedly leaving the room.

The moment Timo has been dreading is finally coming true. A corporation that produces transportation seats that compete with his company’s products has patented a new generation of seats that adapt to the occupant’s weight. Timo is well aware that his research and development department is currently not in the best position. Despite every effort, he cannot attract qualified workers due to the public perception that innovation is only driven by startups or large corporations. Furthermore, attracting external investors and sourcing innovation funds is more difficult for an established, stable company than for a newly founded startup.

Still, it hits him hard that his product will be outdated within a short time. His family patented the designs, yet nearly identical and cheaper copies have been developed. Additionally, over recent years he’d encountered patent blocking when a competitor patented a slightly tweaked version of his company’s design. Having no legal recourse, Timo’s product was unable to evolve, remaining essentially unaltered. What now? Timo tries to calm down and evaluate his possibilities. If he does nothing, they will undoubtedly face insolvency within a few months, as many of his peers already have. Thinking about the potential impact on his employees and their families, he has good reason to be worried. One possible solution would be to give up control, either selling his company to an international investor or accepting one corporation’s acquisition offer, which has been lying on his desk for weeks. He thinks of a friend’s headlight production company, which a major corporate car manufacturer acquired ten years ago. Most of the workforce could keep their jobs, although the workers had to relocate to the city. Additionally, all decisions and development processes are now steered by the corporate.

However, his family owned his company for five generations, and selling it now would feel like admitting failure. Another option would be to continue production and sell the seats for a decreased price to countries that do not require the latest technology. The increasing globalization of the past years has allowed many developing countries to emerge and gain access to advanced technology. However, costs still play an important role in these countries; therefore, they are the optimal customers for slightly outdated yet cheap seating. Production costs could be reduced by drastically decreasing the quality of seats, allowing Timo’s company to penetrate these markets.

Still, the thought of turning the family business into a low-quality mass production industry makes him feel sick. His grandfather would likely be disgusted, having always valued quality and progress. Further lowering prices would require major compromises, turning nearly hand-made products into commodities. Is preservation worth sacrificing the underlying spirit of his company?

Overwhelmed with digital bureaucracy, Timo tries to keep on working on his tasks, but all day he is distracted by the decision of how to proceed. When he finally arrives home in the evening, he collapses onto the couch and asks his smart assistant to turn on his nootropic diffuser. But despite the profoundly relaxing effect, he cannot help but continue thinking about the future of his business. Tomorrow, important decisions will have to be made.