Bankruptcy, the Mittelstand and the future of family businesses

OK, a couple of bankruptcy cases of classic Mittelstand family businesses doesn’t spell the beginning of the end for Germany’s famed family-controlled firms, but it’s worth pointing out.

The companies in question are Heinz Kettler, a big manufacturer of furniture, fitness equipment and bicycles based in North Rhine-Westphalia, and Strenesse, a high-end fashion company based in the Bavarian town of Nördlingen. It is important to point out that Kettler is currently working through a bankruptcy process and is still functioning as a business. Strenesse entered a bankruptcy process in 2014, but, according to German media reports, has returned to being profitable. Nevertheless, those same reports say the business still has ongoing difficulties, particularly around its control.

Both companies were set up in 1949 and rode the boom of the post-war German economic miracle, later growing successfully into international markets. They transitioned to being managed by the next generation - in the case of Heinz Kettler, the second generation represented by Karin Kettler, and for Strenesse, the third generation. At their peak both companies made revenues of between €100 million to €200 million and employed hundreds of workers.

They were the classic Mittelstand businesses - the backbone of Germany’s economic success - but today they are struggling. Of course, two struggling Mittelstand businesses wouldn’t appear to mean much given that there are 3.5 million companies in Germany that are classified as being a Mittelstand.

But there are probably a sizeable amount of businesses in the country feeling some level of trepidation about the future, particularly those mid-sized companies with revenues of between €100 million and €500 million. Any review of the announcements from the various pressure groups that represent Germany's family businesses would indicate concerns. 

They have concerns about a lot of things but the biggest ones are over the lack of skilled labour in the country, which is forcing up overall wage costs, the government’s tax policies towards them, and competition from abroad.

Of course, some of their concerns around labour costs might be eased by the high levels of migrants entering the country in recent months. Indeed, easing labour costs is very much part of the sub-text of Chancellor Angela Merkel’s open door policy towards refugees.

But widespread immigration to Germany might not provide all the answers to Germany’s Mittelstand difficulties. Of course, many of these businesses will adapt to changed circumstances as they have done in the past.

But the plight of Heinz Kettler and Strenesse may also be the first signs of a shift in the industrial strength of Germany to something different, which may not be necessarily bad for the economy. Of course, we will only know in many years to come...but worth keeping an eye on today.