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Surviving the pandemic: Lessons from Germany's Mittelstand

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In Germany’s industrial heartland, engineering firms have come up with a recipe for surviving the coronavirus pandemic, write and

Keep spending on research and development even if sales drop, build a financial buffer so you can craft a long-term business plan, be flexible with dealers to keep supply chains intact, have an innovative mindset and see crises as opportunities.

It’s certainly a strategy that is paying off for some of the small and mid-sized 'Mittelstand' companies (SMEs) that together provide almost 60% of all jobs in Germany, according to Reuters interviews with six chief executives.

Commerzbank, the biggest lender to Mittelstand firms, also told Reuters that the number of companies going into “intensive care” was lower than it had feared and there was no rush by its clients to get new credit lines.

Stihl, for example, took an unusual step when lockdowns hit sales of its chainsaws, lawn mowers and hedge trimmers - it carried on making them and helped some of its struggling retailers stay afloat by extending their payment terms, Chief Executive Bertram Kandziora (pictured) told Reuters.

The gambit paid off.

After a tough couple of months, demand soared for Stihl’s tools as people stuck in lockdowns spruced up their gardens. Since May, Stihl has enjoyed double-digit sales growth and is working on Sundays to fill its orders.

To be sure, the landscaping industry has been a sweet spot during the crisis but Stihl’s ability to navigate the lean lockdown months reflects a particular advantage of Mittelstand firms - they are typically family owned, with long-term horizons and strong balance sheets to see them through rough patches.

SMEs in Germany are also generally larger than in other European Union states, surveys by the European Statistics Office, Eurostat, show. Moreover, 90% of German companies - specialist engineering firms featuring prominently among them - are family controlled, says the BVMW Mittelstand association.

The upshot is that fewer German SMEs turned to banks for loans in the April-September period than similar companies in Spain, Italy and France, a European Central Bank survey shows.

An August survey by management consulting firm McKinsey of over 2,200 SMEs in five European countries showed fewer German firms feared they would have to postpone growth programmes than companies in France, Italy, Spain and the United Kingdom.

“Due to the fact that the majority is still family owned, the equity ratio is high and offers a good cushion for difficult times,” said McKinsey partner Niko Mohr, a Mittelstand expert.

Stihl, a family business founded in 1926, took the decision not to become hostage to banks several decades ago.

It has since built up its equity ratio to 70% to ensure it can take business decisions independently of any lenders who may be more focused on the short term.

“Because of the negative attitude of the banks, the family owning the company then came to the conclusion that they should not let the banks dictate their policy but should in future finance the company from their own resources,” Kandziora said.

Arburg GmbH, a family-owned manufacturer of injection moulding machines for plastics processing near Stuttgart, also went into the pandemic with solid finances, which allowed it to look through the crisis.

“The corona pandemic has no impact on our medium- and long-term development and production strategy,” Arburg managing partner Michael Hehl told Reuters. “We firmly believe that it would be completely wrong to put the brakes on innovation now.”

A survey in September survey by Germany’s Mechanical Engineering Industry Association (VDMA) showed a majority of members aim to maintain or raise investment budgets next year, with nearly a fifth planning an increase of 10% or more.

Reuters Graphic

Success stories like Stihl’s belie a mixed COVID-19 picture in Germany. Across all sectors, one in 11 firms is threatened by insolvency, a survey of 13,000 companies by the Association of German Chambers of Industry and Commerce (DIHK) showed.

Patrik-Ludwig Hantzsch at Germany credit agency Creditreform expects 24,000 corporate insolvencies in Germany in 2021 after 16,000 to 17,000 this year.

And businesses more reliant on monthly cash flow are suffering. The German hotel and restaurant association (DEHOGA) said a survey last month of 8,868 businesses in the sector found 71.3% of them feared for their existence.

Commerzbank, however, says many industrial Mittelstand companies have the financial buffers to ride out the storm.

The bank has a team closely scrutinizing the health of its clients, studying everything from business models to figures on customer traffic and holding regular discussions with managers. It is expecting a modest rise in insolvencies once a waiver introduced to keep firms afloat during the crisis is lifted in January, but not the massive rise predicted by some.

“There isn’t a mad rush (for credit),” said Christine Rademacher, head of financial engineering at the bank. “Many of our customers have a buffer and no liquidity issues.”

Koerber in Hamburg is another Mittelstand company - with businesses from artificial intelligence to machines to package toilet paper - that went into the pandemic with solid finances and it has no intention of taking its foot off the pedal.

“We have made and will continue to make sustained and significant investments in research and development and further digitisation this year and next year. The demand for digital solutions has been given a further enormous boost by corona - this is a huge opportunity for us,” Chief Executive Stephan Seifert told Reuters.

In Munich, construction equipment maker Wacker Neuson said it is reviewing some of its investments, but it too is keeping up its R&D.

“The crisis is a balancing act between cost optimisation, a much shorter planning horizon and pressure to innovate,” said Chief Executive Martin Lehner.

The ebm-papst Group, which makes electric motors and high-tech fans, has also kept R&D investment stable this year despite a drop in turnover of almost 30% in April. “Now we are catching up month by month,” said Chief Executive Stefan Brandl.

The company based in Mulfingen is looking to benefit from three trends: air quality, which is at a premium due to the pandemic; digitalisation, which it can serve with fans to cool servers; and demand for products that use less electricity.

For many survivors, the crisis is also accelerating change.

One such company is MAHLE GmbH, which makes auto parts from electric powertrains to air conditioning. It plans to close two German plants and cut other costs to adjust to technological change in its sector and reduced demand due to the pandemic.

But despite an expected drop in sales of about 20% this year, Chief Executive Joerg Stratmann said it is maintaining R&D at a “high level”, such as spending millions on a development centre near Stuttgart with 100 engineers that opened recently.

It remains to be seen whether the Mittelstand is undergoing “creative destruction” - the term popularised in the 1940s by Austrian economist Joseph Schumpeter to describe unviable firms folding to make way for more dynamic enterprises.

But those firms in the right sector with healthy balance sheets say they’re ready to adapt with confidence.

“We want to seize the opportunity of this crisis,” said ebm-papst’s Brandl.

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Dutch PM condemns lockdown riots as 'criminal violence'

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Dutch Prime Minister Mark Rutte (pictured) on Monday (25 January) condemned riots across the country at the weekend in which demonstrators attacked police and set fires to protest against a night-time curfew to slow the spread of the coronavirus, calling them “criminal violence”, writes .

The police said hundreds of people had been detained after incidents that began on Saturday evening and lasted until the early hours of Monday, including some in which rioters threw rocks and in one case knives at police and burned down a COVID-19 testing station.

“This has nothing to do with protest, this is criminal violence and we will treat it as such,” Rutte told reporters outside his office in The Hague.

Schools and non-essential shops in the Netherlands have been shut since mid-December, following the closure of bars and restaurants two months earlier.

Rutte’s government added the curfew as an additional lockdown measure from Saturday over fears that the British variant of COVID-19 may soon lead to an increase in cases.

There have been 13,540 deaths in the Netherlands from COVID-19 and 944,000 infections.

The police trade union NPB said there could be more protests ahead, as people grow increasingly frustrated with the country’s months-long lockdown.

“We haven’t seen so much violence in 40 years,” union board member Koen Simmers said on television program Nieuwsuur.

Police used water cannon, dogs and officers on horseback to disperse a protest in central Amsterdam on Sunday afternoon. Nearly 200 people, some of them throwing stones and fireworks, were detained in the city.

In the southern city of Eindhoven, looters plundered stores at the train station and set cars and bikes on fire.

When police said the demonstrators were violating the country’s current lockdown rules “they took weapons out of their pockets and immediately attacked the police”, Eindhoven Mayor John Jorritsma said.

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Head of French health regulatory body: COVID situation is 'worrying'

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The COVID-19 situation in France is worrying, the head of the country’s Haute Autorite de Sante (HAS) health regulator told France Inter radio on Monday (25 January), as President Emmanuel Macron’s government considers a new lockdown, write Sudip Kar-Gupta and Dominique Vidalon.

France has the world’s seventh-highest COVID-19 death toll, with more than 73,000 deaths.

“It is a worrying moment. We are looking at the figures, day by day. We need to take measures pretty quickly....but at the same time, not too hastily,” said HAS head Dominique Le Guludec.

Jean-François Delfraissy, head of the scientific council that advises the government on COVID-19, had said on Sunday that France probably needed a third national lockdown, perhaps as early as the February school holidays, because of the circulation of new variants of the virus.

French European Affairs Minister Clement Beaune, when asked about this on French radio on Monday, replied that no firm decision had been taken on the matter.

France is currently in a nationwide 18h to 6h curfew, in a bid to slow down the spread of the virus, but the average number of new infections has increased from 18,000 per day to more than 20,000.

Geoffroy Roux de Bézieux, head of the MEDEF French business lobby group, said he would call on the government to keep as many businesses and schools open as possible in any new lockdown, to protect the economy and help children’s education.

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EU urges AstraZeneca to speed up vaccine deliveries amid 'supply shock'

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The European Union has urged AstraZeneca to find ways to swiftly deliver vaccines after the company announced a large cut in supplies of its COVID-19 shot to the bloc, as news emerged the drugmaker also faced supply problems elsewhere, write and

In a sign of the EU’s frustration - after Pfizer also announced supply delays earlier in January - a senior EU official told Reuters the bloc would in the coming days require pharmaceutical companies to register COVID-19 vaccine exports.

AstraZeneca, which developed its shot with Oxford University, told the EU on Friday it could not meet agreed supply targets up to the end of March, with an EU official involved in the talks telling Reuters that meant a 60% cut to 31 million doses.

“We expect the company to find solutions and to exploit all possible flexibilities to deliver swiftly,” an EU Commission spokesman said, adding the head of the EU executive Ursula von der Leyen had a call earlier on Monday with AstraZeneca’s chief Pascal Soriot to remind him of the firm’s commitments.

A spokesman for AstraZeneca said Soriot told von der Leyen the company was doing everything it could to bring its vaccine to millions of Europeans as soon as possible.

News emerged on Monday that the company faces wider supply problems.

Australia’s Health Minister Greg Hunt told reporters AstraZeneca had advised the country it had experienced “a significant supply shock”, which would cut supplies in March below what was agreed. He did not provide figures.

Thailand’s Health Minister Anutin Charnvirakul said AstraZeneca would be supplying 150,000 doses instead of the 200,000 planned, and far less than the 1 million shots the country had initially requested.

AstraZeneca declined to comment on global supply issues.

The senior EU official said the bloc had a contractual right to check the company’s books to assess production and deliveries, a move that could imply the EU fears doses being diverted from Europe to other buyers outside the bloc.

AstraZeneca has received an upfront payment of 336 million euros ($409 million) from the EU, another official told Reuters when the 27-nation bloc sealed a supply deal with the company in August for at least 300 million doses - the first signed by the EU to secure COVID-19 shots..

Under advance purchase deals sealed during the pandemic, the EU makes down-payments to companies to secure doses, with the money expected to be mostly used to expand production capacity.

“Initial volumes will be lower than originally anticipated due to reduced yields at a manufacturing site within our European supply chain,” AstraZeneca said on Friday.

The site is a viral vectors factory in Belgium run by the drugmaker’s partner Novasep.

Viral vectors are produced in genetically modified living cells that have to be nurtured in bioreactors. The complex procedure requires fine-tuning of various inputs and variables to arrive at consistently high yields.

“The flimsy justification that there are difficulties in the EU supply chain but not elsewhere does not hold water, as it is of course no problem to get the vaccine from the UK to the continent,” said EU lawmaker Peter Liese, who is from the same party as German Chancellor Angela Merkel.

The EU called a meeting with AstraZeneca after Friday’s (22 January) announcement to seek further clarification. The meeting started at 1230 CET on Monday.

The EU official involved in the talks with AstraZeneca said expectations were not high for the meeting, in which the company will be asked to better explain the delays.

Earlier in January, Pfizer, which is currently the largest supplier of COVID-19 vaccines to the EU, announced delays of nearly a month to its shipments, but hours later revised this to say the delays would last only a week.

EU contracts with vaccine makers are confidential, but the EU official involved in the talks did not rule out penalties for AstraZeneca, given the large revision to its commitments. However, the source did not elaborate on what could trigger the penalties. “We are not there yet,” the official added.

“AstraZeneca has been contractually obligated to produce since as early as October and they are apparently delivering to other parts of the world, including the UK without delay,” Liese said.

AstraZeneca’s vaccine is expected to be approved for use in the EU on Jan. 29, with first deliveries expected from 15 February.

($1 = €0.8214)

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