840,000 retirements: The powerhouse of Europe’s biggest economy faces a 5-year succession crisis

  • Germany’s class of small or medium businesses – known as the Mittelstand – faces a looming succession crisis, according to an FT report.
  • Over the next five years, the heads of 840,000 businesses are set to retire, and need to find successors.
  • “The Mittelstand is going to be hit by a wave of succession that will change its face,” KfW chief economist Jörg Zeuner said.

Germany’s small and medium-sized businesses, which act as the country’s economic backbone, faces a looming crisis of succession as retiring entrepreneurs struggle to find people to take over their work.

According to a Financial Times report, which cites a survey by lender KfW, around 840,000 owners of small or medium businesses – often known as the Mittelstand – will face have to find successors in the coming five years.

Many of the businesses were set up in Germany in the post-war years, but the owners are now approaching their retirements, creating a generational gap. The KfW survey suggests that one in five of the Mittelstand’s businesses could face a change of ownership, or closure by the year 2022.

“The Mittelstand is going to be hit by a wave of succession that will change its face,” KfW chief economist Jörg Zeuner said.

Things are almost as bad in the short term, the KfW said, with around 100,000 entrepreneurs who want to retire within two years unable to find a successor.

Mittelstand businesses are not just threatened by succession woes, and also face challenges when it comes to modernising for the digital age, with KfW warning that many are underinvesting in the area.

“Just one in four small and medium-sized enterprises (26%) have invested in the deployment of new or improved digital technologies for processes, products or services,” a KfW report notes, adding that Mittelstand firms spent €14 billion on digitalisation projects in 2016.

That compares to the €169 billion they invested in new machinery, buildings, and equipment in the same period.

“Precisely because new business models and new service and product offerings are very important for growth, productivity and competitiveness, a reorientation is imperative,” Zeuner said.

Brexit could also have a negative impact on SMEs in Germany, with the head of a trade group which represents over 250,000 German SMEs warning last year that a hard Brexit would “harm” the Mittelstand.