The Strategist

Think small is the way forward for Germany


03/14/2015 - 05:47



Although German economy is going strong, new businesses are not sprouting due to socio-economic reasons. Efforts are being made to change the perception of an entrepreneur and entrepreneurships, in order to kick-start new businesses.



Germany is one of Europe’s biggest economy and what it needs right now is are businesses who think small. As weird as that sounds, the point is that although German industry is booming with unemployment at a record low, but as the saying goes, the devil is in the details. This surge in the economy is mainly driven by established companies. Startups are a rare breed and are getting rarer by the day. This trend is worrisome for policy makes and thus their advice think small.

Sigmar Gabriel, Germany’s Social Democrat Economic Minister, with leftist tendencies, has read the pulse of the economy closely and is pushing to provide tax incentives for startups so that they can tap the primary and secondary market by getting themselves listed in the stock market. It is critical that entrepreneurship does not die in Germany.

In signs that the Government is taking this seriously, last month Mr. Gabriel, announced plans that further nurture the appeal of private-equity for German startups. He has proposed that companies can carry forward their losses over multiple years and set them off against their profit, even if  the company has been bought over.

In a meeting with stock market officials, entrepreneurs, investors and bankers which was a platform aimed at promoting listing of firms in the stock market, Mr. Gabriel said
“It is important to me to make the bourse again an important source of financing for young, fast-growing companies,”

Economic success and cultural attitudes are currently stifling the creation of startups. What is to be noted is that, entrepreneurship has been in the blood of Germans. After the Second World War Germany rose from the ashes largely thanks to the spirit of entrepreneurship.

As per available statistics, almost 60% of the Germany’s workforce work in small companies. Typically these companies employ less than 500 employees with a yearly turnover of less than $56 Million. But most of these companies have been created decades ago. One in four Germans see themselves as entrepreneurs while for the Americans it is almost four out of four. This is the result of a survey done by Amway Corp with a joint collaboration with Technical University Munich.

Nicola Breugst, professor of Entrepreneurship Research Institute says:
“Germans don’t view entrepreneurship that positively. … In other countries, entrepreneurs have a better reputation,”

As per Professeur Breugst, the fear of failure drives away potential entrepreneurs from opening shop, but along with this there is also a psychological baggage which they carry. Germans are very concerned how they will be perceived by family, friends, fellow employers and employees, if and when the business goes south. This perception of insolvency and the fear of failure is what keeps them from being entrepreneurs.

Professeur Breugst says:
“They fear that it’s a blemish [on a résumé]”

In spite of Germany’s effort to revive entrepreneurship, the number of startups are dwindling. As per the office of Federal Statistics 87,000 new companies were registered last year. That may seem a lot, but it is only 28% of new companies registered a decade ago.

Of note is the fact that, Mr. Gabriel’s push for growth in startups is on top of existing government structures which provide free advice, consultations, cheap loans and seminars on tax management, accounting and even in drafting contracts. These initiatives foster the growth of entrepreneurship and smarten the image of entrepreneurs.

References:
http://www.wsj.com/articles/the-giant-hole-in-germanys-economy-startups-1425517694





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