A Review questions for Unit 5 in coursebook.

Part 5. SUCCESS

Section 1. Reading.

Management in mid-sized German Companies

A Questions for discussion before you read

1. In business is bigger always better?

2. If you are looking for new management ideas, should you always look at management in companies bigger than yours?

Germany’s midsized companies have a lot

To teach the world

Nov 25th 2010 | from PRINT EDITION

Management gurus are constantly scouring the world for the next big idea. Thirty years ago they fixated on Japan. Today it is India. The more restless are already moving on to Peruvian or Zulu management. Yet in all this intellectual globe-trotting the gurus have sorely neglected the secrets of one of the world’s great economies. Germany is the world’s largest goods exporter after China despite high labour costs and a strongish euro. It is also stuffed full of durable companies that have survived hyperinflation and two world wars. Faber-Castell, a giant among pencilmakers, boasts that Bismarck was a customer.

Thankfully, a couple of management thinkers have defied the boycott on Germany. On November 18th Bernd Venohr, of the Berlin School of Economics and Law, gave a fascinating talk on the “secret recipe” of the country’s Mittelstand at the second annual Peter Drucker Forum in Vienna. Last year Hermann Simon, of Simon-Kucher & Partners, a consultancy, published an even more gripping sequel to his 1996 book on “Hidden Champions”. Put the two together and you get a good idea of the management theory at the heart of Germany’s success.

Although the term Mittelstand is sometimes applied to quite small, parochial firms, the most interesting ones are rather bigger and more outward-looking. Most shun the limelight: 90% of them operate in the business-to-business market and 70% are based in the countryside. They are run by anonymous company men, not hip youngsters in T-shirts and flip-flops.

They focus on market niches, typically in staid-sounding areas such as mechanical engineering rather than sexy ones like software. Dorma makes doors and all things door-related. Tente specialises in castors for hospital beds. Rational makes ovens for professional kitchens. This strategy helps them avoid head-to-head competition with global giants (“Don’t dance where the elephants play” is a favourite Mittelstand slogan). It has also helped them excel at what they do.

Globalisation has been a godsend to these companies: they have spent the past 30 years of liberalisation working quietly but relentlessly to turn their domination of German market niches into domination of global ones. They have gobbled up opportunities in eastern Europe and Russia. They have provided China’s “factory to the world” with its machine-tools.

The Mittelstand dominates the global market in an astonishing range of areas: printing presses (Koenig & Bauer), licence plates (Utsch), snuff (Pöschl), shaving brushes (Mühle), flycatchers (Aeroxon), industrial chains (RUD) and high-pressure cleaners (Kärcher). Kärcher’s dominance of the high-pressure market is so complete that in 2005 Nicolas Sarkozy caused a scandal, after a spate of riots, by calling for a crime-ridden banlieue to be cleaned out “Kärcher”.

How durable is the Mittelstand model? Sceptics worry that it will eventually become the victim of globalisation: emerging-world companies will learn to produce their own clever machines at a fraction of the cost. They also worry that Mittelstand companies are too conservative. American start-ups can become global giants in a generation (Wal-Mart, now the world’s biggest retailer, was not even listed on the stock exchange until 1972). German companies are content to remain relatively small.

The first criticism is overstated. Mittelständler have not only focused on sophisticated niches that are hard to enter. They have thrown their energies into building up ever more powerful defences. They constantly innovate to stay ahead of potential rivals. They are relentless about customer service. Their salespeople are passionate about their products, however prosaic, and dogged in their determination to open up new markets. Mr Simon’s “hidden champions”, mostly German Mittelstand firms, typically have subsidiaries in 24 foreign countries, offering service and advice. Many get the bulk of their revenues from service rather than products. Hako, which makes cleaning equipment, generates only 20% of its revenue from sales of its machines.

The second criticism has more substance. Germany has a poor record at generating start-ups or at quickly turning smallish firms into giants. Mittelstand firms are finding it increasingly difficult to persuade the world’s best and brightest to make their careers in rural backwaters. But for all that, the record of the Mittelstand over the past three decades has been a history of global conquest rather than missed opportunities. Koenig & Bauer, for example, gets 95% of its revenue from outside Germany.

German lessons

So the Mittelstand is likely to keep powering Germany’s export machine for years to come. But does it have any lessons for the rest of the world? Mr Simon says that although 80% of the world’s medium-sized market leaders are based in Germany and Scandinavia, successful Mittelstand-style companies can be found everywhere from the United States (particularly the Midwest) to northern Italy, so the model does seem to be transferable.

Three general lessons—for politicians as well as corporate strategists—follow from this. First, you do not need to try to build your own version of Silicon Valley to prosper; it is often better to focus on your traditional strengths in “old-fashioned” industries. Second, niches that appear tiny can produce huge global markets.

The third lesson is that Western companies can preserve high-quality jobs in a vast array of industries so long as they are willing to focus and innovate. Theodore Levitt, one of the doyens of Harvard Business School, once observed that “sustained success is largely a matter of focusing regularly on the right things and making a lot of uncelebrated little improvements every day.” That is a lesson that the Germans learned a long time ago—and that the rest of the rich world should take to heart.

http://www.economist.com/blogs/schumpeter

B Complete the sentences below.

1) A management guru is ...

a) a successful manager.

b) an Indian manager.

c) an expert on management.

2) If you scour the world, you ...

a) explore it searching for something.

b) explore it without knowing what you are searching for.

c) travel for pleasure.

3) If you are fixated on an idea or procedure, you ...

a) prefer to use this idea more than others.

b) believe the idea has no value.

c) use the idea or procedure to mend things which are broken.

4) If you describe a currency as strongish, it is ...

a) always strong.

b) very strong.

c) fairly strong.

5) If a product or company is durable, it ...

a) is very old.

b) has functioned successfully for many years.

c) is out-of-date.

6) If you defy a convention, you ...

a) attend it.

b) do not follow it.

c) argue against it.

7) The sequel to a book is ...

a) the way in which the book develops.

b) the people who follow the ideas in the book.

c) the book which comes after another book.

8) A parochial firm is ...

a) a firm owned by a religious group.

b) a firm which operates in a small area.

c) a firm owned by a single family.

9) Anonymous company men ...

a) do not have names.

b) use false names.

c) are not well-known.

10) If you are hip, you are ...

a) young.

b) fashionable.

c) energetic.

11) If something is staid, it is ...

a) traditional but slightly old-fashioned.

b) obsolete.

c) no longer useful.

12) A niche is ...

a) a special place.

b) a secret space

c) a small space.

13) A spate refers to ...

a) a large number of, probably bad, events.

b) a group of valuable assets.

c) a large number of, probably angry, people.

14) A sceptic is someone who ...

a) a person who does not have any infectious diseases.

b) a person who often worried for no significant reason.

c) a person who does not automatically believe something heard or read.

15) If you overstate an argument, you ...

a) exaggerate the argument.

b) suggest the argument is not logical.

c) over-react to the argument.

16) If something is prosaic, it is ...

a) creative.

b) ordinary, not interesting.

c) familiar and friendly.

17) If your determination is dogged, you will ...

a) admit defeat very quickly.

b) not admit defeat until the last moment.

c) not admit defeat after you are defeated.

18) If you innovate, you ...

a) make an old thing look as if it is new.

b) use new ideas in creative ways.

c) re-use ideas which has been used before.

19) A sustained success ...

a) requires regular injections of capital.

b) lasts for a long time.

c) will damage your reputation.

20) If you take a lesson to heart, you ...

a) change your behaviour because of the lesson.

b) memorise the lesson.

c) accept some parts of the lesson.

C Read the article carefully. Choose the best endings to complete the sentences below.

1) Management gurus should search for new ideas	a) quite small companies outside city centres.
2) Even though labour is expensive,	b) be sold in huge global markets.
3) Many of these exports are generated by	c) Germany is the second largest exporter of manufactured goods.
4) These companies sell their goods	d) innovation.
5) They do not produce mass market	e) are too conservative.
6) Germany produced the machine tools	f) rather than products.
7) Critics complain that these small firms	g) from mid-sized companies in Germany.
8) Many small companies sell services	h) old-fashioned industries
9) Prosperity can derive from strength in	i) consumer products, but high quality, niche products.
10) High quality niche products can	j) to other companies around the world.
11) Western companies should focus on	k) that were used in Chinese factories.

D Speaking topic. Discuss the questions below. Give reasons for your opinions.

1. Think about management in commercial operations of different sizes a one person freelance business, a small family business, a mid-sized business and a large international corporation.

2. How is management different in these different types of business?

3. How does the difference in management style influence communication, capital investment, advertising and marketing, expansion, finding new markets, delivery to markets, customer service and other factors?

4. Businesses would like to have a large number of customers. But how does increasing the number of customers change the management requirements?

5. Businesses would like to offer a large number of products in their catalogue. But how does increasing the number of products in the catalogue change the management requirements?

Section 2. Writing.

Doing Business in Ukraine

A Review questions for Unit 5 in coursebook.

1) Products sell well if there is a demand ... them.

a) of

b) to

c) for

2) An entrepreneur is a person who ...

a) starts up his/her own business.

b) invests money in other people’s businesses.

c) manages a business for another person.

3) Which word belongs to this word family: produce, product, production?