tA road winding through the German countryside from Stuttgart to the small town of Molfingen gives little evidence that this southwestern region is home to many companies that are world market leaders in their field.
But the north-east of Baden-Württemberg has many successful niche companies that make up it Mittelthe base of small and medium-sized engineering companies that are the backbone of the German economy and envied around the world.
Fans and ventilators manufacturer ebm-papst is still headquartered in Mölvingen – a town of around 3,600 inhabitants – but its products are found all over the world in cars, home appliances and data centres.
However, the Energy crisis caused by the Russian invasion of UkraineCombined with labor shortages and post-pandemic supply chain disruption, pressure is increasing on these traditionally family-owned businesses — and without the deep pockets that German giants enjoy.
With Germany has braced for recession this yearHow this industrial heart responds and adapts to multiple crises will help shape not only the country’s future but the broader eurozone as well. Germany is expected to be the third worst performer in the G20 (-0.3%) this year, according to the Organization for Economic Co-operation and Development, after Russia and the United Kingdom. Manufacturing accounts for about a fifth of the German economy, more than twice the 9% of the UK and France, and ahead of Italy’s 15%.
The largest industrial employer in the region, ebm-papst employs around 4,000 in Mulfingen, most of whom produce fans and motors for ventilation, refrigeration and air conditioning technology.
Founded in 1963 by Gerhard Sturm, the company calls itself “The Hidden Hero,” and is still family-owned, but was run last year by CEO, Klaus Gaisdorfer.
Under his leadership, the company decided to end the production of car enthusiasts. Instead, it shifted employees to focus on new technologies, such as making ventilators heat pumps and fans to cool data centers.
“We said we’d better focus on the things we’re really best at in the world,” Gisdorfer says from his office at IBM Pabst headquarters.
“We decided to significantly increase our capacity, which we will increase next year, because at the moment we are unable to keep up with demand.”
Despite turning a profit on booming sales in fans of renewable technologies, the past few years haven’t been easy for ebm-papst. China’s Covid lockdowns and resulting supply chain disruptions have sometimes brought German production lines to a halt, which Geißdörfer says “doesn’t make sense”.
As a result, the company has worked to source more parts locally, near its large factories in Germanyas well as in the United States and China.
Along the way in this economic heart is the headquarters of the nearly 80-year-old company Würth, located near Bürkert, a manufacturer of measurement and control systems for liquids and gases.
These companies helped southern Germany become an industrial powerhouse, bringing prosperity and a sense of local pride to the region.
“The area has a lot of international market leaders,” says Donata Leal, who runs a guesthouse and local restaurant. She believes the industrial base boosts her clients’ spending power: “People here make more money.”
Geißdörfer, who hails from neighboring Bavaria, is convinced that the small community of Molfingen is a good place to run a manufacturing business.
“We have smart people here. I love the spirit of the people here, they are so passionate,” he says.
But does the company have enough of these people to meet the growing demand? Despite Geißdörfer’s positivity, ebm-papst has difficulties finding employees with the right skills, as well as problems sourcing components, such as semiconductors.
Ebm-papst has attempted to solve the worker shortage by offering some remote work for employees in administrative roles, as well as free bus travel to work for employees who live within a 40-kilometre (25-mile) radius, a benefit currently used by about 1,500 people.
Amid the company’s cost pressures, and the higher prices being demanded by its suppliers, employees say they are experiencing a cost-of-living crisis.
The employees at the factory raised their personal financial difficulties directly with Geißdörfer.
“I’ve had people come up to me and say, ‘I can’t buy my kids Christmas gifts anymore,’” he says. “I talk to people, and they say, ‘I can’t stand the holidays anymore.'”
During the summer, the company paid the employees an additional €2,500 in cost-of-living payments, in five monthly installments of €500 from October onwards.
“We stay close to our people, support them in difficult times and go through crises together and try to find a way to deal with them,” says Geisdorfer, describing this as one of the strengths of Mittel.
“This is the positive thing with this kind of family business structure in Germany. I also see other companies doing similar things.”
However, this may not be enough. The metalworkers’ union IG Metall, the country’s largest, already represents workers at ebm-papst’s other manufacturing sites in Germany, but not at its home site in Mulfingen, as a result of a landmark labor agreement. Uwe Bauer, IG Metall’s representative in the Schwäbisch Hall area, says he’s working on getting his foot in there too.
Bauer says the union has recruited several hundred members in Mölvingen in recent months, as workers realize full employment locally creating a “market for employees”.
“Companies need to rethink what to do with skilled workers,” Bauer says.
“We get a lot of requests about companies that are bound by collective wage agreements. Wages play a role, but so do normal working hours,” says Bauer.
Ebm-papst’s nationwide pay offer is broadly in line with A collective wage agreement between IG Metall and employers in Baden-Württemberg in late November, although the workers at Mulfingen are not subject to this agreement.
The wage deal, which sets the benchmark for wage increases for nearly 4 million workers in the metals and electricity sector across Germany, increases workers’ wages by 5.2% from June and 3.3% from May 2024. In addition, they will also receive inflation of 3,000 euros bonus, “as the federation calls it, tax-free and to be paid in two installments in March 2023 and 2024.
The agreement is generous by historical standards, but it still drew some criticism for coming in below inflation, with the annual rate hitting 10% in November, According to official statistics.
While wage issues are being settled for the time being, obtaining spare parts remains a middle challenge Global shortage of semiconductor chips since the beginning of the epidemic.
In the race to get these vital ingredients, Mittel Companies find themselves unable to compete financially with the country’s largest manufacturers, especially automakers.
“We as a company can grow faster if we can get more semiconductors,” says Geißdörfer. “In a way, we are competing. But the industry is competing with the auto industry, the solar industry, the renewable energy industry, and we all need the same kind of electronics.”
The government must do more to shore up the country’s vital network of small and medium-sized businesses, he says, particularly with rising energy costs, which Gisdorfer believes make European companies globally uncompetitive compared to Asian or American competitors. Recent declines in wholesale energy prices offer only a glimmer of hope.
“I do have concerns about German small and medium-sized companies that are very dependent on energy. They have real problems at the moment to work on with these huge increases in energy costs.”
while welcoming Government subsidies for energy billsand Geißdörfer, among others Mittel Employers fear that Berlin does not have a clear industrial strategy, especially when it does Wean the country off cheap Russian gas. The decision of Angela Merkel’s government to shut down nuclear power plants After the Fukushima disaster in Japan in 2011 left it vulnerable to the Kremlin’s use of gas as a weapon.
“In Germany, we need to reinvent ourselves,” says Geisdorfer, acknowledging geopolitical challenges, including the energy transition, and Brexit.
“We are still strong enough to have enough money and we can afford it, but we need to do it quickly, to think about how we can get a stable economy going forward. But it is a minute before midnight.”