To compensate for my slightly long-ish absence from writing, I will keep you entertained in reading for a while now. Not necessarily my stuff, but The Economist has done a pretty marvelous job of picking apart the German industrial- and export engine highlighting which parts are useable in other countries and which are best to leave to the Germans.
It sounds pretty dismaying, reading the stuff coming out of the article, which pretty much mows hopes of export focus and austerity along sock-height and spits out a mess of what promises to be red ink and pain. But let me give you some quick takeaways of what I find so fascinating about this article:
- Extremely skilled worker base. Hard to argue with the benefits of either way, and will definitely stand the country in good stead for a long time. In terms of other European countries that posses this, you might want to look north, although Italy also has a surprisingly robust manufacturing base and could well attain this if the restructuring of its government finances allows for some business calm any time in the effective lifespan of this know-how. Don’t go asking for this in Greece, Portugal, or Spain though…
- Niche market oligopolies from specialization and only a few firms worldwide that can compete in that niche. This is particularly prevalent in manufacturing, where there are entire supply chains of these Mittelstand companies that are essentially hidden champions of the German export machine and will go well come regional hell or high water. They are instead much more dependent (as can be inferred from the TE article) on the state of the global economy.
- Shunning of “quarterly capitalism”. Perhaps a few other examples than the ones that TE uses could be beneficial, but ever heard of BMW? It doesn’t make the most financial sense for the individual company and its owners necessarily, but it’s a rare instance of this particular Prisoner’s Dilemma working out to the optimal solution outside of the Nash Equilibrium. having the control, and being able to manage the company on something else than a quarter-to-quarter- and shareholder kiss-ass basis is something that I value a lot in company management (as ironic for an investor as it may be). Taken together over many companies, this results in a culture where longer-term investments, projects and improvements can be undertaken without a worry of FCF to shareholders as a percent of equity. Lately, Google went out for a shelling because they basically kept aspects of this close to heart in their dual shareholder class structuring of voting rights, but I think all praise should be with them. I am fairly comfortable with the concept, as Sweden is one of the countries where this is practiced most, and it seems to be doing fairly fine with some closely held company clusters that sells out the cash flow but maintains the voting rights in the hands of a few qualified people.
- A tradition of business and hard work to fall back on. They’re not a flash-in-the-pan wonder, but has had bouts of less than stellar performance in shorter periods. In the end though, they can always fall back on the mentality and methods, if not companies, that brought it the entire Mittelstand, and made the country bounce up well after the turn of the millenium.
- A system of unions, companies and state that works fairly well, with large parts of trust, cooperation and efforts to go a little bit out of your own best to make sure the system works. Some of the American readers might balk at this, and scream either “Socialism!” or “Ant hill mentality!” at this notion, but, hey, it works. Invisible hand of capitalism, greed is good, egalitarianism is dead, and other cliches probably come to mind. I thought those cliches were germinated in a system that proved to have failed spectacularly in the last five years, but then again, I’m probably too young to remember, right?
And a few more outlook-based snippets are also worth looking into:
- Two lost decades and worse can be overcame. Repeatedly.
- Global manufacturing and engineering skills will be in demand for a long time.
- Yes, converting exporters to consumers is complicated.
- The sold good is not the product itself but the result it’s bought to accomplish. (Hybrid value-added discussion.)
- Look into the reform processes of the corporate environment to see how it’s done.
By the time I realized all these things, bells were ringing all over my head. Where else does most of this stuff apply to? Where can I find symmetries with the German situation that TE so teasingly states are not there?
While there are lessons to be had for any country that does or wants to start exporting, particularly out of its manufacturing base, there is one particular case where I think nearly everything applies, and I have been covertly referring to it in the way the points above are written:
Points 1-5 all apply, although 4 might be a stretch. Highly skilled worker bases, systems of cooperation, shunning of shareholder activism, tradition and niche market oligopolies that structure into supply chains are all there!
There is still a lot to learn from the insights in the article beyond the just mentioned, but could anyone translate the article into Japanese and please post it on nearly any seat of some power in the Land of the Rising Sun, be it business or government? I’m seriously considering paying for proof of this happening in some form, and I’d gladly post and praise any such initiatives here.