Why Mittelstand Must Go International: 5 Key Reasons

The German Mittelstand is facing challenges in their home market. Economic downturns, fluctuating demand, and market saturation are putting pressure on SMEs. Many companies are struggling with underutilized production capacities, leading to declining profitability. In response, cost-cutting measures—such as workforce reductions, supply chain optimizations, and operational efficiencies—are often the first reaction. While these actions may offer short-term relief, they do not provide a sustainable, long-term strategy for growth and resilience.

A more forward-looking and effective approach is internationalization. By expanding into foreign markets, Mittelstand companies can unlock new revenue streams, diversify risks, and strengthen their competitive position. However, going global is not just about increasing exports—it’s about building a presence in strategic markets, optimizing operations, and leveraging the strength of the "Made in Germany" brand.

Based on my experience as a managing director of subsidiaries in Europe and Asia, I will outline the five most compelling reasons why Mittelstand companies must embrace internationalization to secure their future.

1. Market Diversification

Expanding into international markets allows Mittelstand companies to reduce their dependence on the domestic economy, thereby mitigating risks associated with local economic downturns. By diversifying their market presence, these companies can stabilize revenue streams and enhance resilience against regional economic fluctuations. For instance, in the first half of 2024, German exports to Poland increased by 4.6% to EUR 48.4 billion, while exports to China decreased by 2.7% to  EUR 48.2 billion, according to this Reuter article . This shift indicates a strategic move by German companies to diversify their export markets, reducing reliance on any single country.

Market diversification also provides opportunities to tap into emerging markets with high growth potential. Countries in Asia, Africa, and Latin America are experiencing rapid economic development, creating new demand for products and services. By entering these markets early, Mittelstand companies can establish a strong foothold and benefit from the growing consumer base. Additionally, diversification helps companies to spread their risks across different regions, ensuring that a downturn in one market does not significantly impact their overall business performance.

2. Access to New Revenue Streams

Entering international markets opens avenues for additional revenue beyond the saturated domestic market. This expansion enables Mittelstand companies to tap into new customer bases and increase their overall sales. According to the German Federal Ministry for Economic Affairs and Climate Action, approximately 44% of German companies export their goods or intermediate products to other markets, contributing significantly to the country's economic success. Notably, even small firms generate an average of over 20% of their turnover from exports, highlighting the substantial revenue potential of internationalization.

Moreover, accessing new revenue streams allows companies to leverage their existing capabilities and products in new ways. For example, a company that has developed a successful product in Germany can adapt it to meet the needs and preferences of customers in other countries. This not only increases sales but also enhances the company's brand recognition and reputation on a global scale. Additionally, international markets often offer higher profit margins due to lower competition and higher demand for quality products.

3. Economies of Scale

International expansion allows companies to achieve economies of scale by increasing production levels and spreading fixed costs over a larger output. This results in a lower per-unit cost of production, enhancing competitiveness. Economies of scale mean that production at a larger scale (more output) can be achieved at a lower cost, see Investopedia.

Achieving economies of scale also enables companies to invest in advanced technologies and processes that further reduce costs and improve efficiency. For example, a company that expands its operations internationally can invest in automated production lines, advanced logistics systems, and sophisticated supply chain management tools. These investments not only lower production costs but also improve product quality and delivery times, giving the company a competitive edge in the global market. Additionally, economies of scale can lead to increased bargaining power with suppliers, resulting in better terms and lower input costs.

4. Leverage the "Made in Germany" Brand

The "Made in Germany" label is synonymous with high quality and engineering excellence. By entering international markets, Mittelstand companies can capitalize on this strong brand reputation to attract customers seeking reliable and superior products. Germany is among the top ten most innovative countries worldwide, with a strong emphasis on using science for economic benefit. The country is adept at effectively translating research into practical applications, which has been an engine for job growth and societal benefit, according to Walters Kluwer.

Leveraging the "Made in Germany" brand also allows companies to differentiate themselves from competitors in international markets. Customers around the world associate German products with reliability, durability, and innovation. By highlighting these attributes in their marketing and branding efforts, Mittelstand companies can build trust and loyalty among international customers. Furthermore, the strong reputation of the "Made in Germany" brand can open doors to new business opportunities, such as partnerships, collaborations, and joint ventures with foreign companies.

5. Future-Proofing the Business

Internationalization ensures long-term sustainability by adapting to global trends and reducing reliance on any single market. By establishing a presence in multiple regions, Mittelstand companies can better navigate economic uncertainties and position themselves for future growth. The Germany Trade & Invest (GTAI)highlighted that diversifying supply and value chains has become a strategic priority in Germany, especially in light of recent global events. This approach not only mitigates risks associated with supply chain disruptions but also aligns with broader efforts to reduce dependence on specific markets.

Future-proofing the business through internationalization also involves staying ahead of industry trends and technological advancements. By operating in multiple markets, companies can gain insights into emerging trends and innovations that can be applied to their operations. This proactive approach helps companies to remain competitive and responsive to changing market conditions. Additionally, internationalization provides opportunities for continuous learning and development, as companies interact with diverse cultures, business practices, and regulatory environments.

By embracing internationalization, German Mittelstand companies can enhance their competitiveness, ensure long-term growth, and maintain their pivotal role in the global economy.

Conclusion: Act Now to Secure Your Future

The challenges facing the Mittelstand are clear—domestic market stagnation, underutilized production, and growing competitive pressure. While cost-cutting may provide temporary relief, it is not a sustainable strategy. The real solution lies in internationalization. Expanding into foreign markets allows the Mittelstand to diversify risks, unlock new revenue streams, leverage economies of scale, and strengthen their global competitiveness.

However, internationalization is not without challenges. Success depends on a deep understanding of the target market, local business culture, and regulatory environment. Many Mittelstand companies have realized that the right partners make all the difference. A Cross-border interim manager based in the target region can significantly shorten the go-to-market time and help avoid costly mistakes when establishing a new international subsidiary. His local expertise ensures a smooth market entry and sets the foundation for long-term success.

If your company is considering international expansion, don’t go it alone. With my experience managing subsidiaries in Europe and Asia, as Cross-Border Interim Manager I can help you navigate the complexities of global growth and build a strong presence in Asia Pacific. Let’s discuss how to make your expansion strategy a success—contact me today!