ISET hosts Professor of Berlin School of Economics and Law, discusses small & medium enterprises
Tuesday, 08 October, 2019

Independent entrepreneurship is one of the main drivers of economic development and often manifests itself in the form of small and medium enterprises (SMEs). These start-ups trigger innovation, boost productivity, and bring about structural change.

As Prof. Dr. Hansjörg Herr explained, Germany has been able to reap the benefits of this due to a multitude of internal factors. Its local banking system, for instance, is not profit-oriented and consists of savings banks, which are more accessible for entrepreneurs. The country’s vocational education system, too, plays a part, with its split system of teaching both practical skills and theoretical knowledge (in contrast to the more academic education practices of other Western countries). In addition, the government is very supportive of SMEs, as is the government’s development bank, the KfW.

The success of German SMEs is perhaps best demonstrated by the fact that a significant number of them are what Prof. Dr. Hansjörg Herr referred to as ‘hidden champions’; companies that have little public visibility but produce highly-specialized products, employ a qualified workforce, and receive large amounts of R&D investment. On the global scale, Germany has 1307 ‘hidden champions’, but the United States has only 356, and Japan 220.

It was important, Prof. Dr. Hansjörg Herr explained, for SMEs to operate in ‘clusters’, and find common ground; this was described as ‘cooperation with competition’, an important facet of SMEs’ operations, as hostile competition can be a direct hindrance. At this time, Germany’s clusters of SMEs constitute some of the top industrial regions of Europe.

Prof. Dr. Hansjörg Herr conceded, however, that it will not be possible for Georgia to directly imitate Germany’s SMEs. Developing countries typically suffer from limited access to long-term and affordable finance, insufficient institutions for developing a skilled class of entrepreneurs and workers, a low income, and poor policies to support the economic and social upgrading of SMEs.

It is still possible, though, for Georgia to develop its own SME sector, and Prof. Dr. Hansjörg Herr recommended that the social and economic considerations of SMEs be combined: it is difficult, he explained, for one to happen without the other. Above all, different SMEs need different strategies – this is, of course, dependent on the nature of the enterprise itself.

While it is not possible for Georgia to directly replicate Germany’s SMEs, it is at least very useful for Germany to raise awareness of their function, and encourage developing countries to examine ways in which SMEs will be able to contribute to economic growth.