A 500-Year-Old Firm’s Mettle Is Key to German Virus Resilience

(Bloomberg) -- As head of Germany’s oldest family-owned company, with roots stretching back more than half a millennium, Paul Niederstein can tap into 16 generations of ancestors for inspiration in effective crisis management.

The coronavirus pandemic is by no means the first existential threat that Niederstein’s firm Coatinc has faced since it was founded in 1502, having survived numerous wars, as well as the Black Death and Spanish Flu.

A surface finisher based in Siegen to northwest of Frankfurt, Coatinc is one of Germany’s famed “Mittelstand” firms. These are mostly small and medium-sized, often family-held entities that are the backbone of Europe’s biggest economy -- accounting for more than 90% of companies and employing around 60% of its workforce.

While the Mittelstand has been hit hard by the virus, a survey published Monday highlighted the general resilience of companies like Coatinc, suggesting it was a factor in helping Germany bounce back relatively quickly from the collapse in output in the spring.

Their business model is based on solid finances, which meant that they were well prepared to deal with the fallout from the pandemic, according to Rainer Kirchdoerfer, a board member at the Foundation for Family-Run Businesses, which commissioned the survey by the Ifo and ZEW research institutes.

That’s borne out by the experience of Coatinc, which was founded by Niederstein’s distant ancestor Heylmann Dresler, a master steel smith. The company, which has annual sales of around 300 million euros ($355 million) and employs more than 2,000 people in Europe, Mexico and the U.S., was in a strong position thanks to solid equity and cash positions, Niederstein said.

“In recent years, we have optimized our equity ratio and cost situation to such an extent that we can smoothly navigate such crises,” he said in an interview.

Specialized Niches

Mittelstand companies are often focused on longevity rather than just profit and growth, so they plan with a long-term horizon that goes well beyond the next quarter or fiscal year. They also tend to focus on specialized niches that are less volatile to sudden changes in consumer behavior.

Over the centuries, they have shown they can adapt to survive. Another example is a company like Burger Group in the Black Forest, which evolved out of the local cuckoo-clock trade to become a precision gear maker.

To be sure, many family-owned forms have taken a painful blow since the pandemic struck in the spring. The 2,452 companies surveyed by Ifo and ZEW expect sales to decline on average by nearly a quarter this year, though only 11% said they were forced to shutter factories or close production sites.

The institutes assessed resilience in terms of three distinct stages: a “preparation” period to build capacity to deal with the crisis, an “alleviation” phase, during which the aim is to keep the business functioning as far as possible, and an “adaptation” stage designed to deal with long-term changes to the economic environment.

More than 90% of the companies surveyed took action to address the immediate impact of the crisis or to deal with the longer-term consequences and 45% had a specific crisis plan.

“Our family companies have taken steps during each stage to increase their resilience,” Kirchdoerfer said.

Wage Support

Assistance provided by Chancellor Angela Merkel’s government has been crucial in mitigating the impact of the pandemic, the survey suggested.

Firms were particularly positive about the wage support program called “Kurzarbeit” in German -- 83% characterized it as “good” or “very good” and just over half said they had tapped into it.

At the same time, the institutes said that uncertainty caused by the recent fresh wave of infections makes it hard to complete a definitive assessment of how companies will cope going forward.

In Coatinc’s case, Niederstein said the firm has been helped by the relative robustness of the construction industry they depend heavily on for business.

He’s cautious about the coming months, but not pessimistic, lifted by optimism that a vaccine will be rolled out and the government will be able to help offset the impact on the economy.

“We are not necessarily very large or excessively rich, but we are rich in experience,” he said. “I learned from my ancestors that a sense of balance, as well as fairness and persistence, are the key values.”

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