Market insights

Why German SMEs choose Singapore: talent, location, governance

09 November 2017 by Adam De Gree

Globalisation has come to be almost synonymous with cheap labour and cheaper goods. While this may be true of certain multinational supply chains, Germany’s SMEs, also known as Mittelstand companies, see more than a quick profit on the horizon. In fact, these businesses are willing to sacrifice short-term gains to achieve the sustainable success that has made them the backbone of Germany’s economy, an approach that has been called “patient capitalism”.

And the key to their success in recent years has been a pivot to Asia. Based on a 2015 study, Asia accounts for 20 per cent of the global revenues of German Mittelstand Champions (GMCs), which refers to the larger and globally active Mittelstand companies, many of them with annual revenues of up to 1 billion euros (US$1.2 billion). 

GMCs are renowned for finding niches and dominating them, growing to become global market leaders. Examples include Rohde & Schwarz, SSI SCHAEFER and MANN+HUMMEL, which are world leaders in their highly specialised sectors.

Senior executives such as Peter Riedel, President and COO of test and measurement specialist Rohde & Schwarz, recognise that a full commitment is needed to make the most of a golden opportunity the region presents. “We don’t just see our Singapore office as an ‘extended workbench’, but as an integrated part of the company,” he says.

Emerging Asia turns heads in Europe 

The time is ripe indeed. As the Eurozone economy crawls with an annual growth rate forecast of 2 per cent for 2017–2020, Emerging Asia – China, Southeast Asia and India – is all set to expand by an average of 6.2 per cent a year over 2017–2021.

With Southeast Asia alone being home to more than 600 million inhabitants who have just begun their foray into consumerism, this poses a rewarding challenge for the Mittlestand companies.

A sizable number of these firms have established a strong presence in Singapore, taking advantage of the technological possibilities offered by the country’s burgeoning Industry 4.0 scene, with its innovative solutions in advanced manufacturing. There are about 1,690 German companies in Singapore, many of them GMCs.

Yet, as Thomas Fischer, supervisory board chairman of MANN+HUMMEL, a filtration firm with over 20 years of experience in Singapore, cautions: “It is important to develop the Asian market by degrees, to gather experience and build up structures that fit the company and the local market… Companies must learn to accept that it is necessary to develop products tailored to the countries in the region.”

Responding to local needs with local solutions

Global trends – automation, integration, e-commerce – are all present here, but so are the peculiarities of a local market replete with the unique needs of a continent’s many cultures. Businesses must find a way to keep up with the times while honouring the desires and traditions of their modernising clientele. Sometimes, this means investing locally to ensure sustainable growth down the road.

As Fischer says, one cannot “just supply the markets (in Asia) with their standard product range from Germany”.

R&D efforts are central to this process of localisation. Local researchers are poised to pick up on Asian issues such as air quality and develop innovative solutions in collaboration with their German counterparts.

At intralogistics specialist SSI SCHAEFER, that collaboration takes a unique form: product development occurs in Germany, but the Malaysian manufacturing plant and Singapore headquarters customise solutions for local clients, conduct detailed investigations into process improvements and manage accounts. The result is a dynamic combination of tradition and innovation, with solutions localised for the different markets.

Investing in local talent is key to long-term success

However, localisation demands something more than mere product customisation: it demands an investment in local talent as well.

As SSI SCHAEFER has found, an on-site presence is essential to service customers in the region.

“In line with our commitment of being customer-oriented, we have dedicated teams of designers, project managers and IT specialists here in Singapore who are adapting our product range to specifically Asian markets. This is crucial because customers in Asia can benefit from the fastest response times of the local integration team with increasing demand for automation solutions," says Brian Miles, managing director of Schaefer Systems International.

Rohde & Schwarz’s Riedel affirms this approach. “Our customers are from Asia. If our staff come from the same region, it immediately creates a common level of understanding,” he explains.

Yet this desire to bring on Asian talent can come with other hurdles: On a continent where employees change jobs every two to three years, it can be difficult to retain talent for long enough to preserve a corporate culture that values strong manager-worker relationship, direct communication and intense commitment to customers.

That is where talent development programmes come in. Rohde & Schwarz, for instance, partners with local institutions to build talent and skills, while SSI SCHAEFER established a R&D centre for trainings and to showcase latest technologies to student groups and customers. Many GMCs, including Rohde & Schwarz, have partnered with the Singapore Economic Development Board and local polytechnics to establish the ‘Poly-Goes-UAS’ programme, which sponsors students from Singapore to study in the Universities of Applied Sciences in Germany. The programme allows them to work towards their degree while getting on-the-ground training by interning with the sponsoring companies. Many of these students, on graduation, become ideal employees for the sponsoring companies.

By offering continuing education, the Mittelstand companies show that they understand the importance of recruiting and retaining skilled professionals to ensure long-term success in the region.

Singapore: An ideal environment

It all makes a compelling case for the Mittelstand companies to base their operations in Singapore. With its unique combination of high-value local talent and geographical proximity to key markets, GMCs are hard-pressed to find a more efficient choice.

Perhaps equally important is stable governance: Companies simply know that they can trust Singapore with their investments. The country ranks no. 1 in Asia for intellectual property protection, an important factor for innovation-driven companies.

This leaves Singapore with few competitors for businesses who value long-term growth over short-term earnings. For companies who are in it for the long haul, the country offers lucrative opportunities for growth and expansion.

Fischer sums it up: “If you want to move into Asia, you should also bear in mind that it may take a while longer to achieve a profit – success doesn’t come overnight, but by way of compensation the long-term gains are all the more sustainable.”