McKinsey study. How German SMEs are overcoming the impacts of the COVID-19 pandemic

Germany implemented strict measures when the COVID-19 pandemic started spreading in Europe, including closing schools and shops. These measures have been steadily relaxed since late April, with shops and businesses reopening with restrictions in mid May. Nevertheless, the weeks of lockdown have had enormous consequences for companies of all sizes. SMEs, or the Mittelstand, account for 57.6% of the country’s employment and 34.4% of government revenues; of the world’s 2,700 “hidden champions”, nearly half are from Germany. A recent study by corporate consultancy McKinsey investigates the economic impacts of the coronavirus pandemic on these companies that are of enormous structural relevance for the German economy. It claims that the crisis has called into question much of what was previously taken for granted, showing that the German economy needs structural transformation and innovation, particularly in the area of digitisation. However, it says that the German Mittelstand remains optimistic and undeterred by the negative impacts, with a surprising 77% of businesses surveyed predicting a positive future. Even if this optimism isn’t so straightforward to explain, and with revenue shortfalls expected in the short term, the Mittelstand still in most cases believe in their own strength. Their confidence is completely justified, too. The study mentions that Satya Nadella, Microsoft CEO, recently spoke about seeing two years of digital transformation in two months, and how this is taking place in all businesses right now due to the coronavirus. This spirit has spurred leading Mittelstand companies to take similar action. Accordingly, digital transformation remains a priority for 89% of respondents and has even increased in importance for 34% during the crisis. The dilemma here is that while the immediate crisis increases the pressure for digital transformation, it also puts the brakes on ongoing digital projects. McKinsey expects the German economy to return to the growth trajectory it would have had without the pandemic fallout by 2028, provided the digital structural change continues and the losses caused by the coronavirus stay within the range forecast.

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