HOW GERMAN "MITTELSTAND" COPES WITH COVID-19 CHALLENGES - MAY 2020 - MCKINSEY & COMPANY
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How German “Mittelstand” copes with COVID-19 challenges May 2020 CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited
• COVID-19 is, first and foremost, a major humanitarian challenge. Thousands of health
professionals are battling the virus, putting their own lives at risk. Overstretched health systems will
need time and help to return to a semblance of normalcy.
• Solving the humanitarian challenge is, of course, priority #1. Much remains to be done
globally to respond and recover, from counting the humanitarian costs of the virus, to supporting
the victims and families, to finding a vaccine.
• This document is meant to help with a narrower goal: Provide insights to SMEs during the
current COVID-19 situation. In addition to the humanitarian challenge, there are implications for
the wide economy, businesses and employment.
McKinsey & Company 2Respondents
Overview of survey 70% leading employees 30% CEOs
parameters
Period of survey: April 24-28, 2020 Size of company, percent
By annual turnover By employees
522 29 32 2,000 employees 21
respondents questions Small
40
50-250 employees
37 EUR 50-250 million 39
Medium
20 >EUR 250 million-1 billion >250-2,000 employees
11 >EUR 1 billion
McKinsey & Company 3While 27% of ~44% of SMEs ~56% of SMEs still
fully operational not fully operational
German SMEs were
not affected by We have resumed
business as usual
corona, 56% are 17%
currently still not 41 We have partially
resumed operations
back to business as We did not shut down 27
usual operations because of
Corona
15
What phase is your business currently in
after partial relaxations of the lockdown? We have not yet resumed
operations
McKinsey & Company 4German Mittelstand expects significant
turnover losses in the 2nd quarter 2020
Revenue outlook in Q2 2020 among SMEs in Germany The response of German SMEs and
Percent the global industry is consistent
Decrease Stable Increase
Sectors hit least are the ones that benefit from
Automotive 66 17 17 new demand or new digital business models
Construction
Construction 40 34 26
Healthcare
Chemicals and pharma 55 15 30
Electrics 60 15 25
Sectors hit hardest are the ones with
Finance and insurance 51 31 18 significant manufacturing, where production and
Healthcare 38 35 27 demand have declined, as well as the ones
greatly impacted by global shutdowns
Trade 59 27 14 Mechanical and plant engineering
IT and telecommunication 54 17 29 Automotive
Mechanical and plant engineering 80 13 7
Other 56 27 16
Total 55 24 21
Note: Due to rounding, percentages may not always appear to add up to 100%.
100%
McKinsey & Company 5SMEs believe that all To what extent do you agree with
the following statements regarding
SMEs expecting revenue decreases in Q2 2020
SMEs expecting revenue increases in Q2 2020
of these 7 crisis your company?
Percent
levers are essential
74
We are acting anti-cyclically
81
We are innovating our business due to 82
changed customer behavior 94
We invest in automatization and the 85
Digitalization of our business model 91
We are bringing core competencies back 75
to Germany or plan to relocalize 79
We transfer new working models and 82
forms of collaboration learned during
the crisis into everyday business life 90
We want to participate in and/or 75
help shape new ecosystems 81
We take advantage of the special 69
market situation and examine the
acquisition of competitors 84
McKinsey & Company 673% of companies say they Which of the following scenarios best describes the state
of your SME and your crisis response?
are reacting anti-cyclically Percent
to the crisis, while only 17% We have created an action list
47
actually initiate necessary as a response to the crisis 48
changes We have stabilized our critical
business functions
36
34
We have initiated necessary changes 17
in the company to gain a competitive
advantage from the crisis 18
SMEs expecting revenue decreases in Q2 2020
SMEs expecting revenue increases in Q2 2020
McKinsey & Company 7Potential winners focus on future growth opportunities
SMEs expecting revenue decreases in Q2 2020
SMEs expecting revenue increases in Q2 2020
Actions for business continuity1 Actions for revenue stabilization or increase2
56 40
Short-term labor Intensive customer contact
34 42
34
Direct state aids 37
32 Extension of e-commerce
45
29
Loans
26 26
Growth of marketing
19 32
Layoffs
13
28
20 New sales models
Closure of branches 34
21
36 37
Optimization of cash flow Omtimization of sales
27 39
Optimization of administrative 42 Strengthening of receivables 26
expenses 42
management 27
41
Optimization of indirect expenditures 48 38
Pricing changes
35 40
Optimization of material costs
39
Optimization of product 40
Optimization of costs in full supply 36 management 42
chain 32
3 8
No special measures No special measures
10 5
1. Q: What measures have you taken to ensure the continued existence of the business?
2. What measures have you taken to stabilize or increase sales?
McKinsey & Company 8One of three Q: How does the corona crisis affect your planned or ongoing digital
projects?
surveyed SMEs Percent
state that COVID-19 is increasing pressure towards
71 29
digitalization has
digitization while also pausing ongoing projects
increased COVID-19 has shown us that we need
to extend our digital business models
84 16
importance Digital processes and solutions will become
88 12
increasingly important for our business
Digitilization of processes and business
84 16
models is part of our crisis strategy
100%
Agree Disagree
McKinsey & Company 9German SMEs still pursuing their digital
projects
Q: Which digital projects are you planning or are already in
progress?
in planning
in progress
42%
Percent
not relevant of all surveyed SMEs use a technology
roadmap with advanced industry insights
on competitors, suppliers, employees,
Improving customer customers and regulators to realize these
27 56 17
and user experience projects
Optimization of the supply chain
including production 24 47 29
Larger SMEs and those expecting
Build a completely new business revenue increase for Q2 tend to be
with standalone digital products 26 43 30 leverage these more often.
and/or services
Optimizating administrative ▪ Large SMEs: 54%
27 57 16
processes ▪ SMEs expecting revenue
increase (Q2): 61%
Optimizing IT infrastructure
26 56 18
and IT management
Note: Due to rounding, percentages may not always appear to add up to 100%.
McKinsey & Company 10Q: From which technology do you expect efficiency gains Small-sized SMEs
and new value creation potential in the future? Mid-sized SMEs
Percent Large-sized SMEs
The larger the Process Automation 26 43 47
company the Data Analytics 32 40 50
higher the Robotics 19 23 31
expectations
Internet of Things (IoT) 26 47 39
Edge Computing 10 16 21
regarding the Blockchain 18 27 28
effectiveness and Platform Technologies 21 33 22
value creation 5G 25 39 30
potential of future Augmented & Virtual Reality 20 26 24
technologies Artificial Intelligence (AI) 26 25 37
McKinsey & Company 11Flexible working models are
conquering the German
Mittelstand
88% 81%
of SMEs operated with of SMEs expect that the
mandatory in-person work COVID-19 crisis will make
before COVID-19 working models in their
company more flexible in the
long run
McKinsey & Company 1280% of companies believe The focus of the ecosystem building varies by industry, but
opening new value potentials is the leading cause
ecosystems are profitable, and
51% expect a stronger
Other
95%
Total
90% Automotive
involvement due to COVID-19 85%
80%
75%
Mechanical and plant 70%
Construction
Core beliefs of >80% of organizations engineering 65%
60%
Partnerships help unlock new value potentials
Chemicals and
IT and
Ecosystems support the competitiveness of German SMEs internationally pharma
telecommunication
Ecosystems lead to improvements in customer experience
Electrics
Trade
Finance and insurance
New value Increased competitiveness Client experience
of German SMEs
McKinsey & Company 13M&A Market will gain traction
Q: Which of the following consolidation activities do you
already pursue, are you currently planning, or are not
relevant for you
in planning
in progress
1/2 of those
companies with positive
Percent not relevant
revenue prospects for Q2
act on their self supposed
consolidation measures
Acquisition and takeover
of competitors
25 35 40 accordingly, while only
Strategic alliances
22 47 31
Cooperations 30 46 2577% of SMEs are optimistic
about the future
How optimistic are you about the future?
Percent
3% 84%
of pessimistic SMEs of pessimistic SMEs
22 expect revenue expect revenue
increases for decreases for
Q2 2020 Q2 2020
Optimistic or rather optimistic
Pessimistic or rather pessimistic
78
14% 57%
of optimistic SMEs of optimistic SMEs
expect revenue expect revenue
increases for decreases for
Q2 2020 Q2 2020
Source: Questions 10, 11, 3a McKinsey & Company 1521% of all companies are
content with the measures
taken by the state
Do you wish for more support from the government?
Percent
All companies Company size
41
Small
28 35 38
(50-250 employees)
No, we are content with the
measures taken
Yes, more financial measures Medium
21 16 45 39
are necessary (>250-2,000 employees)
Yes, more regulatory and policy
measures are required
Large
24 34 41
(>2,000 employees)
39
100%
Note: Due to rounding, percentages may not always appear to add up to 100%. McKinsey & Company 16Disclaimer
McKinsey does not provide legal, medical or other regulated advice or
guarantee results. These materials reflect general insight and best practice
based on information currently available and do not contain all of the
information needed to determine a future course of action. Such information
has not been generated or independently verified by McKinsey and is
inherently uncertain and subject to change. McKinsey has no obligation to
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expressly disclaims any liability with respect thereto.
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