While SMEs in the EU are precisely defined as having a maximum of 249 employees and a maximum turnover of 50 million euros, the term “entrepreneurial small and medium-sized enterprises” is not clearly defined. It is clear that SMEs are also considered part of the “Mittelstand.” In Germany, companies with fewer than 500 employees are traditionally regarded as part of the “Mittelstand.” Furthermore, the “Mittelstand” is defined qualitatively in Germany, specifically through the unity of ownership and management, as is particularly the case for family-owned businesses.

SME Definition for the “Mittelstand” Economic Structure Is Too Narrow

It is true that most of the 3.6 million SMEs are owner-managed and thus fall under the category of family-owned businesses. However, according to a study by the Institute for SME Research in Bonn, there are also 2,900 larger companies with 250 or more employees that are family-run or at least majority-controlled by an owner family. Based on this qualitative criterion, it becomes clear how poorly the EU’s narrow SME definition fits the structure of the German SME sector. A revision of the SME definition that takes into account the significance of larger SMEs would therefore be very welcome.

In Germany in particular, many companies with a mid-sized structure fall outside the SME definition—far more than the European average. The “mid-cap” category offers a useful distinction between SMEs and large enterprises in this context. The analysis shows that mid-caps play a prominent role in the German economy in terms of employment, export activities, and research and development (R&D). Economic policy does not adequately address this role by categorizing them indiscriminately as large enterprises.

Including Mid-Caps in the SME Definition Debate

The term “mid-cap” has become widely accepted to refer to medium-sized companies that do not fall into the categories of large corporations or SMEs. However, there is no clear or internationally consistent definition of mid-caps. The EU classifies companies with 250 to fewer than 500 employees as “small mid-caps”. Although there is no common definition, the upper limit for mid-caps is set at 3,000 employees in the European Fund for Strategic Investments (EFSI).

If we focus initially on mid-caps with fewer than 1,000 employees, this segment comprised 11,616 companies in 2015, of which 3,546 (about 30 percent) belonged to the manufacturing sector. With nearly 1.6 million employees, these industrial firms also account for 30 percent of the workforce. Even when adhering to the European SME threshold for revenue, there is a significant number of companies that exceed the current employee threshold of 250 for large enterprises. In 2015, there were 6,452 such companies that generated less than 50 million euros in revenue with 250 to 999 employees. With approximately 2,000 companies, the majority were in the labor-intensive health care and social services sector, but this was also true for 842 companies in the manufacturing sector.

Mid-caps account for about one-third of all jobs in the manufacturing sector

In the next largest category, large mid-caps with 1,000 to fewer than 2,000 employees, the number of companies drops noticeably: There are a total of 1,691 companies in this category, 430 or one-quarter of which are in the manufacturing sector. With 592,000 employees, their share of total employment stood at just under 26 percent. This shows that the industrial companies in both mid-cap categories differ little in average size from all companies in their respective categories. If, like the EU in the EFSI, the upper limit is set at 3,000 employees, another 382 companies are added, 102 of which - with 246,000 employees - are in the manufacturing sector. However, industrial mid-caps carry significant weight not only within the broader German SME sector but also, from a sectoral perspective, within the manufacturing sector:
Although the 3,976 companies with 250 to fewer than 2,000 employees represent only 1.6 percent of all industrial companies, their nearly 2.2 million employees account for one-third of all industrial jobs.

Medium-sized industrial companies are characterized by a high degree of internationalization…

Medium-sized industrial companies are characterised by a strong presence in foreign markets. While the share of exports in total revenue for SMEs with 100 to 249 employees stood at 34.9 percent in 2016, it was already 41.2 percent for small mid-caps with up to 499 employees and 46.7 percent for mid-caps with 500 to 999 employees. This is close to the average export share of the manufacturing sector as a whole.

Although these figures refer to establishments rather than companies, Germany’s export success cannot be understood without considering the internationalization of medium-sized industrial firms. Their size and strong presence in foreign markets provide a significant structural advantage, enabling them to weather economic downturns more effectively than smaller industrial businesses.

This exceptional position is also reflected in Germany’s large number of “hidden champions”: highly specialized, fast-growing medium-sized companies, primarily in the industrial sector, that rank among the top three globally in their respective market segments. Despite their market leadership, they remain largely unknown to the wider public because of their narrow specialization. Nearly half of the approximately 2,700 hidden champions identified worldwide are based in Germany.

…and are significantly active in research and development

Although private-sector research and development (R&D) expenditure, particularly in industry, is heavily concentrated among large companies, mid-cap companies also play a significant role in innovation. Their market-specific expertise and often patent-protected competitive advantages position them well to benefit from the ongoing digital transformation of the economy.

According to the Stifterverband’s science statistics, small mid-caps with 250 to fewer than 500 employees accounted for €2.8 billion, or 4.6 percent, of internal R&D expenditure. Larger mid-caps with fewer than 2,000 employees invested a further €9.2 billion, representing 15.1 percent of total private-sector R&D spending.

Across all company size classes, industry was by far the most research-intensive sector, accounting for more than 85 percent of total R&D expenditure in the German economy.