Caught in the middle

Europe’s mid-market companies are real economy strongmen who are helping to lift Europe out of recession. They could do even more if policymakers gave them an environment where they could really flex their muscles.

Mid-market firms regularly punch above their weight in revenue and job creation – but they can be weighed down by inflexible labour markets, a dysfunctional financial system and too many restrictions on a single European market for their products and services.

These employers don’t have a problem with regulation per se – they just want rules that allow them to get bigger and stronger. Making it easier to adjust the employee base, access capital for growth and investment and access European and overseas export markets will benefit the whole economy, and the mid-market in particular, because they don’t get special treatment.

For example, unlike SMEs and start-ups, the mid-market does not benefit from policy initiatives and exemptions that help them grow.

SMEs have advantages like tax credits and research and development incentives but as soon as they grow into mid-market firms they lose them. Ironically if they are not successful and stay small, then they continue to enjoy the benefits!

And while larger corporations have no such exemptions, they have the resources to cope with the burden and to ask governments for other benefits.

Europe’s mid-market firms are too big to benefit from special advantages but are too small to afford help with too much red tape – they are stuck in the middle.

In Germany, policymakers understand that mid-market companies – the Mittlestand – are economic growth drivers that provide lasting employment and success in the export markets.

By encouraging these established export-orientated firms with high value manufactured products and concrete customer bases to grow, Europe can power through the recession.

Policymakers should acknowledge the mid-market’s strength and ability to deliver growth and employment in the real economy and give them support so they can do that.

Mid-market companies need access to capital, flexible labor markets and easy access to large markets, both in Europe and overseas.

Private equity is one source of capital and provides operational expertise and patient ownership to help mid-market firms grow.

But only policymakers can create the right conditions to transform these strongmen into global powerhouses.

I spoke on this subject at a recent Invest Europe event, which was hosted by MEP Philippe de Backer and attracted policymakers from all three European institutions. If you’d like to learn more about Europe’s mid-market please take a look at our Briefing: The middle-market: Europe's real economy strongman or this blog by Invest Europe’s Michael Collins. Also check out our special report Delivering the goods.

Karsten Langer, Chair for 2011-2012, EVCA