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Business

Family formula a smash hit for many German businesses

Fifty-one out of Germany's top 100 companies are family-run - a bigger ratio than in any other industrialized country, say experts. With a few exceptions, German family businesses make for an astonishing success story.

Whether it's Schaeffler/Continental, Knorr-Bremse, Boehringer Ingelheim, Rossmann or Aldi - they all have one thing in common. Each one is run by a family. Fifty-one such companies have made it into Germany's top 100 firms. According to a recent study by the Stuttgart-based Institute for Family Businesses (IFF), family businesses' revenues have even grown faster than those of other companies.

Portrait of German lawyer Mark Binz

Binz says family businesses promote loyalty and the long view

In spite of a handful of recent, spectacular bankruptcies by German family businesses - including drugstores chain Schlecker - such firms are generally more successful than others in Germany. Of the 2.058 trillion euros in revenues generated by Germany's 100 biggest companies last year, family business accounted for 915 billion euros in annual turnover.

"German family-run businesses have always been strong," said Mark Binz of the Binz & Partner law offices in Stuttgart. "No other industrialized nation in the world has such a high percentage of family businesses among the group of leading enterprises."

Strong position

Back in 2005, family-run businesses in Germany only made up about one third of the country's top 100 companies. In 1980, 15 out of Germany's 50 biggest firms were run by a single person or a family clan.

Binz said that contrary to popular belief, family businesses have not been marginalized by market-listed public companies.

"There have never been as many family-run firms in the country as there were in 2011," he added.

A record year

Almost half of Germany's biggest family businesses were able to post double-digit growth in 2011, making it a bumper year for many of them. Retailer Rossmann and trading company Alfred Töpfer were among the companies that came out on top.

The Volkswagen Group also logged above-average growth. In the hands of the Piëch and Porsche families, the carmaker last year increased revenues by 26 percent to 159 billion euros. 2011 was a good year for many other family firms active in the automobile industry.

Porsche and VW logos

Families get a big say in the domestic automobile industry

Last year, only a few family businesses saw their revenues drop, with retailer Metro and pharmaceutics trader Phoenix among them. But Binz said many family businesses can look back on breathtaking growth.

For instance, precious metal company Heraeus posted 12 billion euros in revenue in 2007, with payoffs rising to 26 billion euros last year. To take another example, oil trader Marquard & Bahls increased profits from 11 to 17.3 billion euros during the same period.

Long-term commitment

Binz said family businesses tend to see the big picture and plan beyond a given fiscal quarter.

"They're usually faster in making decisions," he explained, "because they don't have to justify their every move the way listed companies would have to."

At the same time, family businesses are more aware of potential risks than staff managers elsewhere.

"That's because it's their own money they would lose in case of grave misjudgment," Binz said.

He added that family businesses create a feeling of solidarity among employees, making them feel like they belong to one big family - something that increases loyalty and mutual trust. It's little wonder that even at the peak of the financial crisis, many family-run companies were reluctant to fire employees. Many resorted to temporary work schemes instead.

Clients a priority

A shop with the logo of German opticians' chain Fielmann

Fielmann makes customer satisfaction a top priority

The IFF Institute reported that family businesses pay more attention to their clients' wishes than do market-listed firms, which are generally more focused on the concerns of shareholders. Some family businesses even use customer satisfaction to help determine executives' pay. For instance, the Fielmann chain of eyewear retailers does not just go by its revenues and net profit when calculating salaries. The company regularly gauges customer satisfaction to determine managers' end-of-year bonuses.

Still, Binz warned the family formula is no guarantee for financial success. He pointed to the bankruptcies of family firms Arcandor and Walterbau, which was once Germany's biggest construction company. Binz also pointed out family businesses' susceptibility to takeovers. Examples include engineering company Putzmeister, which was acquired by Chinese investors.

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