German Mittelstand neglecting risk management despite volatile markets
Deutsche Bank conducts survey into importance of risk management / German Mittelstand in northern and eastern Germany hold risk management to be more important than those in southern Germany
The German Mittelstand is underestimating the danger of volatile markets. A representative survey carried out by Deutsche Bank has come to the conclusion that Mittelstand companies in Germany currently pay less attention to monitoring risks than they did in 2009, despite increased volatility on the markets and the lessons of the economic crisis two years ago. “Professional risk management is essential no matter the situation,” says Ulrich Schürenkrämer, Co-Head German MidCaps and member of the Management Committee Germany. Speaking about the survey’s results, he said, “Lots of Mittelstand companies in Germany survived the crisis in good shape. What they now have to do is use systematic risk management processes as an early warning system so they are prepared for unexpected events.”
Today, only 57 percent of Mittelstand companies in Germany use risk management systematically, and only roughly two-thirds of them believe it is important or very important (68 percent). In comparison with 2009, this is a decline of 14 percentage points (2009: 82 percent). Nevertheless, a good three-quarters of the companies with risk management in place stated that it really paid off during the economic and financial crisis (77 percent). Almost 60 percent are of the opinion that their risk management had helped prevent a crisis erupting within their own companies (57 percent).
The role risk management plays for companies varies substantially around the country. Some three-quarters of businesses in northern Germany (77 percent) and in the east of the country (73 percent) believe that risk management is important or very important. This contrasts with the south of the country, where the figure stands at just over half of companies (58 percent). The largest decline in importance is also visible in the south: in 2009, 80 percent of southern German companies had stated that risk management was important or very important.
Compared with smaller companies, a substantially higher proportion of larger businesses sees risk management as being of importance. The greatest risks for the German Mittelstand lie in volatile commodity prices (59 percent), followed by fluctuations in energy prices – almost second company believes they constitute a threat (45 percent). Almost one in three companies (29 percent) sees currency risks as a critical issue. In contrast, liquidity risks are currently viewed as less of a problem than they were two years ago (40 percent; 2009: 47 percent). There was one exception: companies from eastern Germany see liquidity risks as having increased in importance (53 percent; 2009: 43 percent).
Ulrich Schürenkrämer says, “Today, it is more important than in the past for companies to incorporate market risks into their planning – this will enable them to respond flexibly to changes on the markets. Systematic risk management increases planning security and improves companies’ foundations for calculations. A tailored security strategy plays a decisive role in maintaining the competitiveness of Germany’s Mittelstand companies, with their wide range of international activities.”
The survey encompassed interviews with 400 companies. Financial decision-makers in 200 companies with annual revenues of EUR 1-25 million and 200 companies with annual revenues of more than EUR 25 million were interviewed.
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