Sun | Feb 23, 2020

David Salmon | Mittelstand: The new business model for Jamaica

Published:Sunday | February 2, 2020 | 12:19 AM

Singapore is often cited as possessing the ideal development model for Jamaica given the two nations’ location in relation to major trading partners and the similarities of their early post-independence expansion.

While both countries may have started out at similar levels of economic development, the divergent paths they took makes it extremely difficult for the model to be ­replicated in its current form.

On the other hand, Germany presents another alternative for Jamaica as we can learn numerous lessons from their Mittelstand. The Mittelstand is simply the German equivalent of micro, small- and medium-sized enterprises (MSMEs), which serve as the backbone of the country’s economy.

Ninety-nine per cent of all German companies comprise the Mittelstand. They employ over two-thirds of the nation’s workforce and are responsible for over two-thirds of the nation’s exports. These companies are manufacturing oriented, are usually owned by families, and produce products for niche markets.

Immediately, comparisons can be made between Jamaica’s MSMEs and the German Mittelstand.

Dr Lawrence Nicholson, from the Mona School of Business and Management, noted, “Family owned businesses are pivotal in helping to accelerate the Government’s economic growth agenda. We all know that the engine for economic growth is MSMEs, and more than 70 per cent of MSMEs could be categorised as family owned businesses.”

By 2006, over 3,000 of these firms were registered, with the ­figure expected to double up to last year.

Unfortunately, this is where the similarities end. The recent Jamaica Survey of Establishments, conducted by the Statistical Institute of Jamaica (STATIN), found that 11 per cent of establishments ­specialised in accommodation and food, a third operated motor vehicle sales or repair, and another third participated in the wholesale and retail trade. Therefore, one can conclude that the vast majority of businesses do not participate in economic activities that promote innovation.

In fact, economist Mark Ricketts noted that “most businesses are import driven, and just a few place any emphasis on exports. The findings of this survey are consistent with the level of underinvestment in capital goods and technology over several decades that have accounted for our lacklustre growth performance”.

Thus, a fundamental difference between Germany and Jamaica is the overall focus on innovation and the emphasis on research and development. This is absolutely crucial to the functioning of the Mittelstand.

President of the Jamaica Manufacturers and Exporters’ Association Richard Pandohie revealed his admiration for the model as he discussed the potential lessons Jamaica could learn.

He said, “If you look at Germany, the majority of their economic growth is driven by the Mittelstand … The Jamaican economy won’t grow until the micro, small ­businesses become an active part in the economy.”

Another major difference between the two is the ­prominence of vocational training. In Germany, many high school ­students ­matriculate directly into ­technical training, which precedes full-time ­employment by a mittelstand company. This occurs as there is a strong link between manufacturers and vocational schools. During their courses, companies offer academic apprenticeships, where students spend time working and studying while receiving a salary.

This arrangement guarantees that youth receive practical ­technical ­training, and companies benefit from a pool of very skilled workers. Hence, it is not surprising that Germany has one of the lowest levels of youth unemployment in Europe.

SEVERAL LESSONS

Given that many local university graduates are unable to find viable employment or many youth have no tertiary certifications, several lessons can be learned.

1. For one, a greater emphasis on vocational training is needed to unleash Jamaica’s full potential. This can be achieved by expanding technical education in secondary institutions.

2. Second, greater coordination between the HEART Trust/NTA and the Ministry of Labour and Social Security is needed to identify trends in the labour ­market and train ­workers accordingly. Synchronisation between the HEART Trust/NTA and other institutions already takes place for the BPO sector with noteworthy success. Thus, there is no reason why this cannot be replicated for vocational training.

3. Third, at the university level, enhancing skills like reasoning and ­strategic thinking is paramount to ­creating the business leaders of tomorrow.

4. More investment is also needed to increase spending on research and development to be between three and four per cent of GDP. This is in line with major ­economies around the world, which would ensure that our universities would emerge as the hub of innovation in the Caribbean. This is how progress will be achieved in developing MSMEs geared for export.

5. Developing innovative ­businesses by providing incubation centres for technology start-ups would also aid in this mission.

6. Additionally, attracting larger manufacturing companies to operate in Jamaica would ensure that more paid internships can be offered. This will incentivise persons to study subjects in these fields and aid in the expansion of our industrial ­apprenticeship programme, and ­further reduce youth unemployment.

During my visit to Boss Furniture, I was amazed at the company’s operations as it trains, employs, and develops the technical skill set of its employees. This should be replicated as the best practices of the Mittelstand are exercised.

While Jamaica does not have the economies of scale to mass-produce like China, we do not need to as niche markets exist for our products.

As the country continues to make progress in achieving its ­macroeconomic objectives, let us adopt a new mindset to production and business. Building a ­manufacturing hub starts with ­imbuing citizens with the values of entrepreneurship, innovation, ­discipline, and a will for success.

 

David Salmon is a first-year public policy and management student at The University of the West Indies. Email feedback to davidsalmon@live.com and columns@gleanerjm.com