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Egbert Drews: International networking in the economy — Practical experience

Egbert Drews

Board member of Marwiko AG, Berlin


Egbert Drews – International networking in the economy: Practical experience

Transcript

Ladies and Gentlemen, I would like to thank Mrs. ZeppLaRouche and the organizers of this conference for the opportunity to speak to you. You may be surprised to hear it, but as business entrepreneurs of the Mittelstand or SME [small and medium-sized enterprises], we are related to the subject of this conference, and we are very much interested in this debate and in the development of this idea. I shall attempt, in my contribution, to present how this theme affects us on the basis of our experience.

Given the globalization and liberalization of the economy, the significance of cooperation among SMEs has considerably grown over the past years: The SMEs recognize that this approach is a means of achieving the needed growth potential, which they cannot realize by themselves due to a lack of or insufficient financial resources, market share or competencies.

Cooperation often affords a much more flexible and more effective approach in the short term for common growth than mergers or acquisitions. Essentially, this involves organizing cooperation at different stages of the value chain, such as project identification, marketing, implementation, and funding, aimed at bundling specific competencies and resources to find and then exploit market potentials.

That is precisely the core activity of our enterprise. MARWIKO AG offers mainly medium-sized enterprises new lines of business or additional strategies for their portfolios, and today they primarily involve crossborder business transactions.

As an international consortium of medium-sized companies, MARWIKO AG operates a wideranging network, which makes it the reference point for partners through extensive contacts in important economic regions of the world. Its foundation is good contacts and a well-run international network.

Mittelstand Cooperation

We present an unbureaucratic, practical instrument for different types of cooperation among Mittelstand firms—a platform that brings companies together both physically and electronically, harmonizes their activities, and develops opportunities for synergies.

We operate an active cooperation management, which means—

• Integration of a cooperation partner into the actual activity of the company;

• Active search for offers, projects, partners, and regions supported by that partner, and concrete support based on MARWIKO’s structures and network;

• Transfer of selected activities into MARWIKO’s portfolio;

• Bundling of the partner’s offers and competencies in the regions and on the projects by MARWIKO; and

• Presentations by the partner at trade fairs and exhibitions, project trips, and other activities.

Success is only possible under conditions that are advantageous for all and with the acceptance of the partners. That presents the immediate relation to the model of cooperation among States.

In the preamble to this panel, it says: “China, with the New Silk Road policy, has put a completely different model of cooperation on the agenda, based on ‘win-win’ cooperation, which is consciously focused on the interests of the other. With the New Silk Road, the Maritime Silk Road, and a series of new financial institutions designed solely to finance the real economy, an alternative is already in place, which over 60 nations now consider to be a more attractive model.”

In our opinion, the future of countries and their successful economic development lies in the commitment to common grounds in the coordination of their political principles for a national economic development policy which is anchored in an advantageous development for all regions, that is dominated by none.

The central themes for German Mittelstand—according to the Federal Economics Ministry—are internationally competitive funding for starting-up and growth, the successful handling of company successions, assured availability of skilled staff, relief from bureaucracy, and digitalization so that German SMEs can remain vital, strong, and innovative in meeting the challenges.

The themes are, among others, to:

• Promote entrepreneurial spirit;

•  Support the availability of a future skilled workforce;

• Use and design digitalization; and

• Strengthen innovations.

Mittelstand entrepreneurs know better than anyone else that, in these areas, they have a great potential of their own and can essentially carry out these tasks themselves. But that is not the case in the field of Mittelstand and Globalization.

“The Federal Ministry assumes that the volume of world trade will nearly quadruple by the year 2030. On this backdrop, even more Mittelstand entrepreneurs should regard globalization as an opportunity. To make the move to markets abroad, the Ministry provides foreign trade promotion, which is continually expanded in cooperation with the business world and which should become even better known among companies.”

As for the performance of the German Mittelstand, the figures speak clearly. Over 99% of all companies are small and medium-sized companies, over 82% of all apprentices are trained there, and they provide nearly 60% of all jobs. Fifty-six percent of our economic output is produced in SMEs. But we should not lose sight of the actual conditions the Mittelstand is exposed to.

The Ministry also assumes that “The takedown of trade restrictions . .. should benefit SMEs in particular. Therefore, the Ministry is committed to trade facilitation and the conclusion of bilateral and multilateral free trade agreements.”

According to the estimates of the EU Commission and the German government, SMEs should benefit from a large portion of the assumed growth. We believe that the positive impact of the Transatlantic Trade and Investment Partnership (TTIP) on SMEs is overestimated, and that, critically assessed, the risks greatly outweigh the opportunities.

Until March 2015, the EU Commission, the government, the employers’ association, and the Chambers of Commerce claimed that TTIP would bring significant gains in growth and income, as well as hundreds of thousands of jobs to the EU, and cited to that effect the relevant studies. But the estimates, including in the EUcommissioned studies, could not be confirmed.

The positive effects, if there are any, will only appear among those SMEs that export onto the world market. Given the SMEs’ strong orientation to regional sales markets, only 7% of them turn up as exporters in the foreign trade statistics.

Among the top leaders of the export-oriented industries, such as production industry, services, trade and transport, that account for some 68% of the German gross value added, SMEs only have an export quota of 4% to 20%. Also, in trade with the United States, SMEs play only a small role.

The TTIP

According to a publication of the Hamburg Chamber of Commerce, only 950 companies have business relations with the United States, which is less than one percent of all the companies registered at the Chamber.

German SMEs in the production industry are mostly specialized providers of high-quality products with strong innovative capabilities. That implies a corresponding level of prices. If the current quality standards are lowered through the harmonization of standards in the “domestic market” of the TTIP space, and if public instruments of protection are considered to be trade restrictions and therefore eliminated, then transnational competitors, who have the advantage of economies of scale, would be able to oust middle-sized innovators from the market through a low-price strategy which is more or less harmless for them. In such cases, an active public regulatory policy should be provided for the Mittelstand, but that would be considered a non-tariff barrier and therefore would violate the TTIP.

That free-trade agreements such as the TTIP are generally advantageous for transnational companies and detrimental for SMEs, can be seen in the experience with the North American Free Trade Agreement (NAFTA), which went into effect in 1994. In the 20 years since then, in Canada, the share of the largest listed corporations of total profit nearly doubled, while the major macroeconomic indicators were cut in half in the same time period. In the agricultural sector in particular, the SMEs were heavily disadvantaged.

So far, according to the Restriction of Competition Act (GWB), medium-sized companies should be handled preferentially when awarding public contracts. But in view of the expected principle of non-discrimination in awarding community contracts, it is to be expected that the practice will change to the detriment of SMEs and that in the future, only corporations still active internationally will take part in such tenders, because of their logistical and operational advantages.

According to the figures published by the Federal Statistics Office in 2012, German foreign trade with the BRICS countries (Brazil, Russia, India, China, South Africa) increased nearly sevenfold, while the entire foreign trade only grew twofold.

It would be disastrous for the export-oriented SMEs if those markets were destroyed by the thrust of the socalled free trade agreement (FTA) between the EU and the United States which the EU Commission intends to impose. But that is exactly the effect the EU Commission expects and describes, since it considers China, India, and the member states of the Association of South East Asian Nations (ASEAN) as the losers of the so-called FTA. Thus, German exporters represented in the foreign trade association BGA warn against a kind of “Economic NATO” at the expense of other trade partners. But that seems to be the intention of the German policy, when the geopolitical and geostrategic advantages of a bilateral agreement between the EU and the United States are mentioned, which is meant to set the standards before they can be set by China, India, or the alliance of the BRICS.

In our opinion, these are economic policy strategies on a geopolitical background. We are convinced that in the 21st Century other approaches are needed, which are rather reflected in the model of cooperation initiated by China.

Upon weighing the claimed opportunities and the expected consequences of TTIP, it is not surprising that a clear majority of the small and medium-sized companies, according to a poll by the Federal Association of SMEs (BVMW), are critical toward the TTIP negotiations. Although this group is not known for ideological or anti-business prejudice, its attitude toward the FTA is conspicuously critical.

As small and medium-sized entrepreneurs, we are for fair, transparent free trade on the basis of high environmental and social standards. The planned FTA with the United States (TTIP) contradicts those principles.

Core elements of the planned agreement, such as the Investor State Dispute Settlement (ISDS), the harmonization of norms and standards, as well as deregulation in the fields of culture, services for the public, and public tenders, benefit mainly the interests of global corporations with more capital and more staff, that will force the SMEs out of the market.

Germany, Russia, China

At the same time, we are very concerned that the attempt of the EU and the United States to define international trade rules on their own, can lead to the disruption of the economic order and thereby jeopardize essential markets for us in the emerging countries (BRICS and others). As we know, over 2,000 German medium-sized entrepreneurs have signed a petition against the agreement.

We, as small entrepreneurs, assume our responsibility for society, and we value high social and ecological standards in Europe as well as vibrant democracy and a functioning constitutional state.

The European domestic market has become much more important for SMEs: over 93% of SME exports go to the European market. Therefore, the interests of SMEs in an SME-friendly domestic market and the takedown of unjustified restrictions must be represented with a stronger voice in Brussels. We need a just balance between growing market integration and the preservation of proven, successful structures, in particular self-management of the economy and its core elements, such as dual occupational training, master craftsmanship certificates, representative chambers, and social partnership.

We followed with great interest the visit of EU Commission President Jean-Claude Juncker to the St. Petersburg International Economic Forum, and we see it as a step in the right direction. The Committee on Eastern European Economic Relations also welcomed Juncker’s participation in the Forum, saying it is time to begin a dialogue between the EU and the Eurasian Economic Union concerning a common economic space from Lisbon to Vladivostok. It could begin by harmonizing standards and lowering trade restriction, according to the committee’s President, Wolfgang Büchele.

As a consortium of the SMEs, we see hope and perspectives in a new type of economic cooperation among countries. It is difficult enough, but also interesting, to carry out economic cooperation in other cultures. We are competent and experienced in this job and we know what we need—respect, tolerance, and mutual benefit.

That was again proven in the tenth Business Day that my company organized in Berlin during the German-Russian celebrations. Over one hundred companies from Germany and Russia responded to our invitation. This format of mutual exchanges, contacts, and discussions about fruitful cooperation of companies is very much appreciated by SMEs, and we like to use it as a platform for cooperation.

We are not competing in any way with your conference; we are only concerned with the clear economic interests of our partners and their development for mutual benefit.

We will organize a similar Business Day in October after our next trip to China. We already see synergies and cooperative opportunities not only among our partners, but also in the triangle of relations among Germany, Russia, and China. We believe that is the right approach in the spirit of your conference.

I thank you again for the Schiller Institute’s Initiative and wish you great success in the process of rethinking cooperation in politics and the economy.

 


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