New KfW SME Atlas highlights diversity across federal states

• KfW Research presents first regionally comparable structural analysis of small and medium-sized enterprises, providing previously unknown insights
• Specific local structure and historically grown conditions characterise SME activity across the federal states
• Traditional geographic dividing lines are of little relevance today
• Major differences in companies’ investment patterns, financing, internationalisation and top management

Germany’s SMEs present astonishing regional facets. The new KfW SME Atlas documents this in its entire spectrum. KfW Research has conducted the first detailed analysis of SMEs by federal states, providing hitherto unseen insights into the regional diversity of German SMEs. The KfW SME Atlas provides a representative structural overview of small and medium-sized businesses’ activities by federal state for the years 2012 to 2016.

The analysis underscores the importance of underlying regional structures. In the city-states of Berlin and Hamburg, for example, SME activity is focused more strongly on services in liberal professions than elsewhere. Enterprises of this type usually invest less capital and are able to fund their business expenditure more easily from their own resources, which explains their particularly low propensity to borrow.

Major differences between federal states were also found with respect to the importance of SMEs for the labour market – depending on the regional size and sectoral structure. The highest share of SMEs in the state’s total workforce is found in Schleswig Holstein, Thuringia and Mecklenburg-Western Pomerania, at more than 90% each. This is the due to the low presence of large enterprises in these regions. The three largest federal states dominate in absolute figures. With some 15 million workers, SMEs employ as many persons in North Rhine Westphalia, Bavaria and Baden-Württemberg as in all other states combined.

Another finding of the analysis is that traditional dividing lines do not always apply. Among other things, none of the key indicators really shows a clear separation between eastern and western German states. Brandenburg tops the list for investment, for example, as SMEs invest around one quarter more here than the national average. SMEs in Saxony-Anhalt have the strongest equity base. The age structure of SME owner-managers is also generally more favourable in Germany’s eastern states.

By contrast, locational factors play an important role for entrepreneurs across the states. Hamburg has the strongest presence of international SMEs, for example. More than one in three businesses located there generate international turnover. The city’s geographic location, its seaport and transport links are of crucial importance. Conditions of this type are less distinctive in the centre of Germany, for example.

Dr Jörg Zeuner, Chief Economist of KfW Group, said: “Germany’s SMEs have regional facets that have become visible for the first time. This provides opportunities for improving regional policies. The differences in the challenges which businesses face are indeed more pronounced than previously presumed.”

The KfW SME Atlas is available for download here (only in German): KfW-Mittelstandsatlas Deutschland

The KfW SME Atlas is based on a regional evaluation of the KfW SME Panel with which KfW Group has been reporting annually about the current situation in the SME sector since 2002. The KfW SME Panel is the first and so far the only representative longitudinal data section for all small and medium-sized enterprises in Germany. The KfW SME Atlas was created using the five most recent annual survey waves of the KfW SME Panel. The findings are representative at state level.