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These days, any European economic story is practically written in red ink. It may surprise you, but pockets of business resilience, productivity and, yes, growth, remain on the continent.
According to a new study by a group of European business school and GE Capital, companies from the so-called middle market based in four key EU countries – Germany, France, Italy and the U.K. – added a combined 200,000 jobs during the great recession between 2007 and 2010. At the same time their home economies shrunk by 7 percent and large corporate peers operating in the same markets shed 1.5 million jobs. In fact, if this group of growing companies increased headcount by 2 percent a year over the next three years, it would create 1.5 million jobs and reduce unemployment to where it stood in 2007.
What is this mighty middle market? The study calls it a “sweet spot for innovation and sustainable employment.” More precisely, it’s a core business segment of some 140,000 companies – a puny 1.5 percent of all companies operating in their home markets – that account for nearly one third of GDP, employees, and corporate revenues in the studied area. Their revenues range from €5 million (Italy) to €1 billion (Germany), depending on the size of the economy. Together, they form the tenth largest global economy, ahead of India and Russia.
The EU results echo recent findings for the U.S. middle market. They show that both in Europe and in the U.S., the middle market segment makes vital economic contributions and serves as the biggest source of sustainable job growth.
Why is this? The middle market is deeply woven into the local economic fabric. In Europe, 70 percent of the segment’s suppliers are either local or domestic businesses. It’s also resilient. Some 96 percent of the companies survived the recession, and one in four has been in business for at least 50 years.
That’s in part because of their focus on innovation. Middle market companies invest 5 percent of revenues (€370 billion) in R&D and hold 1.1 million patents, or 37 percent of the area total. “The findings might surprise you,” says Richard Laxer, CEO of GE Capital in EMEA. “These companies persevered through the credit crunch, growing revenues and headcount through the toughest recession in a generation. If Europe needs an example as it looks to recover, perhaps theirs is the best to follow.”
