Companies / Economic Theory / Europe / Swabianomics

Swabianomics – Pillar One: the Factories and ‘Test-Shops’

“Before expanding into foreign countries, one has to fulfil the task in one’s homeland“
Wolfgang Grupp

Where to expand?

Where to expand?

This is clearly something that could be taken down the wrong pipe. There are no objections to successfully running a business outside, whilst retaining the one at home with equally success, but when it comes to expanding, this is often not the case. Many companies go into countries with cheap labour that are able to produce enormous quantities non-stop, in order to sell as much as possible to gloss over the losses made at home. Likewise, there are companies that are successful at home, but after the expansion or the diversification of production, the foreign factories drag them down. Both scenarios have the same outcome: sooner or later these companies go bust. They become insolvent and need to be rescued, in most cases even at the expense of the taxpayers. And as if this was not enough money thrown down the drain, companies in this position tend to hire expensive consulting firms as well.

But how do businesses even get into one of these above mentioned scenarios? Well, the problem is easily spotted: reckless and irresponsible decisions, as if owners and managers were ordinary gamblers. Decisions partly made as decision makers know that they won’t be called to account, since most of these firms have limited liability. On the other hand, decision made through the insatiable desire for growth, avarice and megalomania – often happily backed by consulting firms, as if they suspected something …

Test-Shop

The entrance of a Trigema test-shop

The question that remains is the one that asks for the solution of this problem. Here, Mr Grupp comes back into the game. His attitude towards growth is “growth in quality, rather than growth in quantity“. Consumers will not just buy a higher quantity of a product, because more is available, but because it is better, more functional or more reliable than other similar products. Firstly, the production at home has to be optimised. Factories need to be fully employed with able labour (more on this tomorrow) in order to make (a) full use of the available capital and (b) to generate jobs – only income earners can buy products. Then, sales have to be guaranteed; not through especially low prices – quality will be bought at appropriate prices – but through actively ensuring that consumers can come into contact with the product.
Mr Grupp‘s company, Trigema, has its main factory in Burladingen and nearby two branch factories, which are all fully employed, thereby generating 1200 jobs (one tenth of the population in Burladingen). With respect to the sales, Mr Grupp is equally successful: in his early years, when he took over his father’s company as general manager, most of his products could be sold at sensible prices in the big department stores in Germany; however, when other textile manufacturers started to produce huge quantities (of mediocre quality) at very low cost (trough cheap foreign labour) and equally sold them at low prices, his products got ever more displaced. As a responsible employer he took the initiative and started selling his products through factory outlets, calling them ‘test-shops’. These still account for fifty per cent of the firms overall revenue.

Of course, one could think of this as an isolated case. However, Burladingen once was home to twenty-six of the largest textile manufacturers in Germany and Europe. All got greedy, all failed – apart from Trigema, which remains the last successful one.
This does not mean businesses have to follow Trigema’s way in order to become successful, but they have to optimise their production as explained above, no matter how. But no improvement in the production would be successful without an improvement in the circumstances under which the producers, i.e. the labour, work.

What problems the work force currently has and how Wolfgang Grupp managed to avoid these can be read in the follow-up tomorrow.

Swabianomics – Pillar Two: the Work Force and Their Children

Swabianomics – Pillar Three: The Manager and his Responsibility

Swabianomics – Taking the Right Risks

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