- 56% of German SMEs expect a significant weakening of the “backbone of the German economy” – one in four sees a bleak future
- Headcount reductions now hitting corporate headquarters
- Tradition vs. Transformation: Core strengths of the SME risk becoming stumbling blocks
- Underinvestment in AI remains a critical issue
- Every second family-owned business faces a generational shift; another 44% plan a full transition to external management
- Despite a challenging outlook, most SMEs remain surprisingly optimistic
Management consultancy Horváth surveyed executives from 200 mid-sized companies on their business performance and future prospects. A striking finding: 56% predict that Germany’s SME sector will weaken significantly in the coming years. Another 24% expect severe decline under global competitive pressure, convinced that the number of SMEs will shrink as they lose ground internationally.
When asked which factors pose the greatest threat to their own business, respondents cited – in descending order of priority – global trade conflicts, skilled labor shortages, digital disruption including cyber risks, and bureaucracy.
“This mix of external stressors is not new, but its full impact is only now unfolding as reserves dwindle,” says Heiko Fink, study lead and Horváth board member.
Against this backdrop, it is striking that leadership teams and employees remain relatively calm. On a scale from 1 (“very tense”) to 6 (“very optimistic”), the average sentiment scored 4.9 points.
“Many SMEs have deep-rooted traditions and long histories – they don’t panic easily in times of crisis. But they also tend to take longer to implement unavoidable measures, which can become existential,” Fink adds.
Job Cuts Hit Headquarters
What began in recent years is now reaching the core of many family-owned SMEs: job cuts and workforce shifts abroad. More than one in six companies plans significant staff reductions by 2027, with roughly 75% of cuts affecting German sites. At headquarters alone, around 40% of planned reductions will occur within the next two years.
Looking ahead to 2030, every second SME expects further downsizing in Germany. Key drivers include high labor costs, efficiency gains through automation and technology, and rigid labor laws. Seven out of ten companies say that with more flexible labor regulations, they would not need to relocate value creation and jobs to the current extent.
Investment budgets for Germany are also shrinking dramatically: from 55% to 40% of total CAPEX.
Bureaucracy: The Achilles’ Heel
In addition to strict labor regulations, respondents report being slowed down by a host of regulatory and bureaucratic requirements. The most significant obstacle: lengthy and complex approval processes, which 70% say severely hinder their operations. Close behind are documentation and reporting obligations (68%, e.g., supply chain) as well as energy and climate compliance requirements (68%).
Two-thirds of SMEs also criticize data protection rules, and an equal share struggle with mandatory written form requirements, calling for more official digital communication.
“Ultimately, it’s the sheer weight of regulatory demands that makes it even harder for companies to remain competitive globally given high labor and production costs – and even less attractive to invest in Germany as a business location.”
Tradition and Owner Influence as Roadblocks
When asked what most negatively impacts transformation success within their own organization, the top answer was: “Clinging to the past.” In fact, this has caused problems in recent transformation initiatives at one in four SMEs.
“This pattern exists elsewhere too, but family-owned businesses – typically the backbone of the SME – are particularly tradition-bound and long-term oriented,” says Horváth board member Heiko Fink. “That’s a strength in many ways: once owners are convinced, they take risks and invest. But failing to recognize the signs of change can be dangerous.”
A strong influence of owner families on operational decisions is explicitly cited as a negative factor by 13% of respondents.
Leadership Shake-Up in Family Businesses: 70% Facing Major Management Change
The study also reveals a looming “wind of change” in leadership: By 2030, 52% of family-owned SMEs expect a generational shift at the executive level. Another 44% are preparing to transition to fully external management with no family involvement.
“Companies shouldn’t wait until new leadership is fully in place. The time for action is now – setting the right strategic course and driving transformation decisively,” emphasizes Fink.
SME Sector Too Hesitant on AI Investment
The characteristic long-term perspective – often ignoring short-term trends – could backfire when it comes to the rise of AI. Horváth’s data shows that SMEs invest significantly less in AI technology and implementation than large corporations. For 2025, SMEs have allocated just 0.4% of revenue, compared to 0.5% among companies with revenues above €5 billion.
“SMEs are underinvesting in AI-based solutions – despite the enormous potential for efficiency gains and cost optimization through automation,” says Fink.
Strategically Stuck in the Old World
Another key finding: Most companies still prioritize revenue growth over margin optimization, despite shifting market dynamics. 59% rank revenue growth clearly ahead of profitability, while 32% pursue a balanced approach and only 10% focus primarily on margins.
“With persistent cost and competitive pressures, a ‘business as usual’ strategy is risky. Of course, companies need to utilize existing capacity – even at the expense of lower margins. But putting revenue growth far ahead of profitability can quickly become a liability,” warns Fink. Given limited organic growth opportunities, M&A is gaining traction. On a positive note, strategic repositioning ranks second among transformation priorities – right after value creation initiatives.
Transformations Underway – Confidence Remains
Overall, 60% of companies report being in the midst of major transformations, affecting location footprint, product portfolios, and customer structures.
“The scale of change is significant – and it’s underway. But only if SMEs embrace transformation wholeheartedly – from product strategy and technology investments to cost structures and footprint adjustments – will they remain the backbone of the German economy tomorrow,” Fink concludes.
“The strong sense of confidence and optimism within the SME is certainly a good foundation for navigating this transition successfully.”
About the Study
Horváth surveyed 200 German SMEs with annual revenues between €100 million and €5 billion across industries in October and November 2025. Half of the sample consists of family-owned businesses (100 companies), where the owner family is part of the executive team. The other half are family-controlled, with the owner family represented on supervisory or governance boards.
