The Ifo Institute for Economic Research was commissioned by the Federal Ministry for Economic Affairs and Technology to investigate changes in the German manufacturing industries induced by modifications in the economic framework. The Ministry was interested in information on the impact of new opportunities and threats stemming from the evolution of the financial markets and innovations in information and communication technologies. Special attention was to be paid to companies’ behaviour and their strategic orientation as explanatory variables for the expected structural changes.
With regard to the task posed, the Ifo Institute suggested that corporate governance should be included as a third area with an impact on changes of companies’ strategies and structures. After this was agreed, the following approach was pursued by the research team. Initially, developments in financial markets, in corporate governance and in information and communication technologies were investigated to lay the foundation for the analyses. Taking these results into account, the impact on companies’ behaviour was analysed and an assessment made of the likely changes in the manufacturing industries.
One of the major hypotheses for the investigation of the financial market impact is the widely held assumption that supply-side changes make financing more difficult for SMEs.
It was assumed that ownership concentration will change in Germany. With regard to the relationship between companies’ performance and ownership concentration corporate governance gains special attention. Within this context the importance of the regulatory framework and the question of how to overcome the principal-agent problem have to be investigated.
The investigation of the dissemination of information and communication technologies focused on the state of ICT application in SMEs and possible future developments. It was assumed that complementary investments in human resources would be necessary and that they may prove to be a threat for companies which do not perceive this interrelationship.
A major part of the work was based on desktop research. The analysis of the financial markets concentrated on studies that highlight the peculiarities of the German financial markets. Moreover, special attention was paid to expected effects of Basel II and changes in the responsibilities of public-sector banks. The analysis of corporate governance examined the institutional framework and the impact of regulation and ownership concentration on companies’ efficiency. A comprehensive analysis of available market research on information and communication technologies revealed that there are strong differences in dissemination. Providing a consistent picture of the dissemination and further evolution in this area was a challenging aspect of the study.
Additional information on the dissemination of information and communication technologies and companies’ behaviour was collected by fieldwork:
The selection of both industries was agreed with the Ministry. It was based on the fact that there are major structural differences which have an impact on companies’ behaviour and their decision to introduce advanced information and communication technologies.
The structural changes in the banking system and the Basel II agreement pose a challenge for SMEs. Most of the smaller companies face a more formal and strict risk assessment. Their low equity-debt ratio and low propensity to publish financial data make it difficult to acquire low-interest loans. If these companies were to change their behaviour in favour of explicit business decision making and strategic planning and if they were to make their finances more transparent to the financial markets, they would be able to take advantage of the more comprehensive supply of funds in the financial markets, in particular the potential to raise venture capital.
Studies on the impact of reduced ownership concentration suggest for Germany that the predominant high level of concentration provide some explanation for companies’ performance. But there are some signs that ownership concentration will be reduced in the future. This tendency provides the challenge that the companies’ performance will not become worse. In Germany the regulatory framework was recently changed, making it more suitable for tackling the problems related to reduced ownership concentration. It must be monitored, however, to see if it suffices to improve companies’ long-term performance. In particular, the counter-measures that management may take to fend off a hostile take-over should be carefully observed.
The introduction of advanced information- and communication technologies is strongly linked to complementary investment in human resources. To the extent that SMEs per ceive the necessity to employ well-educated staff, these companies are not in danger of losing touch with the rapid progress of these technologies. But the SMEs must overcome the hurdle of high wages and the scarce supply of highly skilled labour. It is suggested that they intensify co-operation with other firms in order to solve these problems.
Hans-Günther Vieweg, Michael Reinhard, Alfons Weichenrieder, Ralf Meisenzahl, Bent Nowack, "Finanzmärkte, Corporate Governance, IuK-Technologien: Treibende Faktoren für den Wandel in der Industrie", ifo Beiträge zur Wirtschaftsforschung, Bd. 11, 2002, Ifo Institute: Munich.
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