The Economist has a very interesting section in its current issue (February 10th Edition) on the subject of European business and how it is or can adopt to the challenges of globalisation. In one article, it discusses how private equity firms buying up failing firms can give them a much-needed shake-up. For example, Germany’s answer to Hornby model railways, Maerklin, suffered from incoherent and feuding family control, underinvestment, losses and debts. Enter the London-based Kingsbridge Capital, part of the Austrian Hardt Group, which bought the model railway company, is widening its appeal, and has moved production of some parts and low-end products offshore. But, says the Economist, “many jobs will stay in Germany”.
Trade unions and other opponents of globalisation dislike this sort of influence, moving jobs overseas. Yet as the Economist points out: “In 2005, when Franz Muntergering, then the party leader of the Social Democrats, described private-equity firms as ‘locusts’, Maerklin employees staged a demonstration to support the boss of Kingsbridge, Mathias Hink. A German tabloid newspaper put his picture on the front page and called him ‘the friendly locust’.”
In reality, opponents of this type of restructuring suffer from myopic short-termism. By pushing for business plans that lead to companies going bust a year or two in the future, they “save jobs” but only in the very short term. Conversely, more viable business plans promoted by private equity firms have a much better record in delivering the high-wage, sustainable jobs that Europe needs.
Tags: Franz Muntergering, Kingsbridge Capital, Maerklin, Mathias Hink, Private equity