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FT: The Mittelstand Opportunists

Author: Daniel Schäfer
April 27, 2010

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Daniel Schäfer asks whether mid-range family owned businesses and industries in Germany that have an interest in trading with Iran undermine western efforts to isolate the Islamic Republic.

When asked about trading with Iran, some of Germany's media-shy Mittelstand managers give an unusually blunt answer. "The utilisation rate of my plant has gone down to less than 60 per cent. So it is a question of pure survival for me to accept every order I get," says the managing director and part-owner of one engineering company.

This approach is commonplace among the traditionally secretive, small and medium-sized mainly privately owned and family-run companies that form the backbone of the country's economy. But it contrasts sharply with the public remarks made recently by many heads of the country's large listed industrial groups.

Dieter Zetsche, chief executive of Daimler, the car and truck making group, this month announced that the company was cutting almost all of its ties to the country. "The policies of the current Iranian leadership have compelled us to put our business relationship with that country on a new footing," he said.

Daimler is merely the latest among a number of Germany's biggest industrial companies including Siemens, Munich Re and ThyssenKrupp to turn their back on Iran this year. Their sudden withdrawals - after decades of trading with the country - came amid the prospect of stricter sanctions on Iran's banking and energy sectors, intensifying pressure from the German government and a public backlash in the US, where many of them have substantial operations.

It is unclear if the prospect of stricter sanctions will become a reality, but large companies such as Siemens are presaging a stricter environment. "We had to expect sharper sanctions anyway so it did not make sense to sign contracts that cannot be fulfilled in the end," the manager of an industrial group said.

A senior executive at another company that stopped trading with Iran reveals another strong incentive: "Companies have to weigh how much business with Iran they do and how much with the US." Last year, for example, when Siemens lost a $300m (€225m, £194m) tender for city trains in Los Angeles the city's mayor said one reason was its trading ties with Iran.

At the same time, the German government has in recent years pursued a "discouragement strategy", an unofficial attempt to keep companies from trading with the regime. Although the export of many goods to Iran is legal, the government has attempted to keep companies from trading with the regime through public pressure, private conversations with executives and by increasing the bureaucratic burden of doing business with the country.

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