Flexibility as a condition for existence: Why the middle class can be the winner of geopolitical fragmentation
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Published on: November 7, 2025 / Updated on: November 7, 2025 – Author: Konrad Wolfenstein
Flexibility as a condition for survival: Why small and medium-sized enterprises (SMEs) can be the winners of geopolitical fragmentation – Image: Xpert.Digital
Small and medium-sized enterprises (SMEs) benefit from their flexibility in geopolitically uncertain times.
The strategic transformation of European SMEs in the age of geopolitical reconfiguration: Markus Becker's approach and repositioning through dual-use innovation
The global economic order is undergoing a fundamental transformation. While the three decades following the fall of the Berlin Wall were characterized by increasing economic interdependence and trade integration, 2022 and 2023 saw a dramatic upheaval. The Russian invasion of Ukraine in February 2022 not only marked a geopolitical turning point but also signaled the end of an era of security based on economic interdependence. At the same time, technological rivalry between the US and China is intensifying, while export restrictions on rare earth elements and semiconductor components are increasingly becoming geopolitical weapons. Paradoxically, in these turbulent times, the strengths of German and European SMEs are revealing themselves as a decisive competitive advantage.
The central thesis put forward by Markus Becker, Chairman of the SME Connect Defence Working Group, is based on a precise analysis of organizational reality: Small and medium-sized enterprises (SMEs), with their flat hierarchies and decentralized decision-making processes, possess an agility that large corporations simply cannot achieve. This is not merely a theoretical insight, but an empirically verifiable reality. Studies by the management consultancy Kienbaum show that 61 percent of companies with flat hierarchies are perceived by their employees as particularly innovative, while only a third of companies with strong hierarchies achieve this status. Even more significant is the fact that companies with flat hierarchies are not only more innovative, but also more successful. This structural superiority becomes a decisive factor in times of crisis.
When export-oriented small and medium-sized enterprises (SMEs) are confronted with more fragile trade relations, more volatile commodity markets, and geopolitically induced supply chain disruptions, they can demonstrate a speed of adaptation that institutional giants simply cannot match. A mid-sized company with three to four hierarchical levels can decide on and implement strategic changes in days, while publicly traded corporations need months. In a geopolitically fragmented environment, this time difference is not merely a competitive advantage, but often the difference between economic survival and disruption.
The expanding importance of the defense sector for national economies is opening up entirely new business horizons, especially for these flexible medium-sized companies. The defense market is not simply a new market, but a strategically prioritized market attracting national and European investment. Europe has recognized that it can no longer rely on security provided by inexpensive Chinese suppliers or on military guarantees from the USA. This is leading to a paradigm shift in procurement policy, where security of supply, speed of innovation, and European strategic autonomy are valued more highly than mere cost-effectiveness.
Under these circumstances, companies that can quickly adapt their business models and transfer their civilian innovations into military applications become valuable partners. This is precisely the niche in which European SMEs demonstrate their strength. The ability to rapidly reorganize complex, cross-organizational assets in crisis situations, as described by Professor Alfredo De Massis of IMD Business School and the University of Chieti-Pescara, is systematically more pronounced in family businesses than in publicly traded corporations. These companies not only protect their internal foundations for future generations but also preserve their liquidity while simultaneously positioning themselves for entirely new growth avenues.
The Ukrainian drone industry as a blueprint: Decentralized innovation under pressure
To understand the transformative power of these organizational structures, it is worthwhile to look at the Ukrainian drone industry, which grew from virtually nothing to a technological spearhead in less than three years. The analysis by Professor Pontus Braunerhjelm and Dr. Maryna Brychko from the Royal Institute of Technology in Karlskrona, Sweden, reveals a fascinating pattern: While technical training and skilled IT professionals were already a significant strength of Ukraine before the war, it was the war situation that gave rise to a decentralized innovation ecosystem that efficiently bridges the military and civilian sectors.
This ecosystem did not emerge through top-down planning or central coordination, but rather through the organic mobilization of civil society, accelerated government reforms, targeted procurement incentives, enforced capital commitment, and foreign partnerships that facilitated technology transfer. Companies like FRDM, which produces kamikaze drones and land robots, arose from volunteer movements. Tech Force chairman Vadym Yunyk describes how his initial involvement in aerial reconnaissance in 2014 evolved into a fully-fledged defense company that now manufactures state-of-the-art weapons systems.
The numbers speak for themselves: Over 3,500 developments are registered, more than 260 have been codified according to NATO standards, and 470 grants totaling 1.3 billion hryvnia have been awarded. Local production already covers around 96 percent of national demand, with even foreign companies like Munich-based Helsing GmbH and Bavarian Quantum-Systems GmbH developing and producing combat drones in collaboration with Ukrainian partners. This is no coincidence: A decentralized system with short decision-making processes, direct feedback between the military and production, and innovative approaches has enabled this dynamic.
Ukrainian manufacturers have developed drones controlled via fiber optic cables – a technology that makes them largely immune to electronic jamming. Around 15 specialized companies are currently producing such models. They are also making progress with interceptor drones, with over 200 confirmed cases already documented in which Ukrainian drones, based on Iranian designs, have intercepted Russian-made Shahed drones in mid-air. The speed of this development could only be achieved through the mobilization of a decentralized, flexible ecosystem – precisely the model that Germany and Europe now expect from their small and medium-sized enterprises (SMEs).
However, a fundamental weakness of this model is also apparent: the Ukrainian drone industry currently relies on imported components for approximately 40 percent of its needs – particularly motors, batteries, and flight controllers, which predominantly originate in China. Beijing's ambiguous stance on Russia's war of aggression and China's increasingly restrictive export controls are forcing Ukraine to significantly expand its own production of these critical components. This parallels the central challenge facing Europe and Germany: their strategic dependence on Chinese raw materials and components.
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Markus Becker's concept of dual-use innovation as a bridge between the civilian and military economies
It is precisely at this intersection that the strategic concept developed by Markus Becker, Chairman of the SME Connect Defence Working Group, is positioned. Becker recognized that the traditional separation between civilian and military technologies is not only outdated but also economically suboptimal. At the European level, the SME Connect Defence Working Group has compiled a body of knowledge to accelerate the participation of SMEs in European defense supply chains while simultaneously strengthening their competitiveness and strategic autonomy.
Becker's central insight is based on the realization that automated storage and transportation systems, robust supply chain data layers, and advanced lightweight protection are all technologies initially developed for civilian applications. A warehouse management system for a large logistics company is not fundamentally different technologically from one used in a military depot. Protective material that saves weight in the automotive industry can simultaneously provide fragmentation protection in military applications. Becker argues that there is a fast track to scaling civilian innovations to defense-level applications.
This is not a demand for the entire German economy to become more focused on defense, but rather a pragmatic concept for the strategic use of existing technological expertise. A mechanical engineering company that produces specialized manufacturing equipment for the food industry could, with relatively minor modifications, also manufacture components for defense systems. A software company that has developed logistics platforms for e-commerce could leverage this expertise for supply chain security in military contexts.
What Becker also makes clear is that this concept doesn't have to be limited to the defense sector. The same logic that applies to military applications—higher demands on reliability, redundancy, encryption, and availability—makes these technologies valuable for critical civilian infrastructure as well. An automated storage system that meets high military standards is perfectly suited for secure energy supply, medical care, or telecommunications. This opens up a new market that isn't limited to defense but encompasses all forms of critical infrastructure.
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The challenge of fragmented globalization and the realignment of European supply chains
An analysis of the current global political situation reveals a system reconfiguring itself under extreme pressure. What was previously understood as globalization—the integration of supply chains across national borders, the outsourcing of production to countries with lower labor costs, and the specialization of individual countries in specific value-added sectors—is being replaced by a system characterized by confrontational multipolarity. The US under Trump is increasingly relying on economic nationalism, imposing tariffs of 15 percent on German exports. China has emerged as a strong competitor while simultaneously restricting access to key resources.
Statistical data from the German Bundesbank show that Germany has been continuously losing export market share since 2017, with the rate of decline accelerating significantly from 2021 onwards. Over 75 percent of the market share losses between 2021 and 2023 can be attributed to structural factors: German industry can no longer keep pace with global competition. Mechanical engineering, the electrical industry, and energy-intensive sectors are delivering products that are too expensive, too slow, or simply not innovative enough. The reasons are well-known: rising unit labor costs, a shortage of skilled workers, bureaucratic burdens, and demographic change.
At the same time, dependence on critical raw materials concentrated in China is increasing. The EU relies on imports from China for approximately 99 percent of its rare earth elements. In October 2025, China tightened its export controls on rare earth elements, limiting them to a total of 12 materials. Commodities trader Matthias Rüth described the situation as "very serious" and "relatively unpredictable." While recycling can offer some short-term relief, experts consider it at best an interim solution and not a long-term alternative.
This objective situation necessitates a fundamental reassessment of European and German economic strategy. Integration into global supply chains will no longer be determined solely by economic logic, but increasingly by geopolitical calculations. EU Commission President Ursula von der Leyen announced that she would use all available instruments to break China's trade blockade on critical raw materials. The Brussels-based government institution is working on the "RESourceEU" plan to secure "short-, medium-, and long-term access to alternative sources" for European industry, particularly for rare earth elements.
Hub for security and defense - advice and information
Hub for security and defense - Image: Xpert.digital
The hub for security and defense offers well-founded advice and current information in order to effectively support companies and organizations in strengthening their role in European security and defense policy. In close connection to the SME Connect working group, he promotes small and medium -sized companies (SMEs) in particular that want to further expand their innovative strength and competitiveness in the field of defense. As a central point of contact, the hub creates a decisive bridge between SME and European defense strategy.
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Family businesses as anchors of stability: Germany's secret strength - How Germany gains geopolitical influence through export dominance
Dual-use potential: How medium-sized companies combine military and market
The German export model: between dependence and competitiveness
Jürgen Matthes, head of the International Economic Policy, Financial and Real Estate Markets cluster at the German Economic Institute in Cologne, has made an important analytical observation in this context: If Germany dominates the export of certain goods, other countries become dependent on it to a certain extent. Given American tariff policies and the Chinese government's steadily tightening of export restrictions on rare earths, this could be a valuable asset for exerting political pressure. This is a reversal of classical geopolitical logic: Germany, long in a position of dependency (on Russian gas, on Chinese raw materials), could itself become a geopolitical player through strategically structured export dominance in certain highly complex product categories.
However, Matthes also points out that Germany performs significantly worse than the USA and China in terms of the number of export-dominant product groups. But when considering the EU or the G7 together with the EU, these groups of countries have considerably more export-dominant goods than China. This suggests that European strategies must not be conceived solely on a national level, but rather coordinated at the European level. The venue for this coordination is precisely where Markus Becker operates: in the SME Connect Defence Working Group, which brings together small and medium-sized enterprises at the European level to jointly secure supply chains and accelerate technological development.
Family businesses as a stabilizing force in uncertain times
One aspect often overlooked in political discussions is the specific role of family businesses within Germany's Mittelstand (SMEs). The majority of German SMEs are family-owned, built up over generations. This type of business possesses characteristics that prove particularly valuable in times of crisis. Family businesses have a deep understanding of their company and their industry, representing a knowledge advantage that cannot be replicated. They have established stable value creation networks based on trust and long-standing relationships.
At the same time, family businesses possess the ability to quickly reorganize complex, cross-organizational assets in crisis situations. They not only protect the company's internal foundations for future generations, but also secure their liquidity and can simultaneously position themselves for new growth avenues. Various case studies demonstrate how these companies mobilize their networks to break free from dependencies, manage foreseeable risks, and initiate innovations.
German and European policymakers can support these business networks in the current geopolitical climate, for example, by promoting cross-sector alliances. A family-owned mechanical engineering company that strategically collaborates with a software company and a logistics firm can react more quickly to changing market demands than any single company could on its own. The fact that family businesses are rooted in their local regions is particularly valuable here, as it secures jobs and multiplies local value creation.
Political framework conditions as enablers or blockers
Despite all these inherent strengths of German SMEs, these companies encounter significant political and regulatory hurdles. The Federation of German Industries (BDI) has made it clear in its demands that, in its view, an integrated foreign, trade, and industrial policy is needed—one that strategically prioritizes economic security and European interests while also setting clear priorities. Cedric von der Hellen, BDI's foreign trade policy advisor, emphasized this point emphatically: "If we reconcile political pragmatism, economic resilience, and sustainability requirements, we will create the foundation for companies in Germany to actively shape technological change while simultaneously maintaining their international leadership." But for this to happen, the German government must finally take action: announcements are not enough—we now need concrete measures that create planning certainty and enable investment.
The reality, however, is that German SMEs are currently suffering under massive bureaucratic pressure. Around 59 percent of German SMEs see bureaucracy as a high risk to their future competitiveness. This is not just an opinion, but reflects an objective economic reality. A company with 50 employees that wants to enter the defense sector for the first time must meet security clearance requirements, obtain security approvals, deal with specific procurement regulations, and clarify IP and licensing issues related to EU co-financing. These requirements are not illegitimate – they do indeed serve to protect technological security. But for small companies with limited resources, they are often an insurmountable obstacle.
There are indeed support structures in place at the European level. The European Defence Fund, with a budget of over €1.1 billion in 2025, supports projects in areas such as AI, robotics, sensor technology, space, communications, and autonomous systems. The EU Defence Innovation Scheme specifically promotes SMEs and start-ups that want to develop new technologies for the defence sector. The NATO DIANA initiative offers accelerator programs and mentoring. The NATO Innovation Fund has €1 billion at its disposal. However, access to these funds requires specialized expertise, application skills, and planning stability – all things that are difficult for small companies to provide.
The funding landscape: between supply and practical feasibility
In his appearances at European conferences – such as the high-level SME Europe meeting in Brussels in May 2025 – Markus Becker has made it clear that the strategic importance of military logistics infrastructure has been underestimated. He positioned dual-use solutions in the field of automated warehousing systems as critically relevant infrastructure for security of supply, operational readiness, and basic civilian services. Modularly scalable and automated dual-use solutions can be used for civilian purposes while simultaneously meeting the requirements of military operations.
This perspective opens the door to a different financing logic. A logistics company developing automated warehouse systems could theoretically be financed through both traditional economic development programs and defense funds – depending on the current focus. While the Central Innovation Program for SMEs (ZIM) of the German Federal Ministry for Economic Affairs and Climate Action is primarily civilian in its orientation, it can also be relevant for dual-use projects under certain circumstances.
The challenge lies in the current lack of coordination among these various funding streams. A company would essentially have to navigate several parallel application processes to optimally benefit from the available funding. This is time-consuming and reduces the practical usability of existing resources for many small businesses. A key coordination task is the creation of one-stop shops for SMEs active in dual-use innovation.
Political pragmatism as a strategic necessity
The concept of “political pragmatism,” emphasized by Cedric von der Hellen of the Federation of German Industries (BDI), is not merely a buzzword, but describes a necessary paradigm shift. In German debates, a distinction is often drawn between “values” and “interests,” as if these categories were antagonistic. The reality, however, is that successful foreign and economic policy must combine both. Germany cannot afford to cooperate only with democracies. It needs smart, pragmatic partnerships – but without abandoning its values.
The mistake of the past – the heavy reliance on Russian gas in the hope that economic interdependence would lead to peace – has shown that technical interdependence alone is insufficient to prevent conflict. At the same time, a policy that ignores the fact that resilience also requires long-term trade relationships can lead to costly economic disruptions.
For small and medium-sized enterprises (SMEs), this means they cannot simply withdraw from China without massive economic disruption. But they can diversify their supply chains. They can develop local alternatives. They can look for alternatives in East Asia, such as Vietnam, Indonesia, or Thailand, where Germany Trade & Invest already offers extensive support. At the same time, they can invest in European value creation – even if this is more expensive in the short term.
Scenarios for the future of German SMEs
Looking at the various scenarios for the next five to ten years, several possible development paths emerge. The pessimistic scenario envisions a further loss of competitiveness for German SMEs, fueled by inadequate political measures, high bureaucratic burdens, and a lack of strategic investment. In this scenario, Germany continues to lose market share to China and other countries, while at the same time its dependence on raw materials increases and supply chains become further complex.
The realistically optimistic scenario assumes that European and German policymakers will demonstrate their ability to act under pressure. This would mean: faster approval processes, better coordination of funding programs, targeted development of European production capacities in critical technologies (especially semiconductors and specialized materials), and a strategically coherent foreign trade policy that repatriates added value to Europe without becoming completely self-sufficient.
In this scenario, companies like those whose strategy Markus Becker pursues would be among the winners. Medium-sized businesses that quickly benefit from dual-use concepts would profit from exploding defense budgets and, at the same time, from the growing demand for resilient critical infrastructure. Simultaneously, family businesses would be able to monetize their traditional strengths – deep industry knowledge, stable networks, and speed of decision-making.
The third scenario is a transformatively optimistic one: European industry recognizes geopolitical pressure as an opportunity for a deep tech breakthrough. Under this scenario, a coherent European strategy would ensure that Europe does not remain a niche player in future-oriented technologies, but assumes strategic leadership. Investments in European sovereign technology, European defense capabilities, green technologies, and highly specialized manufacturing would transform the European industrial ecosystem.
The era of the European SME initiative
Markus Becker's approach to dual-use innovation and his work in the SME Connect Defence Working Group represent not merely a program for individual companies, but a systemic strategic shift. German and European SMEs possess the organizational, technological, and cultural resources to emerge as winners in the coming years amidst geopolitical upheavals – provided the political framework changes radically for the better.
This requires nothing less than a paradigm shift in German and European security policy. It is not enough to react to geopolitical crises. Proactive investments in European technological sovereignty, a streamlining of funding programs, and a clear prioritization of companies that can scale rapidly are needed. Family businesses and agile medium-sized enterprises, in particular, should be supported in unlocking their innovative potential.
The time for German and European pragmatism has come. Political innovation must follow technological innovation. Only then can small and medium-sized enterprises (SMEs) realize their inherent potential and lead Europe to economic and technological independence achieved not through autarky, but through strategic intelligence and operational excellence.
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Markus Becker
I would be happy to serve as your personal advisor.
Head of Business Development
Chairman SME Connect Defense Working Group
Advice - planning - implementation
Konrad Wolfenstein
I would be happy to serve as your personal advisor.
contact me under Wolfenstein ∂ Xpert.digital
call me under +49 89 674 804 (Munich)
Your dual -use logistics expert
Dual -use logistics expert - Image: Xpert.digital
The global economy is currently experiencing a fundamental change, a broken epoch that shakes the cornerstones of global logistics. The era of hyper-globalization, which was characterized by the unshakable striving for maximum efficiency and the “just-in-time” principle, gives way to a new reality. This is characterized by profound structural breaks, geopolitical shifts and progressive economic political fragmentation. The planning of international markets and supply chains, which was once assumed as a matter of course, dissolves and is replaced by a phase of growing uncertainty.
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