The middle class in the raw materials dilemma: Between structural dependence and strategic self-assertion

“Perfect Storm” in purchasing: Why medium-sized businesses now need to radically change their raw materials strategy

AI and cooperation: How medium-sized businesses can break the monopoly of the raw material giants

The global economy is in a state of permanent crisis – and German SMEs are paying the price. Exploding costs, fragile supply chains, and China's overwhelming dominance in critical raw materials are putting immense pressure on small and medium-sized enterprises (SMEs). Unlike large corporations, they often lack the market power, capital, and necessary tools to hedge against these extreme price fluctuations. This structural disadvantage results in a dangerous dependency that, in the worst-case scenario, threatens their entire competitiveness. But remaining powerless is not an option. This article examines the profound challenges SMEs face in raw material procurement and presents concrete, pragmatic solutions: from strategic purchasing groups and the use of artificial intelligence to the consistent application of the circular economy. Those who accept permanent uncertainty as the new normal and act proactively can transform the current polycrisis from an existential threat into a genuine competitive advantage.

The biggest obstacle for medium-sized companies in procuring raw materials is the lack of market power and information asymmetry, i.e., the lack of knowledge about markets compared to large corporations

Those who are too small to be heard pay the price of insecurity – again and again

When crises are no longer the exception, but the norm

For several years now, the global economy has been in a state that scientists describe as a "polycrisis": the simultaneous occurrence of several severe and mutually reinforcing crises, whose combined effect far exceeds the sum of their individual impacts. The pandemic, the war in Ukraine, escalating trade conflicts between the US and China, climate change, and the accelerated transformation of global energy systems—all these developments are hitting commodity markets with a force that would have been unthinkable just a decade ago. What was once considered a rare occurrence is now the norm: supply chains are breaking down, prices are skyrocketing, and availability is becoming unpredictable. For German SMEs, this means a fundamental reassessment of risks that were considered manageable for decades.

The German Association for Supply Chain Management, Procurement and Logistics (BME) vividly described in its raw materials briefing at the end of 2025 just how tense the framework conditions remain for purchasing and supply chain managers: Geopolitical tensions, structural shifts, and persistently high costs continue to characterize global raw materials markets in 2026. This is not a temporary disruption after which everything will return to the old equilibrium. Rather, a profound reorganization of the world is taking place – and small and medium-sized enterprises (SMEs) are right in the middle of it, often without the tools they need to shape this change instead of merely suffering through it. In this context, management consultants speak of a "perfect storm" – the collision of various adverse weather conditions that simultaneously and at increasingly shorter intervals shake up finely tuned supply chains.

The economic consequences of this polycrisis are hitting small and medium-sized enterprises (SMEs) disproportionately hard. This is not solely due to the sheer volatility of the markets, but rather to a combination of structural weaknesses that were less noticeable in a stable environment, yet are ruthlessly exposed in a turbulent one. The crucial question, therefore, is not how to survive the next crisis, but how to transform persistent uncertainty into a strategic advantage. It is precisely this transformation that is currently proving elusive for SMEs – and for very concrete, economically identifiable reasons. According to a survey by the Austrian Federal Economic Chamber, over 60 percent of the companies surveyed stated that rising commodity prices are significantly impairing their competitiveness.

The fundamental structural contradiction: When size dictates price

The biggest obstacle for medium-sized enterprises (SMEs) in sourcing raw materials is their lack of market power. This diagnosis sounds simple, but it has far-reaching and often underestimated consequences. Small and medium-sized enterprises are structurally disadvantaged in raw material markets: they purchase quantities that are too small to be perceived as strategically important partners by suppliers, and they rarely have the capacity to negotiate long-term supply contracts with a sufficiently strong legal department and negotiation expertise. A similar principle generally applies to raw material procurement: SMEs seldom have the market power to unilaterally enforce special conditions.

The underlying economic principle is the law of economies of scale in purchasing: the larger the purchase volume, the lower the unit price. Large corporations secure preferential terms, priority delivery, and dedicated capacities from raw material suppliers because their order volumes are business-critical for those suppliers. The medium-sized machine manufacturer that needs a few tons of specialty metals each month is more of a footnote to the same supplier. It pays what the market demands—the so-called spot price—or it pays a "medium-sized business premium" that systematically erodes its margins. When medium-sized companies negotiate on their own, they often remain insignificant to top suppliers and simply pay inflated prices, while their own competitiveness against the competition suffers.

To make matters worse, market power in the commodity markets is extremely concentrated – on the supply side. A large proportion of the world's critical raw materials are controlled by a few state-owned or quasi-state actors. China plays a key role in this, particularly with regard to rare earth elements and raw materials for digitalization and the energy transition. When a single country dictates the regulatory rules of the supply chain – through export controls, quota systems, or simply price fixing – small and medium-sized enterprises (SMEs) have no countervailing power. They are price takers in a market where prices depend on political decisions, not on supply and demand in the traditional sense. The shortage of raw materials poses massive challenges for SMEs, with hardly any sector unaffected – price increases, production stoppages, and order losses are direct economic consequences.

The roulette game of commodity prices: Why medium-sized companies rarely win

Closely linked to their lack of market power is the inability of many medium-sized companies to effectively hedge against price volatility. Commodity prices fluctuate considerably more than other business risks such as interest rates or exchange rates. A study shows that 89 percent of the companies surveyed attribute a medium to high impact on their costs to commodity prices. Nevertheless, 38 percent of these companies completely forgo financial hedging of their commodity positions, even though interest rate and currency risks are hedged far more frequently by these same companies. This paradox reveals a systemic gap in risk management.

The reasons for this hedging gap are multifaceted. Financial hedging instruments – futures, options, forwards – are standard tools for large corporations with their own treasury departments and derivatives specialists. For a medium-sized company with 80 employees and a purchasing manager who is also responsible for logistics and warehousing, commodity derivatives are practically inaccessible. They lack the necessary expertise, IT infrastructure, minimum trading volumes for exchange-traded contracts, and often access to specialized financial service providers. Yet the instrument is fundamentally available: Small and medium-sized enterprises could also use futures and options to hedge prices, protect margins, and reduce the uncertainty associated with fluctuating currencies or commodity prices. The result of this inaction is that many medium-sized companies have to pass on their commodity risk to their customers, which creates a competitive disadvantage in the long run.

Without adequate hedging, reliable earnings forecasts are virtually impossible. If the copper price rises by 40 percent within a year, as has happened several times in the past, the calculations and margins of an order that was offered at a different price level months earlier erode. Geopolitics remains the strongest driver of commodity prices, and markets will continue to be volatile in 2025: trade policy measures, particularly US tariffs, cause short-term shifts in demand and price fluctuations, while volatile markets and fluctuating exchange rates massively increase the complexity of commodity procurement. For medium-sized companies, this means not only financial losses but also difficulties in obtaining credit, as banks demand higher risk premiums or restrict credit lines from companies with volatile margin patterns.

China as hegemon: The invisible hand in the procurement market

For German SMEs, the geopolitical dimension of the raw materials issue has transformed in recent years from an abstract background threat into a concrete business risk. For decades, China has pursued a consistent raw materials strategy, the fruits of which are now bearing fruit with bitter consequences for Western industrialized nations. Germany and the EU currently have little choice but to rely on China for refined products, and protectionist trade policies and geopolitical interests are further exacerbating the situation. The People's Republic controls not only the extraction but, above all, the processing of critical raw materials, creating a dependency that cannot be resolved in the short term.

In April 2025, China began adding heavy rare earth elements to its export control list, leading to the first production lines in European factories coming to a standstill. In October 2025, Beijing extended export restrictions to include light rare earth elements. Although this tightening was postponed for a year following a meeting between the US and China, experts do not see this as a sign of relief – export controls remain in place for heavy rare earth elements, and Europe is currently entirely dependent on China for these. Furthermore, from December 2025, new, significantly stricter export control regulations will come into effect, requiring foreign companies to obtain a permit before exporting products containing Chinese rare earth elements or related technologies – a regulatory control system with an impact far beyond China's own borders.

The Federal Academy for Security Policy aptly described this in 2026: For far too long, Germany and the EU accepted their extremely high dependence on Chinese raw materials and relied on open markets, while China consistently expanded its position over decades through state-owned enterprises. Germany is a market economy, so the initiative lies with the companies – but these have long relied on functioning global trade. Resilience, however, doesn't arise solely from crisis management, but from foresight, and new mines or refineries don't spring up overnight or without massive financing. For small and medium-sized enterprises (SMEs), this means they are caught in a structural dependency that they cannot break on their own and for which political instruments for correction will only have an effect in the long term.

State-of-the-art cargo planes, optimized transport routes, and multimodal logistics chains are interchangeable—they can be bought, leased, or outsourced. What money can't buy are direct contacts with producers in Peruvian mines, reliable supply relationships in the CIS countries, and years of built-up trust in markets that are unfamiliar to outsiders. The decisive competitive advantage in global commodity trading lies not in transporting the good from A to B, but in knowing where the good comes from, who produces it, and how to gain access before others even know the market exists. Whoever owns the network sets the price. Everyone else pays it.

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Knowledge is power – and the middle class structurally lacks it

In addition to a lack of market power and geopolitical dependence, a third key obstacle is information asymmetry. Functioning commodity markets require all market participants to have access to relevant information – about current prices, future trends, geopolitical developments, regulatory changes, and technological substitution possibilities. In reality, this access is highly unevenly distributed. A GTAI survey of German SMEs shows that 70 percent of respondents rely on direct procurement from established suppliers as their primary source of critical raw materials. While this strategy certainly has its strengths, it is also vulnerable to selective information sharing by suppliers pursuing their own interests.

Information asymmetry has concrete economic consequences. Those who don't understand the market buy at the wrong time and at the wrong price. Those who fail to anticipate regulatory developments are caught off guard by compliance requirements that are expensive and time-consuming to meet. The BME provides its members with the "BME Commodities Cockpit," a dashboard offering access to current and historical commodity price data to facilitate more efficient purchasing decisions. Such collective infrastructure offerings are important approaches, but they fall far short of meeting the full information needs of small and medium-sized enterprises (SMEs), which today require a simultaneous understanding of geopolitics, regulations, currency dynamics, and technological developments in electromobility or semiconductor production.

To make matters worse, the complexity of the relevant information has increased considerably. Real-time information and data analysis tools are now increasingly important for raw material procurement in order to make well-informed and flexible decisions. Thanks to AI-supported analysis of news events, price fluctuations in the commodity markets can now be predicted with significantly higher precision than just a few years ago. This complexity systematically overwhelms many medium-sized companies – not due to a lack of intelligence or commitment, but simply due to a lack of resources.

Funding gap and investment barrier: The blind spot in risk management

Another often underestimated aspect of the raw materials dilemma is the financing gap in risk management. To manage raw material risks professionally—whether through inventory as a physical buffer, long-term supply contracts with corresponding advance payments, financial hedging instruments, or investments in recycling and the circular economy—companies need capital. This capital is available to medium-sized companies to a far lesser extent than to large corporations.

The BarmeniaGothaer study on the SME Sentiment Barometer (December 2025) vividly illustrates the dilemma: 81 percent of the surveyed SMEs perceive themselves to be in a poor economic climate, and 76 percent feel burdened by excessive regulation and bureaucracy. In such an environment, investments in proactive commodity risk management are postponed. Many SMEs are generally aware of the consequences of climate change and the commodity situation, but short-term economic challenges currently demand a large portion of their attention. This is a classic case of short-sightedness under pressure, described in behavioral economics as "present bias": Immediate costs are overemphasized, while future risks are systematically underestimated.

Furthermore, strategic raw material procurement ties up capital that is then unavailable for investments in products, processes, or personnel. For capital-intensive industries such as mechanical engineering or metal processing, this is a particularly painful trade-off. The either-or dilemma between global sourcing—to achieve necessary cost savings but accepting supply chain risks—and secure local sourcing, which is often tied to limited capacity and significantly higher prices, is developing into a strategic bottleneck in a world characterized by geopolitical turmoil. The result is a structural underinvestment in resilience, which permanently increases the vulnerability of small and medium-sized enterprises (SMEs) to commodity shocks.

From reactive driven individual to strategic actor: Paths to transformation

The path from structural victim to strategic player is not easy, but it exists. The most important lever for overcoming the market power gap lies in collective organization. By 2026, purchasing cooperatives will no longer be merely a convenient optimization tool, but a strategic necessity. Modern purchasing groups enable medium-sized businesses to gain market power by pooling their demand volumes and to achieve wholesale-level pricing that would be unattainable for individual companies – all while the members remain completely independent, both legally and economically. Studies show that companies can achieve price advantages of 10 to 25 percent through such alliances compared to individual negotiations, while simultaneously sharing risk management, logistics, and AI infrastructure.

A second strategic approach lies in diversifying the supplier structure. Instead of relying on a single source, companies seek alternative suppliers, especially those that produce in Europe. This approach, known as nearshoring, offers more stable supply conditions but also entails greater coordination efforts. Raw material partnerships with companies from the Global South offer a third way: As development economists emphasize, small and medium-sized enterprises (SMEs) can establish long-term supplier relationships in Latin America, Africa, or Southeast Asia that focus on shared value creation—not through large-scale government investments, but through continuous corporate engagement. Companies must not reduce these partnerships to the mere purchase of inexpensive raw materials but should instead orient them toward shared value creation.

Technology as an equalizer: How AI is reshaping the procurement landscape

Digitalization, and in particular the use of artificial intelligence in procurement, is shifting the balance of power between small and large players. AI-supported analysis tools can now process global commodity prices, news events, geopolitical developments, and supplier risks in real time, deriving forecasts and recommendations for action. Fraunhofer scientists have demonstrated that neural networks can predict price fluctuations of various steel grades with remarkable accuracy when trained on sufficiently large historical datasets. What previously required an army of analysts in a corporate commodity strategy department is now accessible to medium-sized companies via SaaS platforms with a manageable budget.

AI is fundamentally changing tasks and processes in purchasing, logistics, and the entire supply chain: Data-driven analyses, automated procurement processes, and smart forecasts are making purchasing organizations more efficient, transparent, and resilient. By analyzing news events, price fluctuations in commodity markets can be predicted precisely, with AI-supported platforms combining historical market data and current trends to identify optimal purchasing times, minimize risks, and actively hedge against price risks. According to recent surveys, three-quarters of German SMEs are aiming for savings in procurement and supply chain management – ​​partly through the targeted use of AI. Companies that invest in such tools today are building an information advantage that will grow over time.

When politics redraws the market: Opportunities and pitfalls of the Critical Raw Materials Act

With the Critical Raw Materials Act (CRMA), which entered into force in May 2024, the European Union has created an ambitious regulatory framework. The CRMA sets binding benchmarks for diversifying the EU's raw material supply by 2030: at least ten percent of the EU's annual consumption must be sourced domestically, at least 40 percent through EU-based processing, at least 15 percent through recycling, and no more than 65 percent of any single strategic raw material must come from a single third country. For small and medium-sized enterprises (SMEs), the CRMA primarily entails compliance obligations: large companies with more than 500 employees and an annual turnover exceeding €150 million must conduct a risk assessment of their raw material supply chain every three years, starting in May 2025. These due diligence obligations cascade down the supply chain and also affect SME suppliers of these large companies.

In the long term, the CRMA, with its 14 strategic raw material partnerships, strengthened circular economy, and Europe-wide raw material monitoring, is creating structures that benefit SMEs. EU strategic raw material partnerships are intended to promote the technological, economic, and social development of third countries and to build deeper supply chain relationships through knowledge transfer. The trade war is also significantly increasing diversification pressure within the EU, as China's de facto halt to the supply of key rare earth elements is affecting not only the USA. However, an honest assessment must be made: From today's perspective, the CRMA's goals are hardly achievable in their entirety because Europe is lagging behind developments in raw material geopolitics, and China has built its dominant position over decades. Waiting for political solutions is not a strategy; while a political framework can support, it cannot replace, companies' own responsibility for raw material resilience.

Circular economy as an underestimated resilience lever

A strategic approach often underestimated in the public debate on raw material supply is the consistent integration of secondary raw materials and circular economy principles into procurement strategies. 91 percent of Austrian companies already use circular economy principles or plan to do so. At the same time, 44 percent of companies report being heavily dependent on raw material imports from abroad, and over half consider it essential to make their supply independent of imports. Recycling and the use of secondary raw materials are therefore gaining considerable strategic importance.

For medium-sized manufacturers, integrating secondary raw materials offers several advantages simultaneously: It reduces dependence on primary, geopolitically risky sources, smooths out price fluctuations since the secondary market has a lower correlation with geopolitical events than the primary market, and increasingly meets regulatory requirements. However, the willingness to invest in the circular economy is declining among small businesses – only 46 percent of small companies are currently investing in such measures, compared to 84 percent of large companies. This decline reflects the general economic situation and is understandable in the short term, but strategically it is a mistake that perpetuates dependence. Those who invest in the circular economy today are building a resource that will become increasingly valuable with rising primary raw material prices and that cannot be altered by any political decision of a third country.

From structural victim to proactive shaper: A framework for action

The transformation from reactive uncertainty to strategic strength in raw material procurement doesn't require a single panacea, but rather a coherent set of mutually reinforcing measures. At the immediate operational level, the first step is to systematically map one's own raw material dependencies: Which raw materials are business-critical, what proportion comes from geopolitically risky sources, and which suppliers cannot be substituted in the short term? Those responsible for risk management within companies should systematically work on the organization's resilience, diversify supply chains, and establish continuous monitoring.

At the medium-term strategic level, companies should actively explore establishing or joining purchasing cooperatives, implement AI-supported market information tools, and consistently diversify their supplier base. Purchasing cooperatives are necessary to compensate for structural and size-related disadvantages, as increased purchasing volume also strengthens negotiating power in the procurement market. At the structural corporate level, the focus is on understanding and embedding raw material risk management as a core competency – purchasing decisions must not be optimized solely based on price, but must be made with explicit consideration of security of supply, geopolitical stability, and regulatory compliance.

The polycrisis has transformed raw material procurement from an operational side issue into a core strategic concern. For small and medium-sized enterprises (SMEs) in Germany, sourcing critical raw materials is increasingly becoming a strategic problem, with pure costs sometimes taking a backseat to security of supply. Companies that understand early on that uncertainty is the new normal and make the necessary adjustments in their networks, technology use, and risk culture gain a structural advantage over competitors who continue to blindly rely on spot markets and individual suppliers. Uncertainty is the same for everyone – how they deal with it is not. Those who systematically invest in knowledge, networks, and flexibility gradually transform the structural weakness of SMEs into a strategic strength. This begins with the sobering realization that the time for waiting for better times is definitively over.

I would be happy to serve as your personal advisor.

Dmitry Kovalenko

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I would be happy to serve as your personal advisor.

Konrad Wolfenstein

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Industry focus areas: B2B, digitalization (from AI to XR), mechanical engineering, logistics, renewable energies and industry

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