"This is how small and medium-sized businesses are being dismantled piece by piece"

Michael Schulte Strathaus is angry. And how. "Politics are incredibly cheeky to burden the economy with such a task," said the managing partner of the small mechanical engineering company Schulte Strathaus from Werl in North Rhine-Westphalia in the WELT interview.

What the entrepreneur means is the Supply Chain Due Diligence Act, LkSG for short, which has been in force since the beginning of the year. According to this, companies in Germany must prove that their suppliers do not use child or forced labor, observe occupational safety measures, neither discriminate nor dump wages and do not cause harmful environmental pollution.

From Schulte Strathaus' point of view, what sounds good at first is badly done. "This is clearly a sovereign task," the medium-sized company complains. However, the state withdraws from its responsibility and tries to cover up its own inability by transferring its work to the companies. But they are often completely overwhelmed.

Also Schulte Strathaus. The LkSG rules do not apply to the small family business with 50 employees and an annual turnover of 13 million euros, at least in theory. Because according to the will of the legislator, only companies with at least 3000 employees are initially obliged before this limit then drops to 1000 from 2024. But the first few weeks already show that the practice is completely different.

"Of course, the corporations simply pass the pressure on downwards," reports Schulte Strathaus from the everyday life of his company, which supplies components for large belt systems in the bulk goods sector, with which stones, ores, coal and earth can be transported, among other things.

Important products are a so-called scraper, which removes dirt and dust from the belts, and a sensor that detects damage at an early stage so that the belts do not tear and the systems are thus prevented from downtime. The necessary chips for the sensors come from Asia.

And for the Safebelt loop belt conveyor, Schulte Strathaus buys components in India - because the corresponding materials are no longer available in Europe. "With the capacities available to us, it is impossible for us to guarantee complete control of our Asian supply sources," says company boss Schulte-Strathaus. "Either we would have to use additional non-productive employees for this control work or hire external service providers."

However, both lead to an unsustainable cost burden. Especially since these expenses would not be compensated by the customer. The consequence: the medium-sized company fears for its future orders.

And Schulte Strathaus is not an isolated case. This is shown by a current survey by the Association of German Machine and Plant Construction (VDMA), which is available to WELT. According to this, an increasing number of companies from the industry that is important for Germany feel abandoned by politics and robbed of their competitiveness with a view to the German and the subsequent European supply chain law.

"The political myth that the law only affects companies with more than 1000 employees is simply wrong," says Alexander Kulitz, member of the management board and shareholder at ESTA Apparatebau from Senden in Bavaria. "In times when inflation, a shortage of skilled workers, the energy crisis and supply chain congestion are massively challenging our economy, it is simply madness to keep building up the bureaucratic and anti-competitive hurdles," criticizes Kulitz. Politicians like to praise medium-sized companies for their sustainability and the convincing values ​​in family business. "In the same breath, however, it will be dismantled bit by bit by further burdens with the next well-intentioned legislative initiative."

The VDMA now sees a number of orders at risk - especially as a result of the supply chain law planned by the EU, which not only provides for due diligence obligations along the entire value chain, but also wants the standards to be transferred to customers. "Export business with many countries would then simply be impossible," predicts VDMA General Manager Thilo Brodtmann. “European medium-sized companies would then be replaced by – often state-controlled – industrial companies from other regions of the world. This would reverse the political goal of diversifying supply chains to make Europe more resilient.”

The VDMA is therefore calling on the federal government to exert its influence in Brussels on the ongoing proceedings on the EU Supply Chain Act. "The European regulation must under no circumstances go beyond the challenges of the German supply chain law."

Especially since enough companies are already overwhelmed with it. "The legislature burdens companies with tasks that can hardly be fulfilled in a blanket way," says Susanne Wiegand, CEO of the Renk Group, a drive manufacturer from Augsburg. She also expects legal uncertainties. “Unfortunately, the supply chain law gets lost in abstract assignments and vague legal terms. Real perception of effective human rights responsibility will not work like this. This is particularly at the expense of small and medium-sized companies.”

In the VDMA survey, technical errors are also warned of. "Fines are not primarily imposed on those who tolerate human rights violations or environmental sins in their supply chains, but on those companies that implement the documentation and bureaucracy obligations incorrectly, insufficiently or improperly," complains ESTA Apparatebau shareholder Kulitz. He already sees resourceful warning lawyers lying in wait. "A wave of warnings against companies that have incorrect formulations or insufficient documentation is far more likely than the actual punishment of human rights violations, which will be lost in the supply chain bureaucracy."

The VDMA members expect competitors from China in particular, but also from the USA and Turkey, to benefit from the new legislation. "It is also questionable whether countries from Southern and Eastern Europe will ultimately be so strict when it comes to monitoring the implementation of the supply chain law," says entrepreneur Schulte Strathaus.

He calls on Germany and Europe to work for a globally valid standard in order to be able to make a difference and not unilaterally slow down and destroy their own economy. "We're not alone in the world and can always play the senior teacher." In the economy, as numerous discussions would show, the question is increasingly being asked to what extent Germany as a location is still justifiable and sensible for a company in the future.

He is now calling for the scope of the supply chain law to be limited in addition to an international solution. "Controlling the upstream supplier of the upstream supplier is simply not feasible." In addition, there could be a kind of white list. Because there are certainly differences between a supplier from the Allgäu and one from the Congo.

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