Yep, stuff like Nordischer Maschinenbau Rud. Baader. In the 1920s they were the first to produce a machine to automatically decapitate and debone fish, and they've been the world leader on this and related tech ever since,

What does "small companies" mean in this context ?

Do they do engineering or manufacturing?

And how could they maintain an advantage over so many others and of course over large companies ? Where's the r&d budget coming from ? And what about marketing ?

They're businesses that hyper-specialize in one area and have done so over the long-term. The markets are too small for some giant conglomerate to come in and dominate, so it gives an opening for smaller firms to dominate the global market for said good - while it won't have your next unicorn, the markets are great enough to create prosperity for the owners and the local region. Germany has this spread over the country fairly uniformly, so it creates a wide platform for economic prosperity even in rural areas.

The companies themselves are usually under 50M Euro and have under 500 employees, and export-oriented. They've been a big target for Chinese acquisition, usually for companies that don't have any family to inherit the enterprise.