Hidden Champions

Vanguard for Globalia

University of Economics Prague
Bonn Office Haydnstrae 36, 53115 Bonn, Germany Phone +49/228/9843-115, Fax +49/228/9843-380 E-mail: hermann.simon@simon-kucher.com Internet: www.simon-kucher.com www.hermannsimon.com

Prof. Dr. Dres. h.c. Hermann Simon

Prague, May 9, 2012

Exports 2011
Country Billion US-$
China Germany USA Japan France South Korea Italy Russia UK 801 1 543 1 511 1 897

578
559 509 499 495 336 331 298 197 147 0 500 1000 1500 2000

Mexico
Spain India Poland Czech Republic

Source: CIA World Factbook (estimates)

2H01X013

-2-

Per Capita Exports

Country Per capita exports 2011 in US-$
China India USA Russia Japan Mexico Germany France UK 8 784 7 984 8 399 11 408 7 165 5 159 13 964 0 5000 10000 15000 20000 2 992 18 863 1 415 246 4 859 3 490

6 258

Italy
South Korea Spain Poland Czech Republic

Source: Calculations based on data from CIA World Factbook (estimates)

2H01X013

-3-

Per Capita Exports

Country
China India USA Russia Japan Mexico Germany France UK - 573 - 167 2 763 -1 499 -3 559 5 060 -3000 2000 7000 12000 253 -5 226 10 439 -4 522 -2 020 - 572

Deviation from empirical norm 2011 in US-$

1 479

-1 854

Italy
South Korea Spain Poland Czech Republic -8000

Source: Calculations based on data from CIA World Factbook (estimates)

2H01X013

-4-

The Origin of the Hidden Champions-Idea

Ted Levitts question from 1986:

Why is Germany so successful in exports?

2H01X013 -5-

Is it due to large corporations?

2H01X013 -6-

Do Large Companies Explain Export Performance?

Fortune Global 500 Corporations: USA Japan China France Germany UK Korea Italy Spain India
Source: Fortune, July 25, 2011
2H01X013 -7-

133 68 61 35 34 30 14 10 9 8

Do Large Companies Explain Export Performance?

Exports in US-$ billion 1 600 1 400 1 200 1 000
R2 = 0.4838 Germany (34) USA (133) China (61)

800

Japan (68) Korea (14) Italy (10) Spain (9) India (8) France (35) UK (30)

600
400 200 0 0
2H01X013

number of large companies explains less than half of the variance in exports

50 100 Fortune Global 500 Corporations

150

-8-

Contribution of the Mid-sized Sector

China:

68% of Chinese exports come from companies with less than 2000 employees (Economist, Sept. 5, 2009)

Germany:

ca. 70% of exports come from Mittelstand companies

2H01X013 -9-

What Is a Hidden Champion?

Top 3 in the world or no. 1 on its continent Revenue below 5 billion Not well known in general public

2H01X013 - 10 -

Hidden Champions by Country

Country Number of Hidden Champions
Germany USA Japan Austria Switzerland Italy France China United Kingdom Sweden Netherlands Poland Korea Denmark Belgium Canada Russia Finland Norway Spain Brazil Australia Turkey Luxembourg Slovenia Israel Czech Republic Hungary
2H01X013

1307 500

220
128 110 76 75 68 67 49 29 27 23 19 19 16 14 14 13 11 11 10 9 7 7 7 4 4

366 366

Total number worldwide: 2746

- 11 -

Hidden Champions per Million Inhabitants

Country Number of Hidden Champions
Germany Austria Switzerland Luxembourg Sweden Slovenia Denmark Norway Finland Belgium Japan Netherlands Italy USA France United Kingkom Israel Poland Korea Canada Australia Hungary Czech Republic Spain Turkey Russia Brazil China
2H01X013

16,0 15,6 14,4 13,7 5,4 3,5 3,4 2,8 2,7 1,8 1,7 1,7 1,2 1,2 1,1 1,1 0,9 0,7 0,5 0,5 0,5 0,4 0,4 0,2 0,1 0,1 0,1 0,1
- 12 -

Key Facts
1 million new jobs in ten years

Annual growth of 10%, revenue 4 times larger than 1995 More than 150 new -billionaires
Sharp increase of world market share Massive wave of innovation
2H01X013 - 13 -

Hidden Champions Delo

Baader Brainlab

Neumann
Invers

Tetra
Belfor
2H01X013 - 14 -

Hidden Champions from Czech Republic

Company
Contipro 2N Telekomunikace

Product
Hyaluronan

Telecommunications equipment Empty web domains

Stock agency in selling/buying images

Elephant Orchestra
Pixmac

2H01X013 - 15 -

Hidden Champions Worldwide

January 26, 2004

2H01X013

- 16 -

Lesson 1
Excellent export performance is driven by mid-sized firms rather than by large corporations. Countries seem well advised to build their global competitiveness on strong mid-sized companies of the Hidden

Champion type.
2H01X013 - 17 -

Why are they successful? How good are they in marketing and strategy?

What can CEE countries learn from them?

2H01X013 - 18 -

Extremely ambitious goals:

Market Leadership Growth

2H01X013 - 19 -

Chemetall

The goal of Chemetall is the worldwide technology and marketing leadership.

2H01X013 - 20 -

3B Scientific

We want to become and stay no. 1 in the world.

2H01X013 - 21 -

Deep Leadership: Sick

We lead by anticipating our customers expectations. Leadership means becoming

the benchmark for others. We set the standards on the world market.
2H01X013 - 22 -

Market Share of Hidden Champions

Absolute market share

10 years ago Today

Relative market share

10 years ago Today

World

30%

33%

1.6

2.3

2H01X013 - 23 -

Growth
From Hidden Champion to Big Champion
25 000
Revenues in $ millions

Fresenius
20 000

SAP
15 000

Schaeffler Wrth
10 000 5 000 0 1995 2010

2H01X013 - 24 -

Growth
Small Hidden Champions
500 Rational 400 300 200 100 0 1995 2010 Igus Bartec Brainlab

2H01X013 - 25 -

Lesson 2

Success always begins with ambitious goals. The Hidden Champions of the 21st century go for

growth and market leadership. This is the fuel that

drives them forward.

2H01X013 - 26 -

Focus and Depth

2H01X013 - 27 -

Uhlmann

We always had one customer and will

only have one customer in the future:

the pharmaceutical industry. We only do one thing, but we do it right.

2H01X013 - 28 -

Flexi

We only focus on one thing, but we do it better than anyone else.

2H01X013 - 29 -

Deep Value Chain

No outsourcing of core competencies Strong outsourcing of non-core activities Own machine shops Very secretive in R&D

Avoidance of strategic alliances

2H01X013 - 30 -

Comments on Outsourcing
We produce all parts ourselves, based on the quality standards we define.

Wanzl

As many parts as possible are self-produced, all of which takes place in a small region with down-to-earth people.

Miele

We make our own tools. We can only deliver top quality if zero tolerance begins with these tools.

Weidmueller

2H01X013 - 31 -

Lesson 3

Only focus and depth lead to world class. The

Hidden Champions focus on narrow markets and are

deep rather than broad. They tend to do things

themselves and refrain from outsourcing core competencies.

2H01X013 - 32 -

Globalization

2H01X013 - 33 -

The Hidden Champions Strategy

- Specialization in Product and Know-how -

Global Selling and Marketing

2H01X013 - 34 -

Accelerating Globalization
Exports per capita in US-$
2160

985

437

23

1900
2H01X013

1950

1980

2000

2010
- 35 -

Globalization: Kaercher
World leader in high pressure water cleaners
RIN CB FSSC MD LT AR KUE
KC DE

WOMA LV EE KTC IN KAZ MUN

75

70

KC GR KSD RO SK
LEUCO UNIFLEX

60

KFI UA CER AT Leas

K Financ

50

Number of subsidiaries

THK RU KFT
C-Tech KNA MX

CEN KR CN cw TR DK IE AE NZ MY TW
K A LV K Leas.

40

DE CET CIP SEA MX PL HU CZ HK GR cp AKHI JP ES CA KBG ZA AUS FI NO NL SE AKI BE GB BR IT CH AT FR AKW

1935 1962 1964 1966 1974 1975 1978 1982 1983 1984 1985 1988 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2002 2004 2005 2006 2007 2008 2009 2010 2011

30

20

10

Founding year of subsidiaries

2H01X013 - 36 -

Lesson 4
The Hidden Champions combine specialization in

product and know-how with global selling and

marketing. Globalization is the growth booster for them. They serve the target markets through their own subsidiaries. They heavily invest into the markets of the future.
2H01X013 - 37 -

Innovation

2H01X013 - 38 -

Innovation: EOS E-Manufacturing/3D Printing

2H01X013 - 39 -

Innovation: Enercon E-Ship

2H01X013 - 40 -

Innovation: Herrenknecht From Horizontal to Vertical

Tunnel drilling Vertical drilling

2H01X013 - 41 -

Innovation: Schott Concentrated Solar Power

2H01X013 - 42 -

R&D Intensity
6.0%

3.6% 3.0%

Normal firms*
*IDW study, ** Booz study on R&D
2H01X013

Global Top 1000**

Hidden Champions

- 43 -

Patents
Patents per 1000 employees
31

Cost per patent

$3.717 m

$0.725 m

Large corporations
2H01X013

Hidden Champions

Large corporations

Hidden Champions
- 44 -

European Patents 2010

Country
Switzerland Luxembourg Sweden Germany Netherlands France Italy United Kingdom Spain Czech Republic Hungary Portugal Griechenland Slowakia Poland Bulgaria Romania
2H01X013 - 45 -

Patents Patents per million inhabitants

2389 130 1467 12553 1725 4536 2287 1857 393 45 34 29 16 8 45 3 3 161,4 154,1 102,4 69,5 37,5 29,6 8,4 4,3 3,4 2,7 1,5 1,5 1,2 0,4 0,1 312,7

254,0

Driving Forces of Innovation

Large corporations Hidden Champions
65%

50%

31%

19%

21% 14%

Market
2H01X013

Technology

Market & technology

Market

Technology

Market & technology

- 46 -

Lesson 5
The Hidden Champions are in a phase of massive

innovations.

The

effectiveness

of

their

R&D-

activities beats that of large companies by a factor of 5. Their innovation processes are fundamentally different. Their innovations are both market- and technology-driven.
2H01X013 - 47 -

Customers and Competition

2H01X013 - 48 -

Market-related Strengths
Five times as many employees (25-50%) have regular customer contacts compared to large companies (5-10%).

Closeness-tocustomer

88,7%

Image

84,1%

Professional marketing

36,4%

2H01X013 - 49 -

Closeness to Top Customers

Close to most demanding customers
Grohmann Engineering: Top 30 customers worldwide as target group, most important customer is Intel

Top customers as drivers of performance and innovation Follow top customers everywhere
2H01X013 - 50 -

Value and Pricing

Hidden Champion strategies are value-driven, not price-driven.

Hidden Champions command price premiums. Big opportunities in new ultra-low price segment.

2H01X013 - 51 -

Competitive Advantages of the Hidden Champions

Product quality Economy Punctuality Advice Closeness-to-customer Service Systems integration Ease of use

Price

Flexibility

Importance

Distribution Made in Germany Cooperation with suppliers Patents

Advertising

weaker stronger than the strongest competitor Competitive performance

2H01X013 - 52 -

Lesson 6
Closeness to customer is the greatest strength of the Hidden Champions even ahead of

technology. Their strategies are value-oriented, not price-oriented. The Hidden Champions hold

strong competitive positions. Advice and systems integration are new advantages which create higher barriers to entry.
2H01X013 - 53 -

Employees and Leaders

2H01X013 - 54 -

Employees
More work than heads High performance cultures High qualification
Low turnover
2H01X013 - 55 -

Vocational Training
Pillar of German competitiveness Highly qualified workers Combination of practice and theory
Vocational schools
2H01X013 - 56 -

Higher Qualification
In the last ten years, the share of university graduates has more than doubled.

University graduates (%)

19,1%

8,5%

10 years ago
2H01X013

Today

- 57 -

Employee Turnover Rates

USA Austria Switzerland Germany
9,0% 9.0% 8,8% 8.8% 7,3% 7.3% 5,3% 5.3%
2.7% 2,7%

15,0% 30.6%

Daimler
Hidden champions
Source: Hernstein-Institute/US Department of Labor
2H01X013

- 58 -

Leaders
70% of Hidden Champions are family-owned
Identity of mission and being

Leadership
- authoritarian in the principles

- participative, flexible in the details

CEOs come young into power

Very high continuity (average CEO tenure 20 years, large corporations 5.1 years)
2H01X013 - 59 -

Lesson 7
The Hidden Champions have more work than

heads and high performance cultures. Employee

qualification is top. Turnover and sickness rates

are

extremely

low.

Total

identification

and

continuity of the leaders are the foundations for

long-term success.

2H01X013 - 60 -

Lessons for CEE Countries

CEE countries should foster mid-sized companies to promote internationalization and job creation. Ambition, focus and global selling are the strategic pillars of Hidden Champions. Avoid diversification if you aspire to become world class.

Closeness to customers and customer-driven innovation form the core of Hidden Champion marketing.
A countrys natural advantages should be transformed into competitive advantages in the market place. Government support is necessary, but not sufficient. Entrepreneurship is indispensable
2H01X013 - 61 -

To conclude.

a personal
Hidden Champions Story

2H01X013 - 62 -

Simon - Kucher & Partners

Worldwide Strategy & Marketing Consultants

Focus: Revenue-driven Profit Growth

Core Competency: Pricing

2H01X013 - 63 -

Best Consultancies in "Marketing and Sales"

In 2007 and 2011, top managers ranked Simon-Kucher as best consultancy in marketing and sales before Boston und McKinsey. Competence-Ranking "Marketing and Sales"
Rank Consultancy Score*

Simon-Kucher & Partners

395
379 359

2
3 4 5

Boston Consulting Group

McKinsey & Company Bain & Company Roland Berger
347
342

*Average for 2007 and 2011, maximum score 500; Source: manager magazin August 2007&2011/IMB, Survey among German top managers
2H01X013

08/2007 und 08/2011

- 64 -

World Leader in Price Consulting

Simon-Kucher is world leader in giving advice to companies on how to price their products.
Business Week

Simon-Kucher is the worlds leading pricing consultancy.

The Economist

In pricing you offer something nobody else does.

Professor Peter Drucker

No one knows more about pricing than Simon-Kucher.

Professor Philip Kotler

No firm has spearheaded the professionalization of pricing more than Simon-Kucher & Partners.
William Poundstone (Priceless, Hill and Wang, 2010)
2H01X013 - 65 -

Employees and Revenue

Revenue 2011: 121 million
640 540 440
632 585 500 436446 354

340
240 140 40 -60
2H01X014

3 1985

4 1986

5 1987

46 56 35 27 22 7 13 18 19

71

90

112

283 248 220 187 165 147 130

5/2012
- 66 -

1993

1988

1989

1990

1991

1992

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Global Presence
Luxembourg England, London Poland, Warsaw Japan, Tokyo China, Beijing Singapore Australia, Sydney France, Paris Spain, Madrid Switzerland, Zurich Italy, Milan Austria Vienna Belgium, Brussels Netherlands, Amsterdam Denmark, Copenhagen Germany, Bonn Germany, Frankfurt Germany Munich Germany, Cologne

USA, San Francisco USA, Boston USA, New York USA, Miami

2H01X013 - 67 -

Czech Books

2H01X013 - 68 -

Management Thinkers
The most influential management thinkers in German-speaking countries 2010-2011

1. Peter F. Drucker
2. Hermann Simon 3. Fredmund Malik 4. Michael E. Porter

40.1%
22.5% 14.6% 7.5%

Source: Frankfurter Allgemeine Zeitung, Feb 6, 2012, p. 31 www.managementdenker.de, Internet Survey, n=804
2H01X013 - 69 -

Hermann Simon
Hermann Simon is chairman of Simon-Kucher & Partners Strategy & Marketing Consultants with offices in Amsterdam, Beijing, Bonn, Boston, Brussels, Cologne, Copenhagen, Frankfurt, London, Luxembourg, Madrid, Miami, Milan, Munich, New York, Paris, San Francisco, Singapore, Sydney, Tokyo, Vienna, Warsaw and Zurich. Simon is an expert in strategy, marketing and pricing. He has an extensive global range of clients. In the German language area he was voted the most influential management thinker after the late Peter Drucker. Before committing himself entirely to management consulting, Simon was a professor of business administration and marketing at the Universities of Mainz (1989-1995) and Bielefeld (1979-1989). He was also a visiting professor at Harvard Business School, Stanford, London Business School, INSEAD, Keio University in Tokyo and the Massachusetts Institute of Technology. From 1995 to 2009 he was CEO of Simon-Kucher & Partners. Professor Simon has published over 30 books in 25 languages, including the worldwide bestsellers Hidden Champions (Boston 1996, cover story of BusinessWeek in 2004) and Power Pricing (New York 1997), as well as Manage for Profit, Not for Market Share (Boston 2006). His book Hidden Champions of the 21st Century, Success Strategies of Unknown World Market Leaders (New York 2009) investigates the strategies of little known market leaders. Beat the Crisis (New York 2010) provides companies with practical advice against the crisis and for a quick recovery. Simon was and is a member of the editorial boards of numerous business journals, including the International Journal of Research in Marketing, Management Science, Recherche et Applications en Marketing, Dcisions Marketing, European Management Journal as well as several German journals. Since 1988 regularly writes columns for the business monthly Manager Magazin. As a board member of numerous foundations and corporations, Professor Simon has gained substantial experience in corporate governance. From 1984 to 1986 he was the president of the European Marketing Academy (EMAC). Simon is co-sponsor of the first Special Purpose Acquisition Company (SPAC) listed on the German Stock Exchange in Frankfurt, which acquired Exceet Group S.E. in July 2011. A native of Germany, he studied economics and business administration at the universities of Bonn and Cologne. He received his diploma (1973) and his doctorate (1976) from the University of Bonn. Simon holds honorary doctorates from IEDC Business School of Bled, Slovenia, and from the University of Siegen, Germany. He is a honorary professor at the University of International Business and Economics in Beijing.
2H01X013 - 70 -