Hidden Champions of the 21st Century

Strategy and Leadership Beyond the Crisis

Bonn Office
Haydnstrasse 36, D-53115 Bonn, Germany
Prof. Dr. Hermann Simon Tel. ++49/228/9843-115, Fax ++49/228/9843-380
e-mail: hermann.simon@simon-kucher.com
Changsha, October 10, 2009 Internet: www.simon-kucher.com
 Who is No. 1 in Exports?

 China

 USA

 Japan

 Germany

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 Exports in 2008 (Billion US-$)
Germany 1463

China 1429

USA 1377

Japan 777

France 630

Italy 566

Netherlands 538

United Kingdom 469

Canada 462

Korea 458

Belgium 373

Spain 293

Source: 2009 CIA World Factbook

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 Exports 2000-2008 (US-$ billion)
in billion US-$
1.600
1.463

1.428
1.400 1.322
1.377
1.220
1.200
1.109
1.148
971
1.037
1.000 910
972
Germany 904
752
800 819
762
USA 725
600
593

China 438
400
2003 2004 2005 2006 2007 2008 Year

Source: WTO Trade Statistics

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 What Is a Hidden Champion?

 Top 3 in the world or no. 1 on its continent

 Revenue below $4 billion

 Not well known in general public

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 Hidden Champions
 Delo

 Baader

 Brainlab

 Lantal

 Brita

 Tetra
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 Belfor -6-
Hidden Champions from China
 China International Marine Containers: 46% of global market for standard containers
 BYD Battery: 72% of global market for mobile phone batteries
 Shanghai Zhenhua Port Machinery: 35% of global market for harbor cranes
 Galanz: Microwave ovens
 Tender: Electric switches
 St. Allen: Nail clippers

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China: World Market Shares

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Hidden Champions Worldwide

Germany Taiwan USA India Russia

1997 1996/2004 1996/2009 2006 2005

Turkey France Japa Poland Korea

1999 1998 n 1999 1997/2008
1998 January 26, 2004

China
Brazil Netherland Serbia Egypt Italy Spain 1997/2000/
2003 s 2007 2008 2001/2007 1997 2005/2009
1997
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 Key Facts of the Last Ten Years

 1 million new jobs

 Annual growth of almost 10% p.a., revenue 2.5

times larger than 10 years ago

 More than 200 new $-billionaires

 Sharp increase of world market share

 Massive wave of innovation

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 Hidden Champions and Crises

 30% have survived serious crises

 Hidden champions profit from crises

 Markets are redistributed in difficult, not in easy

times

 Solid financing is crucial

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 Why are they successful?

How do they differ from large firms?

What can we learn from them?

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 Extremely ambitious goals:

Market Leadership

Growth

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 Chemetall

“The goal of Chemetall

is the worldwide

technology and marketing leadership.”

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 3B Scientific

“We want to become

and stay no. 1 in the world.”

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 Karl Mayer

“We don’t want our world market share

to drop below 70%.”

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Market Share of Hidden Champions

Absolute Relative
market share market share
10 years ago Today 10 years ago Today

World 30.2% 33.0% 1.56 2.34

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 Growth
From Hidden Champion to Big Champion
20000

18000
Fresenius
16000
SAP
Revenues in USD million

14000

12000 Wuerth

10000

8000

6000

4000

2000

0
1995 2008
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 Growth
Mid-sized Hidden Champions
5000
Cronimet
4500 Claas
Enercon
4000
Revenues in USD million

3500

3000

2500

2000

1500

1000

500

0
1995 2008
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 Growth
Small Hidden Champions

600

500
Rational
Revenues in USD million

400

Bartec
300

Brainlab
200

100

0
1995 2008

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 Lesson 1

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.

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 Focus and Depth

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 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.”

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 Flexi

“We will do only one thing,

but we do it better than anyone else.”

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 Deep Instead of Broad: A Focused Strategy
The Case of Winterhalter

Dishwashers Dishwashers Dishwashers Dishwashers Dishwashers

for for for Hotels/ for for
Hospitals Schools Restaurants Companies Organisations

Dishwashers
Broad

Water
Conditioners

D
Detergents e
e
p

Service

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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

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

 “At Kaldewei we make everything ourselves.” Kaldewei

 “We can best fulfill the extremely high requirements for

quality and precision in-house.” Heidelberg

 “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

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 Lesson 2

Only focus and concentration lead to world class.

The Hidden Champions see the market definition as

part of their strategy. They are highly focussed and

deep rather than broad.

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 Globalization

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The Hidden Champions Strategy
- Specialization in product und know-how -

Global Selling and Marketing

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Globalization Has Only Just Begun
World exports per capita (US-$)

2150

985

437
6 23

1900 1950 1980 2000 2007

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 Globlization Multiplies Market Size

1135
Index

370

100

Germany Europe World

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Globalization: Kaercher
World leader in high pressure water cleaners

61 subsidiaries since 1962

Number of subsidiaries
Founding year of subsidiaries
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 Future Attractiveness of Emerging Markets

China 73%

Russia 48%

India 35%

Eastern Europe
34%
(without Russia)

Asia (rest) 21%

Brazil 13%

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From Transatlantica to Eurasia

Region Revenue share Revenue share Change

10 years ago (%) today (in %) (%)

Western Europe 61.9 50.6 -18.3

USA 14.9 17.5 +17.4

Asia 10.1 16.9 +67.3

Eastern Europe 3.6 8.1 +125.0

Rest 9.5 6.9 -27.4

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 Lesson 3

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 are in a process of trans-
forming from Transatlantic to Eurasian companies.

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 Innovation

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R&D intensity

R&D as % Index
of revenue

Industrial firms with R&D 3.0% 100

Booz (Global Top 1000 in R&D) 4.2% 120

Hidden champions 6.0% 200

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Patents

Patents per Cost per patent

1,000 employees in 1,000 $

Patent-intensive
large corporations 5.8 3,717

Hidden champions 30.6 725

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Enercon Wind Turbines
 Extremely innovative

 Founded in 1984

 More than 11000 employees, $4 billion revenue

 42% of all patents worldwide

 Price 20% higher than competition

 Superb service

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 Driving Forces of Innovation
Large corporations Hidden Champions
65 %

50%

31%

19 % 21 %

14 %

market technology market & market technology market &

technology technology
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Innovation Process

 Role of top-management
 Brains more important than budgets
 Cooperation between functions
 Co-development with customers
 Continuous improvements rather than
breakthrough innovations
 Speed

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 Lesson 4

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 innovativeness is both market- and

technology-driven.
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 Closeness to Customer

Marketing Professionalism

Value and Price

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

closeness-to-
88.7%
88,7%
customer

image 84.1%
84,1%

professional
marketing 36.4%
36,4%

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 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

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 Value and Pricing

 Strategies are value-driven, not price-driven

 Price premium 10-15%

 Avoidance of price wars

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Porsche Cayman (1)

End of 2005 Porsche introduced the all

new coupé Cayman S

The Cayman S is technologically based on

the roadster Boxster S

Price position Cayman S?

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Porsche Cayman (2): Convertible more expensive

Prices in the German market (incl. VAT) Difference

Coupé Convertible Convertible

Porsche 911 Carrera 76 410 € 86 949 € 13.8%

BMW 630i 61 800 € 69 800 € 12.9%

MB CLK 500 55 100 € 61 850 € 12.3%

Nissan 350Z 36 400 € 39 050 € 7.3%

Audi TT 39 900 € 42 700 € 7.0%

BMW 330Ci 41 400 € 43 150 € 4.2%

Chrysler Crossfire 37 200 € 38 400 € 3.2%

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Porsche Cayman

Price recommendation SKP Success factors:

76 741 € 911

 Think out of the box!

58 500 €  Innovation and

creativity
Boxster S
Cayman S

52 265 €

Precondition: Differentiation from Boxster S  Know and quantify

 More power: + 15 hp
 Different product name the value drivers!
 Specific positioning

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Value Pricing Miele

 Ca. 20% above the Market

 Global brand and presence

 Motto “Always better”

 “Our products are made to last 20 years.”

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Widening the Competitive Scope

Past Future
150 150
Price-Cost (Index)

Price-Cost (Index)
120 120
Premium Old Premium New

100 Standard Old 100

75
Standard New

0 0
50 100 120 150 50 100 120 150

Performance (Index) Performance (Index)

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Pricing Process Industrial Suppliers

Less successful
Hidden champions
suppliers

Price cut
demanded by
automotive 4,7% 5,1%
manufacturers

Hidden champions
Actual price cut preserve 2.4
1,4% 3,8%
achieved percentage points
more!!

Source: Simon-Kucher & Partners project, 56 large suppliers

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Communication

 “We never talk about price.”

 “We set the standards – and the price. The others follow.”

 “Of course we cannot avoid prices wars. But we

communicate value, value, value – then price.”

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Competitive Advantages of the Hidden Champions
Product quality

Economy
Punctuality

Advice
Closeness-to-Customer
Service
Price Flexibility
Systems Integration
Importance

Distribution
Made in
Germany
Cooperation Patents
with
suppliers
Advertising
weaker stronger
than the strongest competitor
Competitive performance

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Attributes with Strongest Increase in Importance

Attribute Increase in percentage points

last ten years

Advice +10

Systems integration +8

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 Closeness to Competition

 Head-on fight with strongest competitors

 Fitness through tough competition

 Often global top competitors in one location

 Actively seek performance-oriented competition

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Competing with the “Neighbor”
Product Competitors Place Country Remarks
Shopping carts Wanzl Leipheim Germany Global No. 1
Siegel Jettingen Strong competitor
Orthopedic implants Zimmer Warsaw Indiana, USA Globale No. 1
DePuy Warsaw All three are leaders
Biomet Warsaw
Private Planes Cessna Wichita Kansas, USA Cessna global No. 1
Hawker Beechcraft Wichita others leading
Learjet Wichita
Sparkling wine Freixenet Sant Sadurni d'Anoia Spain Global No. 1
Codorniu Sant Sadurni d'Anoia Global No. 2
Strong competition
Eyewear Luxottica Agordo Italy Global No. 1
Safilo Padua Global No. 2
Very similar strategies
Assembly products Würth Künzelsau Germany Global No. 1
Berner Künzelsau Global No. 2
Aromas/perfumes Givaudan Vervier Switzerland Global No. 1
Firmenich Geneva Global No. 2/3
Interface technology Phoenix Contact All in the region of Germany Global No. 1, all three
Harting East Westphalia global leaders
Weidmüller
Golf equipment Callaway Carlsbad California, USA Both fight for global
TaylorMade Carlsbad market leadership
Wind energy Vestas Randers Denmark Global No. 1
Enercon Aurich Northern Global No. 3, techological
Germany leader

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 Lesson 5

Closeness to customer is the greatest strength of

the Hidden Champions – even ahead of
technology. The Hidden Champions hold strong
competitive posititions. Advice and systems
integration are new advantages which create
higher barriers to entry. They closely compete with
their best competitors.

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 Ownership and Financing

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Ownership and Leadership

Ownership/management Ten years Today Change

ago (in %) (in %) (in %-points)

Family-owned 76 66 -10
- thereof with family management 82 78 -4
- thereof with non-family management 18 22 +4
Corporations 21 16 -5
Publicly listed 2 10 +8
Private equity - 8 +8

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Key Financial Indicators

 Return on Capital Emplyed (ROCE) 13.6%

 Equity Ratio 41.9%

 Self-financing dominates

 Capital markets increasingly important

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Financing of the Hidden Champions

Past Future

Self-financing 78.6% 77.8%

Traditional bank loans 61.6% 44.0%

Private equity 15.3% 9.7%

Capital markets 12.8% 29.6%

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 Lesson 6

The financing of the Hidden Champions is very

solid. The ownership is long-term oriented and

capital markets do not play a big role. Rather, the

Hidden Champions rely on self-financing. They are

conservative in financial matters.

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 Employees

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 Employees

 “More work than heads”

 High performance cultures

 High qualification

 Low turnover

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 Vocational Training

 Pillar of German competitiveness

 Highly qualified workers

 Combination of practice and theory

 Vocational schools

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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 Today

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Turnover Rates

USA 15,0%
30.6%

Austria 9,0%
9.0%

Switzerland 8,8%
8.8%

Germany 7,3%
7.3%

Daimler 5,3%
5.3%

Hidden
2,7%
2.7%
champions
Source: Hernstein-Institute/US Department of Labor

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 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.

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 Leadership

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How Important is Leadership?

45%

28% 27%

Entrepreneurship/ Qualified, loyal Professional,

strength of employees market-oriented
leadership management

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 Leaders

 Identity of mission and being

 Leadership
- authoritarian in the principles
- participative, flexible in the details
 Young into power
 More women in top positions
 Very high continuity
(average CEO tenure is 20 years)
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 Lesson 8

The secret of the success of the Hidden

Champions lies in their leaders. The leadership is

authoritarian in the principles, but flexible in the

details. Continuity is very high. Young CEOs and

women play a more important role than in large

companies.

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 Lessons for China
 The success of China in globalization will depend
heavily on mid-sized companies

 Admiration not only for large firms, but also for

midsized companies required

 Needed: Young entrepreneurs with global

ambitions

 Active role of large corporations: help start-ups,

spin-offs etc
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 The Three Circles of the Hidden Champions

Focus

De
ce
nt
h

Competitive
pt

advantages
ra
orientation
Leader-
De

liz
Global

a
ship with

ito
ambitious

n
goals
High
performance
employees

Closeness to
customer

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 The Ultimate Lesson
The “Hidden Champions of the 21st Century”
go their own ways
– more decisively and successfully than ever.

They do most things differently…

 from the teachings of management gurus,
 from modern management fads,
 from large corporations

Maybe this is the most important lesson…

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 To conclude….

… a personal
Hidden Champions Story

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Simon - Kucher & Partners

 Worldwide Strategy & Marketing Consultants

 Focus: Revenue-driven Profit Growth

 Core Competency: Pricing

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Best Consultancies in "Marketing & Sales" in Germany
Germany’s most prestigious business magazine ranks Simon-Kucher as the
leading consultant in "Marketing & Sales", ahead of Boston and McKinsey.

Competence Ranking "Marketing & Sales"

Rank Consultancy Score*

1 Simon-Kucher & Partners 401

2 Boston Consulting Group 370

3 McKinsey & Company 346

4 Bain & Company 344

5 Roland Berger 338

manager-magazin 08/2007
* Maximum 500;
Source: manager-magazin August 2007/IMB (Institute for Management & Consulting); Survey of 264 Top Managers
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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

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Employees and Revenue
Revenue in 2008: US-$ 140 million

486

403

305
261
235
205
160 169
125 134
99
82
51 60
30 40
16 20 20 24
3 4 5 9

85 986 987 988 989 990 991 992 993 994 995 996 997 998 999 000 001 002 003 004 005 006 007 008
19 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2

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Simon-Kucher after 24 years: larger than BCG
Number of Consultants after 24 years

398

331

Year Year
1986 2008
(Founding
1963)

Boston Simon-
Consulting Kucher
Group
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Global Presence

England, Luxem- Brussels, Netherlands, Germany, Germany, Germany Germany

London bourg Belgium Amsterdam Bonn Frankfurt Munich Cologne

France, Russia,
Paris Moscow

Poland,
Warsaw

Japan,
USA,
Tokyo
San Francisco

USA,
Boston China,
Hong Kong
USA,
New York (2010)

Spain, Switzerland, Italy, Austria

Madrid Milan Vienna
Zurich

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The New Books

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The Most Influential Management Thinkers
in German-Speaking Countries 2005-2008

1. Peter F. Drucker † 37.2%

2. Hermann Simon 14.6%

3. Fredmund Malik 13.1%

4. Michael E. Porter 6.8%

5. Philip Kotler 4.9%

Source: www.managementdenker.de, Internet Surveys, n = 1782, 2005 –2008

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Hermann Simon
Hermann Simon is chairman emeritus of Simon-Kucher & Partners Strategy & Marketing Consultants
with offices in Amsterdam, Bonn, Boston, Brussels, Cologne, Frankfurt, London, Luxembourg,
Madrid, Milan, Moscow, Munich, New York, Paris, San Francisco, 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 various international universities: Harvard Business School,
Stanford, London Business School, INSEAD, Keio University in Tokyo and the Massachusetts
Institute of Technology. From April 1995 to May 2009 he was chairman and CEO of Simon-Kucher &
Partners.
Professor Simon has published over 30 books in 22 languages, including the worldwide bestseller Hidden Champions (1996,
cover story of BusinessWeek in January 2004) and Power Pricing (1997), as well as Strategy for Competition (2003) and
Think! (2004). Manage for Profit, Not for Market Share (2006) takes a critical look at the widespread focus on volume and
market share and calls for a conscious shift of focus towards profit. His book Hidden Champions of the 21st Century,
Success Strategies of Unknown World Market Leaders will appear in May 2009. It investigates the strategies of little known
world and European market leaders in German-speaking countries. This summer his most recent book Beat the Crisis – 33
Quick Solutions for Your Company will be published in the US. Numerous international adaptations are underway (China,
Korea, Italy, Brazil, Russia, Spain).
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, Décisions Marketing, European
Management Journal as well as several German journals. Since 1988 he has regularly written a column 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).
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.
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