All Eyes on Düsseldorf’s Hidden Champions
A recent study by the NRW state government confirms: Düsseldorf is a stronghold of hidden champions! The “secret world market leaders” combine tradition, innovation and internationality in an impressive way and underline the important role of the state capital as a tech location.
Have you ever wondered which company makes those little clips that keep the skin of your sausage together? Who builds the special machines that fill and package your favourite tea into tiny tea bags? Or what company produces the huge harbour cranes that hoist shipping containers weighing tons back and forth? Probably not. No wonder - they are “hidden champions”. The term was introduced in 1990 by Hermann Simon, a professor of economics (see interview on p. 18). By this he means companies - the majority of which are family-run - that are among the world market leaders in their industry or niche, that operate in a certain turnover region and that are nonetheless relatively unknown to the general public. The success of hidden champions is due to a special combination: on the one hand, they concentrate strictly on selected product and customer segments and are thus able to achieve unique quality in competition, set industry-wide technology standards and drive innovation; on the other hand, with this orientation they generate a large part of their turnover abroad - often with export quotas of over 90 percent.
Because these secret champions are so important for the local economy, the state government wants to increase their visibility, better understand their structure and characteristics - and thus create even better framework conditions for them to be competitive. The Ministry for Economic Affairs, Innovation, Digitalisation and Energy of North Rhine-Westphalia commissioned a comprehensive study last year specifically for this purpose. “In terms of the criteria for identifying hidden champions in NRW, we basically followed Professor Simon’s definition (market leader in Europe or among the top 3 in the world as well as turnover of < 5 billion euros), but modified it slightly. For one thing, we introduced a minimum limit of at least 10 employees. In addition, we did not include the degree of awareness (the “hidden” in the definition) in the identification of hidden champions, as it is subjective and very difficult to operationalise,” explains study director Prof. Dr. Jörn Block, spokesman of the Research Centre for Small and Medium-Sized Enterprises and head of the Chair of Corporate Management at the University of Trier.
“If you look at the results, however, you can see that around 80 percent of the companies are unknown to end consumers. For example, because they are purely B2B or occupy an absolute niche.”
Prof. Dr. Jörn Block
Spokesman of the Research Center for Small and Medium-Sized Businesses and Head of the Chair for Corporate Management at the University of Trier
A total of 690 hidden champions in NRW could be identified using this method. In absolute numbers, this puts NRW in the lead nationwide, ahead of Bavaria and Baden-Württemberg. 34 hidden champions alone have their headquarters in Düsseldorf. This means that the state capital, along with Cologne, somewhat stands out from the study, because the majority of hidden champions are otherwise more at home in more rural regions such as South Westphalia or the Bergisches Land. In these regions, very special competencies have grown historically over decades, for example the knife industry in Solingen or the cluster wire manufacturers in South Westphalia. So why does Düsseldorf stand out so much? “In addition to the well-known large companies and corporations, there are also many medium-sized businesses in the city, and these are also spearheaded by particularly export-oriented companies - the hidden champions,” explains Prof. Dr. Block.
“If you look at the results, however, you can see that around 80 percent of the companies are unknown to end consumers. For example, because they are purely B2B or occupy an absolute niche.“
Typically, many of them are active in technologyoriented sectors: Machine builders like NILOS, Ultrafilter, Lösche or Demag Cranes, for example; metal producers and/or processors such as Balcke-Dürr, Steeltec or voestalpine; manufacturers of electronic products like Kiepe Electric. This also shows Düsseldorf’s special importance as a tech location - which is further emphasised by the newly founded tech hub K67 (see info box). But other sectors are also present: IT services/digital companies like Peakwork or retailers like Fashionette or Douglas. Not only traditional, established players fit into the grid, but also start-ups like Volunteerworld. On top of that, there are hidden champions not included in the study that have opened branches in the state capital, presumably to offer an attractive living environment to skilled workers in particular. “Grohe is such an example in my eyes. The manufacturer of fittings and sanitary products has its headquarters in Hemer, Sauerland, but its administration is based in Düsseldorf,” adds Prof. Dr. Block.
It is not only the case that more and more hidden champions want to become better known - for example with increased PR activity – but also need to become better known with regard to the lack of skilled workers. However, social mega-trends such as digitalisation and sustainability are also triggering change processes for them: The old business model of hidden champions was mostly based on a tangible product that was a leader in quality or technology in its niche, but customers today are looking for more: “For example, they want a good, especially digitalised service around the product. Or they no longer want to buy products, but only rent them. So competition in the market is increasingly about the business model and not about the product. In order to keep up here, the hidden champions must ask themselves: can I still do all this on my own or do I perhaps also need partners for this?”, explains Prof. Dr. Block. In terms of sustainability, the expert sees a possible advantage for hidden champions over other companies: “In interviews, I have often seen a machine manufacturer, for example, say: ‘Our machines are also the best when it comes to energy efficiency. We are now also consciously using that. Whereas customers wouldn’t have been willing to pay more money for that in the past, they increasingly are now.”
Key facts of the “Hidden Champions in NRW” study
Criteria for the definition of a hidden champion:
Market leader in Europe or among the top 3 in the world
Turnover between 2 million and 5 billion euros +
At least 10 employees
Important study results:
690 hidden champions were identified statewide
on these criteria.NRW thus has the most hidden champions of all the federal states.
Together, these NRW companies have a turnover of more than 150 billion euros and employ almost 1 million people.
Among the cities with the most Hidden Champions, Düsseldorf ranks second (34 Hidden Champions) behind Cologne (47) and ahead of Bielefeld (19).
Distinctive trait: strict concentration on selected product and customer segments, resulting in unique quality, industry-wide technology standards and a high degree of innovation.
Many hidden champions have strong international business - with export quotas of over 90 percent
The special orientation of many hidden champions - total focus on one product or customer segment as well as a high export quota - can also entail special risks, especially in these volatile times. After all, those with a strong focus are also more vulnerable when that very focus is threatened. “An example of this is the automotive industry, which is currently moving more and more from classic drive systems to electric mobility. For many suppliers, it is a huge challenge to manage this radical shift,” notes Prof. Dr. Block. It could also become difficult if, globally speaking, we increasingly end up with a “Western economic bloc” and an “Eastern economic bloc” in which more customs duties are imposed on each other. Of course, one has to strongly differentiate which countries and how many countries a hidden champion exports to, i.e. how dependent it really is on certain buyer countries. One possible solution in such problematic cases could be: Use the skills that have often been built up over decades or even centuries in new product markets as well! “If I am a specialist in natural gas pumps, for example, I could investigate: In which economic sectors are my special pumps still used? What other conceivable applications are there?”, says Prof. Dr. Block.
geographical distribution of hidden champions in north rhine-westphalia
The current study by the state government is a good first step towards creating visibility for hidden champions. But what else can politics and business development do to ensure that these extremely successful companies continue their success in the future? “For example, we could try to bring hidden champions together with start-ups. Why should a start-up only be bought up by an investor or a large corporation and not by a medium-sized global market leader? How can we perhaps forge a joint alliance in the form of a cooperation or a joint venture? Of course, this also requires openness on the part of the hidden champions to take risks and to accept that other skills are added to their own product know-how,” adds Prof. Dr. Block. Another option is to enable the companies to enter new markets with their existing technologies in order to position themselves more broadly. Further studies could also be helpful to generate new knowledge about the hidden champion strategy and its adaptation in the current turbulent times. The goal should be to better understand and support these (still) hidden market leaders - and to be able to learn from the best in class. •
Support for tech start-ups
Düsseldorf now has a TechHub: K67, named after its location at Kasernenstraße 67, provides an open space for tech innovations. And specifically for those that are between the initial acceleration phase and the later growth phase. The concept is: start-ups with a focus on digitalisation and technology can apply for one of 20 so-called TechDesks, which are provided free of charge for six months. In addition to the workspace, K67 offers them a coaching and networking programme to establish contacts with investors. Each desk is facilitated by a mentor from the regional private sector, who in turn gets exclusive access to the start-ups and the K67 network. The TechHub is located at the headquarters of the financial services provider Auxmoney. Expert knowledge of venture capital and connections to the German and European start-up scene are thus also a given.
www.techhubk67.de
Words Tom Corrinth
Pictures Uni Trier