“You can be a world leader in any niche market”
Hermann Simon has helped Germany‘s small and medium-sized businesses gain more prestige with the concept of hidden champions. A conversation about specialism, false modesty and the success of sausage skin clips.
Professor Simon, why are German companies so successful in exporting? In 1987, Harvard professor Theodore Levitt asked you this question. In your latest book (see box) you describe that this was the impetus for your research on hidden champions. How did you come to focus on the German SME sector to answer the question, which until then had hardly played a role in the public perception?
Theodore Levitt asked me this question for a reason: one year earlier, Germany had become the world export champion for the first time. I couldn‘t get this news out of my head at the time. The first thought was that heavyweights like Bayer or Siemens were behind this success. But I also noticed that there were a high number of medium-sized companies that were world market leaders in their segments and were growing fast. So for many years I looked at the structure of exports from Germany and also commissioned research for this. A first diploma thesis found 39 such world market leaders from the SME sector. And over the last 30 years, more and more have been added. Today there are about 1,600. In 1990 I tried to give this phenomenon a name with the term Hidden Champions.
“But I also noticed that there were a high number of medium-sized companies that were world market leaders in their segments and were growing fast. “
According to your definition, a company is a hidden champion if it is one of the top three companies on the world market or number one on a continent, if it has a turnover of less than five billion euros and if it has a low level of public awareness. How do you explain the fact that hidden champions appear primarily in German-speaking countries?
There are a number of reasons for this. Let me give you two important ones from history: for a long time in the past, Germany was politically a patchwork quilt, a collection of small states. So if, for example, a company from Munich wanted to grow at that time, it had to quickly become active in international markets. And even Stuttgart, for example, was already part of this, since Stuttgart was in the Kingdom of Württemberg. So the federalist structure is one thing. The other reason why we find hidden champions predominantly in German-speaking countries is the many special competencies in the individual regions of Germany that have developed over the course of history. Take the Black Forest, for example, with its centuries-old watchmaking industry! The high level of precision engineering expertise that could be found there was increasingly applied to medical technology products - with the result that the region is very strong today, especially in this area: more than 500 medical technology companies are based in the Black Forest. In addition, Germany is mentally very internationalised. This is also clearly noticeable among young companies in this country: German start-ups, for example, are much quicker to take the step onto the international stage than start-ups in France or even in the USA.
How do you explain the fact that hidden champions often come from the industrial sector?
This is mainly due to the fact that we usually have to deal with internationally standardised processes in the development, production and export of industrial goods. The products are almost identical and usually have to overcome fewer bureaucratic hurdles compared to consumer goods, for example. So in most cases you can roll out a system for screws, drawing board pins, champagne corks or robots one-to-one around the world.
The term hidden champions suggests a certain modesty. To what extent does it also describe the self-image that German SMEs may have of themselves?
That is an important point. In fact, many executives of hidden champions used to be very reserved in public
appearances and did not want to be in the limelight. Many even said to me, „Please don‘t mention us in your studies.“ This false modesty is not so far-fetched, however, if we look at the segments in which hidden champions are often active: Many of their products are so trivial that the end customer doesn‘t care much about them. Who made the clips for sausage skins? That doesn‘t matter to him. He may not even notice such products. This shows: You can be a world market leader in any niche market, that‘s the exciting thing about it. We are often not aware of this diversity in our economy.
For all their modesty and niche presence, isn‘t it advisable for hidden champions to become more visible? Particularly in highly competitive industries and especially in times of a shortage of skilled workers, awareness and visibility are very important criteria ...
You are right. But I also observe that something has changed here in recent years. Many companies have become very active in recruiting - although it has to be said: Some of them have no choice, since they are often located in remote regions that are not very attractive for applicants. You simply have to “roll the drums” and draw attention to your strengths as an employer.
What are these, for example? How can hidden champions score points?
Due to their internationalisation, most hidden champions offer very good career opportunities. The fact that a company is the world market leader in a certain field is an important argument for many applicants. The term hidden champion, which has now established itself as a label, has certainly also contributed to this. I also want to emphasise employee loyalty, which is outstanding in these companies: the fluctuation rate at the hidden champions is 2.7 percent per year. By way of comparison, the average rate in German companies is 7.3 per cent.
“Hidden champions thus each focus on a very specific niche and
at the same time conquer the global market.”
Therefore, based on all you have said, the assumption “Those who are particularly large and have a high turnover will prevail in competition” is then rather a misconception? Or should we differentiate here?
For those who serve a mass market with their products, this assumption may be true. For hidden champions I would rather formulate it the other way round: Those who are particularly good prevail over the competition and achieve a considerable size. Hidden champions thus each focus on a very specific niche and at the same time conquer the global market. With this strategy, they become the dominant players in their market segment. •
Prof. Dr. Dr. h.c. mult.
Hermann Simon
Prof. Dr. Dr. h.c. mult. Hermann Simon is Honorary Chairman of the management consultancy Simon-Kucher & Partners. As an expert in strategy, marketing and pricing, he advises companies all over the world. He was a professor of business administration and marketing at the universities of Mainz and Bielefeld and a visiting professor at universities such as Harvard and Stanford. His concept of “Hidden Champions”, which defines a new category of market leaders and emphasises in particular the formative role of the German SME sector, received great attention worldwide. With Simon-Kucher & Partners he created the world market leader in price consulting, i.e. a hidden champion.
www.hermannsimon.com
He describes his own story in “Zwei Welten, ein Leben - Vom Eifelkind zum Global Player” (Campus Verlag, 2018).
One of his latest publications is entitled “Hidden Champions - Die neuen Spielregeln im chinesischen Jahrhundert” (Campus Verlag, 2021).
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Hidden Champions in the Chinese Century: Ascent and Transformation (Springer, 2022)
Words Elena Winter
Pictures Private archive