Prague, May 9, 2012

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

Hidden Champions

Vanguard for Globalia

Bonn Office

Haydnstraße 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

University of Economics Prague

Exports 2011

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147

197

298

331

336

495

499

509

559

578

801

1 511

1 543

1 897

0 500 1000 1500 2000

Czech Republic

Poland

India

Spain

Mexico

UK

Russia

Italy

South Korea

France

Japan

USA

Germany

China

Billion US-$ Country

Source: CIA World Factbook (estimates)

Per Capita Exports

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13 964

5 159

7 165

11 408

8 399

7 984

8 784

18 863

2 992

6 258

3 490

4 859

246

1 415

0 5000 10000 15000 20000

Czech Republic

Poland

Spain

South Korea

Italy

UK

France

Germany

Mexico

Japan

Russia

USA

India

China

Per capita exports 2011 in US-$ Country

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

Per Capita Exports

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5 060

-3 559

-1 499

2 763

- 167

- 573

253

10 439

-5 226

-1 854

-4 522

-2 020

- 572

1 479

-8000 -3000 2000 7000 12000

Czech Republic

Poland

Spain

South Korea

Italy

UK

France

Germany

Mexico

Japan

Russia

USA

India

China

Deviation from empirical norm 2011 in US-$ Country

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

The Origin of the Hidden Champions-Idea

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Ted Levitt’s question from 1986:

“Why is Germany so successful in exports?”

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Is it due to large corporations?

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Do Large Companies Explain Export Performance?

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USA 133

Japan 68

China 61

France 35

Germany 34

UK 30

Korea 14

Italy 10

Spain 9

India 8

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Fortune Global 500 Corporations:

Source: Fortune, July 25, 2011

Do Large Companies Explain Export Performance?

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USA (133)

Japan (68)

Korea (14)

Italy (10)

Spain (9)

China (61)

India (8)

0

200

400

600

800

1 000

1 200

1 400

1 600

0 50 100 150

Germany (34)

France (35)

UK (30)

Fortune Global 500 Corporations

Exports in US-$ billion

R2 = 0.4838

number of large companies

explains less than half of the

variance in exports

Contribution of the Mid-sized Sector

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China:

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Germany:

68% of Chinese exports come from

companies with less than 2000

employees (Economist, Sept. 5, 2009)

ca. 70% of exports come from

Mittelstand companies

What Is a Hidden Champion?

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

Revenue below €5 billion

Not well known in general public

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Hidden Champions by Country

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Number of Hidden Champions Country

4 4 7 7 7 9 10 11 11 13 14 14 16 19 19 23 27 29

49 67 68 75 76

110 128

220 366

500

Hungary

Czech Republic

Israel

Slovenia

Luxembourg

Turkey

Australia

Brazil

Spain

Norway

Finland

Russia

Canada

Belgium

Denmark

Korea

Poland

Netherlands

Sweden

United Kingdom

China

France

Italy

Switzerland

Austria

Japan

USA

Germany 1307 366

Total number worldwide: 2746

Hidden Champions per Million Inhabitants

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Number of Hidden Champions Country

0,1 0,1 0,1 0,1 0,2 0,4 0,4 0,5 0,5 0,5 0,7 0,9 1,1 1,1 1,2 1,2

1,7 1,7 1,8

2,7 2,8

3,4 3,5

5,4 13,7

14,4 15,6

16,0

China

Brazil

Russia

Turkey

Spain

Czech Republic

Hungary

Australia

Canada

Korea

Poland

Israel

United Kingkom

France

USA

Italy

Netherlands

Japan

Belgium

Finland

Norway

Denmark

Slovenia

Sweden

Luxembourg

Switzerland

Austria

Germany

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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

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Hidden Champions

Delo

Baader

Brainlab

Neumann

Invers

Tetra

Belfor

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Hidden Champions from Czech Republic

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Company Product

Contipro Hyaluronan

2N Telekomunikace Telecommunications

equipment

Elephant Orchestra Empty web domains

Pixmac Stock agency in

selling/buying images

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Hidden Champions Worldwide

January 26, 2004

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Lesson 1

Excellent export performance is driven by mid-sized

firms rather than by large corporations. Countries

seem well advised to build their global competitive-

ness on strong mid-sized companies of the Hidden

Champion type.

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Why are they successful?

How good are they

in marketing and strategy?

What can CEE countries

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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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.”

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Market Share of Hidden Champions

Relative

market share

Absolute

market share

1.6

10 years ago

2.3 33% 30% World

Today Today 10 years ago

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Growth From Hidden Champion to Big Champion

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Fresenius

SAP

Würth Schaeffler

0

5 000

10 000

15 000

20 000

25 000

1995 2010

Re

ven

ues

in

$ m

illi

on

s

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Growth Small Hidden Champions

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Rational

Igus

Brainlab Bartec

0

100

200

300

400

500

1995 2010

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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.

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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 only focus

on one thing,

but we do it better

than anyone else.”

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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

“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 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.

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Globalization

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- Specialization in Product and Know-how -

Global Selling and Marketing

The Hidden Champions Strategy

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Accelerating Globalization

Exports per capita in US-$

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6 23

437

985

2160

1900 1950 1980 2000 2010

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Globalization: Kaercher

Founding year of subsidiaries

Nu

mb

er o

f su

bsid

iarie

s

World leader in high pressure water cleaners

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WOMA 75

LV

EE

KTC

IN

KAZ 70

MUN

RIN

CBFSSC

MDLTAR

KUEKC DEKC GR 60

KSDROSK

LEUCO

UNIFLEX

KFIUA

CERAT Leas

KÄ Financ 50

THKRUKFT

C-Tech

KNA MX

CENKRCN

cwTR 40

DKIEAE

NZMY

TWKÄ ALV

KÄ Leas.

DECET 30

CIPSEAMXPLHUCZ

HKGR

cpAKHI 20

JPES

CAKBGZA

AUSFI

NONL

SE 10

AKIBEGB

BRIT

CHAT

FRAKW 1

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

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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.

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Innovation

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Innovation: EOS – E-Manufacturing/3D Printing

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Innovation: Enercon E-Ship

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Innovation: Herrenknecht – From Horizontal to Vertical

Tunnel drilling Vertical drilling

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Innovation: Schott – Concentrated Solar Power

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R&D Intensity

3.0%

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Normal firms* Global Top 1000** Hidden Champions

3.6%

6.0%

*IDW study, ** Booz study on R&D

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Patents

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Large corporations

Hidden Champions

6

31

Large corporations

Hidden Champions

$3.717 m

$0.725 m

Patents per 1000 employees Cost per patent

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European Patents 2010

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0,1

0,4

1,2

1,5

1,5

2,7

3,4

4,3

8,4

29,6

37,5

69,5

102,4

154,1

161,4

254,0

312,7 Switzerland 2389

Luxembourg 130

Sweden 1467

Germany 12553

Netherlands 1725

France 4536

Italy 2287

United Kingdom 1857

Spain 393

Portugal 29

Griechenland 16

Country Patents Patents per million inhabitants

Czech Republic 45

Hungary 34

Bulgaria 3

Romania 3

Slowakia 8

Poland 45

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Driving Forces of Innovation

Large corporations Hidden Champions

Market Technology Market & technology

Market Technology Market & technology

50%

31%

19%

65%

14%

21%

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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.

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Customers and Competition

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Market-related Strengths

36,4%

84,1%

88,7%Closeness-to-

customer

Image

Professional

marketing

Five times as many employees (25-50%) have regular customer contacts

compared to large companies (5-10%).

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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

Hidden Champion strategies are value-driven, not

price-driven.

Hidden Champions command price premiums.

Big opportunities in new ultra-low price segment.

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Competitive Advantages of the Hidden Champions

Competitive performance

Importance

weaker stronger than the strongest competitor

Product quality

Price

Economy

Closeness-to-customer

Systems integration

Advice

Service

Punctuality

Flexibility

Advertising

Distribution

Cooperation with suppliers

Made in Germany

Patents

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Ease of use

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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.

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Employees and Leaders

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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

10 years ago Today

University

graduates (%)

8,5%

19,1%

In the last ten years, the share of university graduates has more than

doubled.

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Employee Turnover Rates

2,7%

5,3%

7,3%

8,8%

9,0%

15,0%

Austria

Switzerland

Daimler

Hidden

champions

Germany

9.0%

8.8%

7.3%

5.3%

2.7%

USA 30.6%

Source: Hernstein-Institute/US Department of Labor

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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)

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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. Total identification and

continuity of the leaders are the foundations for

long-term success.

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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 country’s natural advantages should be transformed

into competitive advantages in the market place.

Government support is necessary, but not sufficient.

Entrepreneurship is indispensable

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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 and Sales" In 2007 and 2011, top managers ranked Simon-Kucher as best consultancy in

marketing and sales before Boston und McKinsey.

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Rank Consultancy Ø Score*

1 Simon-Kucher & Partners

2 Boston Consulting Group

3 McKinsey & Company

4 Bain & Company

5 Roland Berger

Competence-Ranking "Marketing and Sales"

08/2007 und 08/2011

395

379

359

347

342

*Average for 2007 and 2011, maximum score 500;

Source: manager magazin August 2007&2011/IMB, Survey among German 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

“No firm has spearheaded the professionalization of pricing

more than Simon-Kucher & Partners.” William Poundstone (Priceless, Hill and Wang, 2010)

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Employees and Revenue

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Revenue 2011: €121 million

3 4 5 7 13 18 19 22 27 35 46 56 71

90 112

130 147

165 187

220 248

283

354

436 446

500

585

632

-60

40

140

240

340

440

540

640 1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

20

11

5/2

012

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Global Presence

Germany,

Bonn

Switzerland,

Zurich

England,

London

Italy,

Milan

Spain,

Madrid

USA,

San Francisco

Germany

Munich

Japan,

Tokyo

Poland,

Warsaw

Germany,

Frankfurt

USA,

New York

Germany,

Cologne

USA,

Boston

Luxem-

bourg

Austria

Vienna

Belgium,

Brussels

USA,

Miami

Denmark,

Copenhagen

Netherlands,

Amsterdam

France,

Paris

China,

Beijing

Singa-

pore

Australia,

Sydney

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Czech Books

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Management Thinkers The most influential management thinkers in German-speaking

countries 2010-2011

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

1. Peter F. Drucker † 40.1%

2. Hermann Simon 22.5%

3. Fredmund Malik 14.6%

4. Michael E. Porter 7.5%

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Hermann Simon

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, Décisions 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.

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.

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