Hidden Champions of the 21st Century: Success Strategies of Unknown World Market Leaders

Hidden Champions of the 21st Century Success Strategies of Unknown World Market Leaders Warsaw Office Wołoska 9, 02-583 Warszawa Prof. Dr. Hermann Simon Tel +48 22 330 57 00 Fax +48 22 330 57 01 e-mail: hermann.simon@simon-kucher.com Warsaw, November 17, 2008 Internet: www.simon-kucher.com

Who is No. 1 in Exports? China USA Japan Germany (8H01X056) -2-

Exports in 2007 (Billion US-$) Germany 1354 China 1220 USA 1148 Japan 678 France 546 Italy 502 Netherlands 454 Canada 431 United Kingdom 442 Korea 379 Belgium 322 Spain 257 Australia 139 Poland 138 Norway 136 Turkey 110 Hungary 67 Source: 2008 CIA World Factbook (8H01X056) -3-

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 (8H01X056) -4-

Hidden Champions Delo Baader Brainlab Lantal CEAG Brita Tetra Belfor (8H01X056) -5-

Polish Hidden Champions Company Main Revenue Product (PLN million/ year) FAKRO Roof windows 600 Famur Mining equipment 909 Psiloc Smartphone applications ? Atlas Adhesive mortars for tiles 560 DGS Closures for glass containers ? Nowy Styl Chairs 900 (8H01X056) -6-

Hidden Champions Worldwide Germany Taiwan USA India Russia 1997 1996 1996/2009 2006 2005 Japan Turkey France 1998 Poland Korea 1999 1998 1999 1997 Brazil Netherlands Serbia Egypt Italy Spain China 2003 1997 2007 2008 2001/2007 1997 1997/ 2000/ 2005 (8H01X056) -7-

The Book (8H01X056) -8-

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 (8H01X056) -9-

Hidden Champions and Crises 30% have survived serious crises Hidden champions profit from crises Markets are redistributed in difficult, not in easy times Punctuated development (8H01X056) - 10 -

Why are they successful? How do they differ from large firms? What can young entrepreneurs learn from them? (8H01X056) - 11 -

Extremely ambitious goals: Market Leadership Growth (8H01X056) - 12 -

Chemetall “The goal of Chemetall is the worldwide technology and marketing leadership in profitable niches of specialty chemicals.” (8H01X056) - 13 -

3B Scientific “We want to become and stay no. 1 in the world.” (8H01X056) - 14 -

Karl Mayer “We don’t want our world market share to drop below 70%.” (8H01X056) - 15 -

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 (8H01X056) - 16 -

Growth From Hidden Champion to Big Champion 16000 Fresenius 14000 SAP Revenues in USD million 12000 Wuerth 10000 8000 6000 4000 2000 0 1995 2007 (8H01X056) - 17 -

Growth Mid-sized Hidden Champions 5000 4500 Cronimet 4000 Enercon Revenues in USD million 3500 Leoni 3000 2500 2000 1500 1000 500 0 1995 2007 (8H01X056) - 18 -

Growth Small Hidden Champions 400 350 Rational Revenues in USD million 300 Bartec 250 Brainlab 200 150 100 50 0 1995 2007 (8H01X056) - 19 -

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. Young entrepreneurs: Be very ambitious! (8H01X056) - 20 -

Focus and Depth (8H01X056) - 21 -

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.” (8H01X056) - 22 -

Flexi Bogdahn “We will do only one thing, but we do it better than anyone else.” (8H01X056) - 23 -

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 (8H01X056) - 24 -

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 (8H01X056) - 25 -

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 (8H01X056) - 26 -

Lesson 2 Only focus and depth lead to world class. By focussing on a narrow customer segment the Hidden Champions can offer superior value. High vertical integration and a deep value chain create unique products customers cannot do without. (8H01X056) - 27 -

Globalization (8H01X056) - 28 -

The Hidden Champions Strategy - Specialization in product und know-how - Global Selling and Marketing (8H01X056) - 29 -

Globalization Has Only Just Begun World export per capita (US-$) 3000 2000 1543 985 437 6 23 1900 1950 1980 2000 2005 2010 2020 (8H01X056) - 30 -

Globlization Multiplies Market Size 1135 Index 370 100 Germany Europe World (8H01X056) - 31 -

Globalization: Kaercher ARG 44 High pressure water cleaners IN D 43 U KR 42 THA 41 SK 40 RO 39 RUS 38 KOR 37 IR L 36 TR 35 Duba i 34 MA L 33 TA IW 32 VR C 31 I ( C IP ) 30 MEX 29 S GP 28 Number of subsidiaries I ( C ET) 27 PL 26 CS 25 H 24 HK 23 GR 22 NZ 21 U S A ( A KM) 20 JPN 19 E 18 CDN 17 AUS 16 ZA 15 DK 14 SF 13 N 12 NL 11 US A 10 S 9 B 8 UK 7 B RA 6 I 5 CH 4 A 3 F 2 1 1962 1964 1966 1974 1975 1978 1982 1983 1984 1985 1987 1988 1989 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2002 2003 2004 2005 2006 2008 Founding year of subsidiaries (8H01X056) - 32 -

Future Attractiveness of Emerging Markets China 73% Russia 48% India 35% Eastern Europe 34% (without Russia) Asia (rest) 21% Brazil 13% (8H01X056) - 33 -

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. (8H01X056) - 34 -

Innovation (8H01X056) - 35 -

R&D Intensity R&D as % Index of revenue German firms with R&D 3.0% 100 Booz (Global Top 1000 in R&D) 4.2% 120 Hidden champions 5.9% 169 1/3 of hidden champions > 9% 257 (8H01X056) - 36 -

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 (8H01X056) - 37 -

Enercon Wind Turbines Extremely innovative Founded in 1984 More than 10000 employees, 3 billion € revenue 42% of all patents worldwide Price 20% higher than competition Superb service (8H01X056) - 38 -

Driving Forces of Innovation Large corporations Hidden Champions 65 % 50% 31% 19 % 21 % 14% market technology market & market technology market & technology technology (8H01X056) - 39 -

Innovation Process Role of top-management Heads more important than budgets Cooperation between functions Co-development with customers Continuous improvements rather than breakthrough innovations Speed (8H01X056) - 40 -

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. (8H01X056) - 41 -

Closeness to Customer Marketing Professionalism Value and Price (8H01X056) - 42 -

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% (8H01X056) - 43 -

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 (8H01X056) - 44 -

Value and Pricing Strategies are value-driven, not price-driven Price premium 10-15% Avoidance of price wars (8H01X056) - 45 -

Competitive Avantages 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 (8H01X056) - 46 -

Attributes with Strongest Increase in Importance Attribute Increase in percentage points last ten years Advice +10 Systems integration +8 (8H01X056) - 47 -

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 (8H01X056) - 48 -

Competing with the “Neighbor” Product Competitors Place Country Remarks Shopping carts Wanzl Leipheim Germany Global No. 1 Product Competitors Siegel Jettingen Location Remarks 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 (8H01X056) - 49 -

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. Entrepreneurial clusters foster the emergence of Hidden Champions. (8H01X056) - 50 -

Employees (8H01X056) - 51 -

Employees “More work than heads” High performance cultures High qualification Early on sharp selection/later on “zero” turnover (8H01X056) - 52 -

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 (8H01X056) - 53 -

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 champions 2,7% 2.7% Source: Hernstein-Institut/US Department of Labor (8H01X056) - 54 -

Lesson 6 The Hidden Champions have “more work than heads” and high performance cultures. Early selection on the job is sharp. Turnover and sickness rates are extremely low. (8H01X056) - 55 -

Ownership and Leadership (8H01X056) - 56 -

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 - therof with other management 18 22 +4 Corporations 21 16 -5 Stock exchange 2 10 +8 Private equity - 8 +8 (8H01X056) - 57 -

Key Financial Indicators Return on Capital Emplyed (ROCE) 13.6% Equity Ratio 41.9% Self-financing dominates Capital markets increasingly important (8H01X056) - 58 -

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) (8H01X056) - 59 -

Lesson 7 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. (8H01X056) - 60 -

The Three Circles of the Hidden Champions Focus De ce n h Competitive tra pt advantages orientation Leader- De liz Global ship with ai to ambitious n goals High performance employees Closeness to customer (8H01X056) - 61 -

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… (8H01X056) - 62 -

Lessons for Poland The success of Poland 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 high ambitions The technical competencies are there, marketing and globalization must be added The role of large corporations: help start-ups, spin-offs etc. Poland is in a good starting position, geostrategically ideal (8H01X056) - 63 -

To conclude…. … a personal Hidden Champions Story (8H01X056) - 64 -

Simon - Kucher & Partners Worldwide Strategy & Marketing Consultants Focus: Revenue-driven Profit Growth Core Competency: Pricing (8H01X056) - 65 -

Best Consultancies in quot;Marketing & Salesquot; in Germany Germany’s most prestigious business magazine ranks Simon-Kucher as the leading consultant in quot;Marketing & Salesquot;, ahead of Boston and McKinsey. Competence Ranking quot;Marketing & Salesquot; Competence Ranking quot;Marketing & Salesquot; 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 (8H01X056) - 66 -

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 (8H01X056) - 67 -

Employees and Revenue Revenue in 2007: US-$ 120 million 485 379 311 261 235 205 160 169 125 134 82 99 51 60 16 20 20 24 30 40 3 4 5 9 8 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 11 07 00 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 /2 (8H01X056) - 68 -

Comparison Boston Consulting vs. Simon-Kucher After 23 years Simon-Kucher is larger than the Boston Consulting group was after 23 years. SKP (1985-2007) 331 308 BCG (1963-1985) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 (8H01X056) - 69 -

Global Presence France, England, Luxem- Netherlands, Germany, Germany, Germany, Germany, Paris London bourg Amsterdam Bonn Frankfurt Munich Cologne Russia, Moscow Poland, Warsaw USA, Japan, San Francisco Tokyo USA, Boston USA, New York Spain, Switzerland, Italy, Austria, Madrid Zurich Milan Vienna (8H01X056) - 70 -

SKP in Poland Transporta- Pharmacy tion /logistics Consumer Media goods Construction Telecommuni materials cation Financial Energy services Retail Industrial goods Others (8H01X056) - 71 -

The Most Influential Management Thinkers in German-Speaking Countries 2005-2007 1. Peter F. Drucker † 31.8% 2. Hermann Simon 12.2% 3. Fredmund Malik 10.7% 4. Michael E. Porter 6.3% 5. Philip Kotler 5.1% Source: www.managementdenker.de, Internet Surveys, n = 1 195, 2005 – 2007 (8H01X056) - 72 -

Hermann Simon Hermann Simon is chairman of Simon-Kucher & Partners Strategy & Marketing Consultants with offices in Amsterdam, Bonn, Boston, 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. 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 February 2009. It investigates the strategies of little known world and European market leaders in German- speaking countries. In October 2008 his new textbook Preismanagement appeared in German. 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. (8H01X056) - 73 -

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Hidden Champions of the 21st Century: Success Strategies of Unknown World Market Leaders

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Hidden Champions of the 21st Century: Success Strategies of Unknown World Market Leaders — Presentation Transcript