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The Hidden Champions
Germany’s Secret Success
Team Delta
Katie Adgent
Paige Bigham
Margaret Dischler
Matt Farmer
Outline
• Germany's Economic History
• Germany throughout the recession
• Mittelstand: A Definition
• Market Structure
o P...
Germany's Economic History
• Whiplash Extremes
o The Great Depression
o Nazi Germany - hothouse prosperity
o Post-WWII: In...
Dominating the Financial Crisis
• Experienced relatively short period of GDP
contraction
• Huge Decrease in Exports
• Stil...
Economy with largest growth
Unemployment Rates
GDP Growth
Began to shrink in the middle of 2008, but quickly
moved back to earlier levels of growth by the middle
of 2009.
Germany: Trade Surplus Champs
Mittelstand: The "Hidden Champions"
• What is the Mittelstand?
o Hermann Simon
• Companies Prospered in the 50's
and kept ...
Mittelstand: World Market Leading Companies
Not in the Public Eye
Mittelstand Economics
Strategy:
Dominating global niche markets
                Governance:
"Enlightened family capitalism...
Governance: Mittelstand Management
Operational Effectiveness
Strategy: Innovation and Differentiation
5.0%
3.6%
Porter’s Five Forces Strategic Framework
Minimal Threat of Substitutes
due to high-tech dominance
Minimal Threat of Entry ...
Mittelstand Strategy: Niche Market
Quasi-Monopoly
High-tech Innovation
Differentiation
________
The Industry Demand
Curve ...
Conclusion
Strategy:
Dominating global niche markets
                Governance:
"Enlightened family capitalism"
Operation...
Our Questions
• Optimal Size
 
• Decreases in Demand
• Easily Imitated?
Lessons Learned
•Value-oriented instead of price-oriented
•Specialization
•Innovation
•Corporate Culture
Questions?
References
• How Germany’s Mid-sized Companies Get Ahead and Stay Ahead in the
Global Economy, Prof. Bernd Venohr, 2008
• ...
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Joint Project - Economics Class [MBA]

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How small companies with niche markets have quietly excelled in Germany.

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  • The prevailing stereotype about Germans is that they are renowned for their incredible orderliness, punctuality, and work ethic. Several indicators seem to show that this has paid off for them over the years.   By a measure of worker productivity per euro spent, Germany became 13 % more competitive against its neighbors in the 11 years through 2009.
  • Social Policies- Much more difficult to lay off workers in Germany   Instead of laying off workers (and have to then go through the costly process of rehiring and retraining workers when the economy gets better), many German companies chose to simply cut some employees' hours, promising them that their hours would be increased once the economy had improved.
  • Social Policies- Much more difficult to lay off workers in Germany   Instead of laying off workers (and have to then go through the costly process of rehiring and retraining workers when the economy gets better), many German companies chose to simply cut some employees' hours, promising them that their hours would be increased once the economy had improved.
  • Define the Mittelstand 70% family owned 70% located, small rural communities 98% privately owned 99%of all companies in Germany this size Employs 70% of the german work force   Split into several companies --- so each can perfectionistically focus on just 1 gadget   Several companies may work interdependently to create pieces necessary for a factory machine, for example   Mittelstand-- - Term coined by Hermann Simon in the early 1990's in his book -German economist and professor - became known    Define the Mittelstand Split into several companies --- so each can perfectionistically focus on just 1 gadget Several companies may work interdependently to create pieces necessary for a factory machine, for example
  • Why are they hidden champions? Hidden bec they are b2b Of the 1500 german world market leading companies, 90% are b2b. This graph shows the 90% that are b2b. Shows the industrial distribution *change to red version 1300 of these 1500 world market leading companies are mittelstand companies 98% of all mittelstand companies are privately sectors of leading companies in the world market Machine equipment = mittelstand This B2B slide explains a lot of things including the fact that they remained behind the scenes, out of the public eye, simply because they didn't need to be in the public eye in order to do business.   **add B2B
  • lots of overlap   - strategy- specialized, 1 or 2 in their global market   -governance- family owned, professional management operational effectiveness- innovation in niche
  • we found in a study that these companies have a higher management satisfaction   unique combo-- family- survival, long-term is key less risky, relentless customer service extended family feel with emotional attachment professional outlook-  state of the art management flat hierarchy 70% located, small rural communities Apprenticeships, retention, keep talent within - Internship equivalent in high school, **add more
  • Porter does not specifically address "niche markets" and a "hyperfocus" on one superior product.   However, the 5 strategic forces describe many of the elements of the Mittelstand's success such as: -a minimal threat of substitutes  -a minimal threat of new entrants -bargaining power of the supplier -Limited bargaining power of customers -Low intensity or non-existant rivalry   Leads to high profit potential     THIS SLIDE IS VERY CLUTTERED
  • Source: http://welkerswikinomics.wetpaint.com/page/Monopoly+demand     Critical to understanding the profit maximization of the monopolist is remembering that the monopolist is the industry because it is the sole producer.   Therefore the monopolist confronts a downward-sloping demand curve. The industry demand curve is the firm’s demand curve.   For the Mittelstand, monopolistic ventures are temporary. Therefore, they are 'quasi-monopolistic'.   MR is optimized when unit-elastic   Market Structure: Quasi-Monopoly Temporary Monopoly due to  Differentiation Industry Demand Curve same as the firm's demand curve MR < Price (always) MR         as Q Note where e d = 1, Unit-Elastic   Mittelstand Niche market behaviors match the demand curve precisely: less is more quality over quantity  
  • The political and cultural environment in Germany allows the MIttelstand to succeed. They think in the long term instead of the short term. Since they are family owned, they are  more concerned with the survival of the company instead of maximizing profits and expansion. They have a narrow focus with a global orientation. They are constantly innovating in order to function as a quasi monopoly.  Because of this specialization it is hard to imitate this type of business. They operate in a quasi monopolistic market structure because of their devotion to innovation creating barriers to entry. 
  • focused differentiation, niche concentrated resources cost isn't always the most important, offer value to customers, build relationships constant incremental innovation, constant improvement love of the business,  the corporate culture created allows for sustainable companies who can bounce back and recover from an economic recession The medium sized businesses are ideal because they are small enough to have the "family owned" feel while being big enough to have enough resources to be innovating and compete globally.
  • focused differentiation, niche concentrated resources cost isn't always the most important, offer value to customers, build relationships constant incremental innovation, constant improvement love of the business,  the corporate culture created allows for sustainable companies who can bounce back and recover from an economic recession The medium sized businesses are ideal because they are small enough to have the "family owned" feel while being big enough to have enough resources to be innovating and compete globally.
  • Transcript of "Joint Project - Economics Class [MBA]"

    1. 1. The Hidden Champions Germany’s Secret Success Team Delta Katie Adgent Paige Bigham Margaret Dischler Matt Farmer
    2. 2. Outline • Germany's Economic History • Germany throughout the recession • Mittelstand: A Definition • Market Structure o Profile of a Quasi-Monopoly • Lessons Learned
    3. 3. Germany's Economic History • Whiplash Extremes o The Great Depression o Nazi Germany - hothouse prosperity o Post-WWII: In Complete Ruins, Disaster o '50s - A Business Boom o '60s - A Slowing of Growth, less spectacular • "Social" vs. "Market" Balancing Act o '70s "Laissez-faire" government control o '80s Government Intervention and Control o '90s A Slowing Down - "The Sick Man" "Out of Germany or Out of Business" - President of GM Europe
    4. 4. Dominating the Financial Crisis • Experienced relatively short period of GDP contraction • Huge Decrease in Exports • Still maintained a significant lead within the European marketplace • Unemployment o Able to minimize damage to the employment rate • Second highest Trade Surplus in the world
    5. 5. Economy with largest growth
    6. 6. Unemployment Rates
    7. 7. GDP Growth Began to shrink in the middle of 2008, but quickly moved back to earlier levels of growth by the middle of 2009.
    8. 8. Germany: Trade Surplus Champs
    9. 9. Mittelstand: The "Hidden Champions" • What is the Mittelstand? o Hermann Simon • Companies Prospered in the 50's and kept growing • Came to Dominance in the '90s • Much like current economic situation
    10. 10. Mittelstand: World Market Leading Companies Not in the Public Eye
    11. 11. Mittelstand Economics Strategy: Dominating global niche markets                 Governance: "Enlightened family capitalism" Operational effectiveness: World class in key processes
    12. 12. Governance: Mittelstand Management
    13. 13. Operational Effectiveness
    14. 14. Strategy: Innovation and Differentiation 5.0% 3.6%
    15. 15. Porter’s Five Forces Strategic Framework Minimal Threat of Substitutes due to high-tech dominance Minimal Threat of Entry due to: • high capital requirements in R&D • high switching costs • lack of access to distribution channels Supplier Power due to niche product Limited Bargaining Power of Customers
    16. 16. Mittelstand Strategy: Niche Market Quasi-Monopoly High-tech Innovation Differentiation ________ The Industry Demand Curve is the Firm's Demand Curve
    17. 17. Conclusion Strategy: Dominating global niche markets                 Governance: "Enlightened family capitalism" Operational effectiveness: World class in key processes
    18. 18. Our Questions • Optimal Size   • Decreases in Demand • Easily Imitated?
    19. 19. Lessons Learned •Value-oriented instead of price-oriented •Specialization •Innovation •Corporate Culture
    20. 20. Questions?
    21. 21. References • How Germany’s Mid-sized Companies Get Ahead and Stay Ahead in the Global Economy, Prof. Bernd Venohr, 2008 • “The Power of Uncommon Common Sense Management Principles – The Secret Recipe of German Mittelstand companies – Lessons for large and small companies”, Prof. Bernd Venohr, 2010 •http://www.bloomberg.com/news/2010-09-30/german-mittelstand-gives- chilean-miners-economy-escape-route.html •http://www.economist.com/blogs/freeexchange/2010/08/europes_econom ies •http://www.nytimes.com/2010/02/27/business/global/27gcon.html •http://www.economist.com/node/17572160 •http://www.businessweek.com/globalbiz/content/sep2010/gb20100929_9 05740.htm •http://www.globalpost.com/dispatch/germany/101111/mittelstand- german-economy-manufacturing •http://www.businessweek.com/globalbiz/content/sep2010/gb20100929_8 77580.htm
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