Hidden champions

Hidden champions are relatively small but highly successful companies that are concealed behind a curtain of inconspicuousness, invisibility, and sometimes secrecy. The term was coined by Hermann Simon. He first used the term as a title of a publication in a scientific German management journal, describing the small, highly specialized world-market leaders in Germany.[1] According to his definition, a company must meet three criteria to be considered a hidden champion:[2]

  • Number one, two, or three in the global market, or number one on the company's continent, determined by market share
  • Revenue below $5 billion
  • Low level of public awareness

Discovering hidden champions
Annual exports 2003-2008 by different countries

The first English book about the subject was Hermann Simon's Hidden champions: lessons from 500 of the world's best unknown companies.[3] The book explores how Germany was able to consistently be (at the time) the number one exporter in the world. While Germany has global corporations like Volkswagen, Siemens, BASF and Bosch, these organisations are not substantially different from organisations like Ford, GE, DuPont or Visteon. Simon postulates that Germany's strong exports are supported by a large number of midsize firms. These smaller companies are normally known only in their market by their customers and suppliers, and are relatively unknown to the wider public. When these companies are very successful on the international markets they are hidden champions.

Simon conducted detailed research on 500 such companies and established a framework to describe them. The framework was also able to identify the main differences and traits common to hidden champions. With this framework in hand it was found that there are hidden champions everywhere around the world, but they are most frequently found in German speaking countries.

Success factors

Most of the hidden champions produce inconspicuous products. In the market for these products they are the top producer in the world. Often, but not always, these companies are family owned. They export most of their products, and so contribute significantly to the current account of their countries, and are more successful than the average.

The idea of market leadership means more than counting market share. Leaders as employees need an "inner flame" to become, and to remain, the number one. Hidden champions normally work in niche markets. For these markets they design unique products, which are produced with a high real net output ratio. They have to accept the risk of being a single product manufacturer. They divide between "good" and "bad" market share. The good is earned by performance and a solid foundation, the bad from price aggression and discounting.

One result of working with unique products in niche markets is quite often the need to deal on the global market in order to achieve economies of scale. For this reason, hidden champions feel a strong need to work abroad early in their company's development. Hidden champions also operate extremely close to their customers, and their customers' needs are an important driver for their innovations. On the other hand, customers of hidden champions depend on their products and they cannot easily change their source. This often makes for a high level of co-dependence between the producer and the customer, a result of the one product risk.

A lot of the hidden champions established their main product as an innovation and were able to keep this single position in the market, or were at least able to keep a leading position. Their markets are mostly oligopolistic with intense competition.

Competitive advantages of hidden champions are rarely because of cost leadership, more because of quality, total cost of ownership, high performance, and consultation close to the customer. They "earn" their market leadership through performance and not through price aggression. Their high real net output ratio is often achieved by working with proprietary processes which make it hard for competitors to imitate their products. On the other hand, management tasks like finance are often outsourced.

It also seems to be evident that to maintain market leadership hidden champions do business on their own, rather than depend on working in cooperation with others. Even sales in countries abroad are often organized from the parent company base. This keeps significant know-how inside, and helps recruit highly qualified staff at a small company.

The corporate culture of hidden champions is distinctive. Their values are conservative: hard work, strict selection, intolerance of underperformance, low sickness rates and high employee loyalty — and most are based in smaller towns.

Leadership style is authoritarian on strategic issues but participative on operations level. The leaders identify themselves with the company, are focused on their products, and stay for a long time, much longer than is normal in large public corporations.

A serious problem for hidden champions, as it is for SMEs in general, is to attract international professionals. Hidden champions need people who are happy to live in a remote location, who are attracted by job content, and who do not care much for a formal and prescribed career path. In Germany the concept of hidden champion is known to some extent, and therefore hidden champions there are able to utilise this label to recruit staff.[4] In 2011, the first "Hidden Champions Day" was organized by the student initiative bdvb e.V. at the University of Mannheim in order to promote the advantages and opportunities of working for a SME.[5]

Lessons to be learned from hidden champions

Hidden champions provide a best practice example. While a lot of business is local, it can be a goal to become the number one on such a local market. Also large companies may find some interesting lessons about international management. Hidden champions teach that exceptional management means doing small things better than the competitors instead of managing only one great thing. Simplicity in processes and organizational structures is another lesson. Investors may find determined, clearly focused, continuously successful companies.[6]

The idea and adaptation of hidden champions was implemented in a fund called Hidden Champions Fund, founded in Singapore by 8I Holdings Ltd.[7]

List of selected hidden champions

This list of companies selected by Herman Simon in 2009 gives an idea of what hidden champions are:[8]

References
  1. Simon, Hermann: Hidden Champions: Speerspitze der deutschen Wirtschaft. Wiesbaden: Zeitschrift für Betriebswirtschaft (ZfB) 60(1990)9, P. 876
  2. Simon, Hermann: Hidden Champions of the 21st Century : Success Strategies of Unknown World Market Leaders. London: Springer, 2009.- ISBN 978-0-387-98147-5. P. 15.
  3. Simon, Hermann: Hidden champions: lessons from 500 of the world's best unknown companies. Boston (Mass.): Harvard Business School Press, 1996.- ISBN 0-87584-652-1. The earlier version, published in German: Simon, Hermann: Die heimlichen Gewinner : die Erfolgsstrategien unbekannter Weltmarktführer. Frankfurt a. M.: Campus, 1996. - ISBN 3-593-35460-8.
  4. Venohr, Bernd; Meyer, Klaus E.: The German Miracle Keeps Running : How Germany’s Hidden Champions Stay Ahead in the Global Economy Berlin: Working Paper No. 30, Institute of Management Berlin, Berlin School of Economics, 2007.
  5. Website des „Hidden Champions Day“ at the Wayback Machine (archived September 29, 2011)
  6. Simon, Hermann: Hidden Champions of the 21st Century : Success Strategies of unknown World Market Leaders. London: Springer, 2009.- ISBN 978-0-387-98147-5. P. 378
  7. "Hidden Champions Fund". 8I Holdings Ltd. 28 March 2018. Retrieved 28 March 2018.
  8. Simon, Hermann: Hidden Champions of the 21st Century : Success Strategies of unknown World Market Leaders. London: Springer, 2009.- ISBN 978-0-387-98147-5. P. 2-13.
  9. 3B Scientific homepage, 10-03-04
  10. ARCITECTA
  11. The Jamba! GmbH (German for Ltd.) is since 2009 Fox Mobile Distribution GmbH, no longer independent, and belongs to Rupert Murdochs News Corporation. Jamba! becomes only a label. Jamba! got into the list because nearly nobody knows, that is the world market leader.
  12. mentioned in the book by Hermann Simon: "Hidden Champions - Success Strahtegies for World Market Leaders", Campus Frankfurt 1996, ISBN 3-453-13216-5, Page 63
  13. "Frankfurter Allgemeine Zeitung, Strahler machen es der Sonne nach, Helmut Bünder, 19. November 2012" (PDF). Archived from the original (PDF) on 2016-04-02. Retrieved 2013-07-09.
  14. "IHK Plus, Hidden Champions, Weltmarktführer aus der Region, Oktober 2012" (PDF). Archived from the original (PDF) on 2016-04-02. Retrieved 2013-07-09.

Further reading

Books and papers
  • Audretsch, David B., Lehmann, Erik E., & Schenkenhofer, Julian (2018). Internationalization strategies of hidden champions: lessons from Germany. Multinational Business Review, 26(1), 2-24.
  • Fryges, Helmut: Hidden champions : how young and small technology oriented firms can attain high export sales ratios. Mannheim : Zentrum für Europ. Wirtschaftsforschung, 2006.
  • Hanna, Rosemary: Hidden champions of the B. C. forest industry : are small firms at the cutting edge of value chain innovation? Ottawa : Library and Archives Canada, 2007. - ISBN 978-0-494-16879-0.
  • Langenscheidt, Florian (Ed.), Venohr, Bernd (Ed.): The Best of German Mittelstand - THE WORLD MARKET LEADERS. DAAB Verlag, Cologne 2015, ISBN 978-3-942597-48-7.
  • Merrilees, Bill; Blackburn, Jillian; Tiessen, James; Lindman, Martti: Hidden (SME) Champions : The Role of Innovation and Strategy. In: Chetty, Sylvia (Ed.); Collins, Brett (Ed.): Proceedings of the Australian and New Zealand Marketing Academy Conference 1–5 December 2001. Auckland: College of Business, Massey University: 2001.
  • Neubauer, Regina: Business models in the area of logistics : in search of hidden champions, their business principles and common industry misperceptions. Wiesbaden: Gabler, 2010. - ISBN 978-3-8349-2526-8
  • Simon, Hermann: Hidden champions : lessons from 500 of the world's best unknown companies. Boston (Mass.): Harvard Business School Press, 1996.- ISBN 0-87584-652-1.
  • Simon, Hermann: Lehren der Hidden Champions des 21. Jahrhunderts. In: Weissman, Arnold: Erfolgreich mit den Großen des Managements. Frankfurt a. M.: Campus, 2008.- ISBN 3-593-38634-8. S. 109-147.
  • Simon, Hermann: Hidden Champions of the 21st Century : Success Strategies of unknown World Market Leaders. London: Springer, 2009.- ISBN 978-0-387-98147-5.
  • Venohr, Bernd; Meyer, Klaus: The German Miracle Keeps Running : How Germany’s Hidden Champions Stay Ahead in the Global Economy Berlin: Working Paper No. 30, Institute of Management Berlin, Berlin School of Economics, 2007.
  • Venohr, Bernd; Meyer, Klaus: Uncommon common sense Business Strategy Review, Volume 20, issue 1, Spring 2009, p. 39-43
  • Voeth, Markus ; Herbst, Uta ; Barisch, Sina: Hidden Champion Region Stuttgart : Ergebnisse einer empirischen Untersuchung. Stuttgart : Förderverein für Marketing an der Universität Hohenheim, 2008.
  • Witt, Alessa: Internationalisation of hidden champions : market entry and timing strategies with international management and business ethics cases. Hamburg: Management Laboratory, 2010. - ISBN 978-3-9812162-4-0
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