Moscow hc globalia expert conference 141008

www.simon-kucher.com

Hidden Champions – The Vanguard of GlobaliaLessons from Mid-sized German World Market Leaders

Expert-Seminar Moscow, October 8, 2014Prof. Dr. Dr. h.c. mult.Hermann Simon

Bonn officeWilly-Brandt-Allee 1353113 [email protected]

Who Is Right?

Financial Times, April 30, 2014

"China overtakes the US?"

People’s Daily Online, May 8, 2014

"China still has a long way to go

before it overtakes the

United States."

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GLOBALIAThe globalized world of the

futureIn order to understand

future opportunities and risks we have to

understandGlobalia! 3

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Globalia 2030: Gross Domestic Products

Billion US-$

USA EU China Japan Germany Brazil India Russia* France UK Italy

24 520

22 37020 900

5 8004 710 4 360 4 290 4 082 3 530 3 270 2 670

*Russia: +4% p.a.

4

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Globalia 2030: Growth until 2030

Growth of GDPs 2013-2030 in billion US-$

China USA EU India Brazil Russia Germany Japan France UK Italy

11 780

7 720

5 000

2 4202 120 1 986

1 050 900 790 730 600

5

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Globalia – Size and Growth of GDP

-1 000 1 000 3 000 5 000 7 000 9 000 11 000 13 000 15 000 0

5 000

10 000

15 000

20 000

25 000

30 000

EU

China

Germany

Brazil

Japan

India

Gross Domestic Product 2030 in billion $

USA

France

UK

ItalyRussia

Growth of GDP 2013-2030 in billion $

First global league

Second global league

6

Globalia – Until 2050: "Demography is Economy"

*Pakistan, Indonesia, Bangladesh, Egypt, Iran, Iraq, Afghanistan Source: UNO Forecast, 2010

75

125

175

Index 2010 = 100

2010 2050

203 Sub-Saharan-Africa1,753

193 Africa 1,998

151 Islamic countries* 1,210

133 India 1,613127 USA 403

111 Brazil 218104 China 1,417

94 Europe 69186 Germany 7183 Russia 11680 Japan 101

million

103 Switzerland 10

Index 2050

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Permanent Immigration into Industrialized Countries 2012

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Japan

Austria

Sweden

Netherlands

Switzerland

France

Australia

Italy

Canada

Spain

United Kingdom

Germany

Russia

USA

0 200,000 400,000 600,000 800,000 1,000,000 1,200,000

66 800

67 100

81 700

107 500

125 600

241 900

245 100

253 600

257 900

275 000

282 600

399 900

417 700

1030 000

Source: OECD, in: Die Welt, 28.5.2014

1 031 000

European Union total: 2 113 900

- 8 -

Urbanization

The strongest trend – even stronger than demography

The most important effect of urbanization is the decline in the number of children. Urbanization has a stronger impact than the pill or contraception campaigns.

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If the calculations of the World Bank are correct

China is about to experience a population shift

unparalleled in history. 350 million people are

expected to move from rural areas into the cities;

that is more than the entire population of the

United States. …So far 53 percent of the Chinese

live in cities.

Urbanization

Source: Das Volk will wohnen, Mark Siemons, Frankfurter Allgemeine Zeitung, June 24, 2014, p. 13.

10

Europe

Population will grow

Internal migration

- from east to west

- from south to north

The north will permanently subsidize the south

Europe will simultaneously become more homogenous and more heterogeneous

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1900 1950 1980 2000 2013

6 23

437

985

2 634

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Accelerating Globalization

Exports per capita in US-$

12

Lesson 1

Globalia is and will be an enormous driver of

growth.

In 2030 China, the US and the EU will be the three

poles of the global economy. All other countries

play in the second global league. Africa will play an

increasingly important role – with uncertain

outcome. Europe will be a growth region with

heterogeneous internal developments.

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How successful

are individual countries

in global competition,

especially in exports?

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Exports 2004-2013

Country

Spain

Russia

Korea

United Kingdom

Italy

France

Japan

USA

Germany

China

0 2000 4000 6000 8000 10000 12000 14000 16000

2 638

3 814

4 155

4 424

4 566

5 238

6 986

12 234

12 592

13 909

Billion US-$

https://www.destatis.de

15

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Per Capita Exports 2004-2013

Country

China

Russia

USA

Japan

Spain

United Kingdom

Italy

France

Korea

Germany

0 20,000 40,000 60,000 80,000 100,000120,000140,000160,000180,000

10 372

26 671

39 338

54 578

57 100

71 355

75 347

79 605

84 796

153 936

US-$

https://www.destatis.de

16

Who Exports?

Germany?

Russia?

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Source: Frankfurter Allgemeine Zeitung, May 5, 2014, p. 18

Professor Marc Melitz, Harvard

"Only the strongest companies

export."

The state doesn’t export!

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Do Large Companies Explain Export Performance?

https://www.destatis.de

0 50 100 150 0

500

1 000

1 500

2 000

USA (128)

Japan (57)Korea (17)

Italy (9)

Spain (8)

China (95)

Switzerland (13)

Germany (28)

France (31)

United Kingdom (27)

Fortune Global 500 Corporations (2013)

Exports 2013 in billion US-$

Russia (8)

Hidden Champions Export-

Turbo

19

What Is a Hidden Champion?

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

Revenue less than €5 billion

Not well known in general public

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Hidden Champions by Country

Number of Hidden Champions

Australia

Brazil

Spain

Norway

Finland

Russia

Canada

Belgium

Denmark

South Korea

Poland

Netherlands

Sweden

United Kingdom

China

France

Italy

Switzerland

Austria

Japan

USA

Germany

10

11

11

13

14

14

16

19

19

23

27

29

49

67

68

75

76

110

116

220

366

5001 307

Total number worldwide:

2 734

Country

21

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Hidden Champions per Million Inhabitants

China

Russia

Spain

South Korea

United Kingdom

France

USA

Italy

Netherlands

Japan

Belgium

Finland

Norway

Denmark

Sweden

Austria

Switzerland

Germany

0.1

0.1

0.2

0.5

1.1

1.1

1.2

1.2

1.7

1.7

1.8

2.7

2.8

3.4

5.4

13.8

13.9

16.016.0

13.9

13.8

5.4

3.4

2.8

2.7

1.8

1.7

1.7

1.2

1.2

1.1

1.1

0.5

0.2

0.1

0.1

Number of Hidden Champions per million inhabitants

Country

22

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Key Facts of the Hidden Champions

More than 1.2 million new jobs in 15 years

Annual growth of 10%, revenue 4 times larger than 15 years ago

More than 200 new $-billionaires

Sharp increase of world market share

Massive wave of innovation

- 23 -

What is required for

success in Globalia?

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Innovativeness

CountryNumber of

European patents2003-2012

European patentsper millioninhabitants

Germany 130 032 1 590

Japan 108 418 847

Austria 6 366 749

France 44 363 674

USA 134 306 427

Italy 21 636 357

United Kingdom 20 893 337

Korea 9 859 197

Spain 3 649 79

Portugal 249 23

Greece 244 23

Russia 462 3

25

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Strong Manufacturing Base

Source: Institut der deutschen Wirtschaft, IWD, Ausgabe 2, 12.01.2012

5 10 15 20 25 30

-15

-10

-5

0

5

10

15

Germany

JapanAustria

Switzerland

Italy

Belgium

Spain

Portugal

Denmark

USA

France

UK

Greece

Share of manufacturing in GDP in %

Trade balance in % of GDP

ChinaKorea

26

Cost Competitiveness

Source: The Wall Street Journal, April 18, 2013, p. 32

Unit labor costs, quarterly change(%)

2000

2000

Q4

2001

Q3

2002

Q220

03

2003

Q4

2004

Q3

2005

Q220

06

2006

Q4

2007

Q3

2008

Q220

09

2009

Q4

2010

Q3

2011

Q220

12

2012

Q4

-10

0

10

20

30

40

Spain

France

Germany

Eurozone: +24%

Introduction of the Euro = fixed exchange rates

Italy

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Lesson 2

Business success in Globalia does not primarily

depend on large corporations but on mid-sized

world class companies, especially the Hidden

Champions. Innovative-ness, a strong

manufacturing base and cost competitive-ness

are the factors of their success.

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The Hidden Champions

Why are they successful?

How do they differ from large corporations?

What can we learn from them?

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Extremely ambitious goals:

Growth and market leadership

30

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Growth

1995 2012 0

3 000

6 000

9 000

12 000

15 000

18 000

21 000

Fresenius

SAPZF Group

Media Saturn

Revenues in million €

From Hidden Champion to Big Champion

31

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Growth

1995 2012 0

1 000

2 000

3 000

4 000

5 000

Brose

Enercon

Leoni

Claas

Mid-sized Companies

Revenues in million €

32

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Growth

1995 2012 0

100

200

300

400

500

Rational

BeckhoffIgus

Bartec

Small Hidden Champions

Revenues in million €

33

3B Scientific is the world market leader

in anatomical teaching aids.

"We want to become and stay

no. 1 in the world."

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3B Scientific

34

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Chemetall

Chemetall is the world market leaderin special metals like lithium and

cesium.

"The goal of Chemetall is the

worldwide technology and

marketing leadership."

35

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Deep Leadership: Sick

Sick is a world market leader in sensors.

"We lead by anticipating our customers’

expec-tations. Leadership means becoming

the bench-mark for others. We set the

standards on the world market."

36

Rosen-Group is the world market leader

in pipeline inspection systems.

"We want to create ultimate value for our

custom-ers as the world’s undisputed

leading supplier. It is our objective to be

the world’s most competitive provider. We

go far beyond present market require-

ments. We envision the market’s future

needs."

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Deep Leadership: Rosen-Group

37

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Lesson 3

Success always begins with highly ambitious goals.

The Hidden Champions go for growth and market

leadership. To them leadership means more than

market share. This is the fuel that drives them

forward.

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Focus and depth

39

Uhlmann is the world market leaderin packaging systems for the pharmaceutical industry.

"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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Uhlmann

40

Flexi is the world market leader in retractable dog leashes.

"We only focus on one thing,

but we do it better than anyone

else."

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Flexi

41

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Uniqueness through depth

42

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Deep Value Chain

No outsourcing of core competencies

"We produce all parts ourselves, based on the quality standards we define." (Wanzl)

"We grow our own wood in our own plantations." (Faber-Castell)

“We do everything ourselves, especially in R&D” (Pepperl & Fuchs)

Own machine shops

43

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Lesson 4

Only focus leads to world class. The Hidden

Champions are highly focused on their technologies

and their markets. Through a deep value chain they

create unique products and protect their know-how.

44

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Globalization

45

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The Hidden Champions Strategy

Global selling and marketing

Focus inproduct and know-how

46

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Globalization: Kärcher

World market leader in high pressure water cleaners

100 subsidiaries in 60 countries

Number of company foundations and acquisitions

47

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Globalization

A mental and organizational process

Large corporations are typically globalized

Hidden Champions are globalized

In most countries, SMEs are not yet globalized- This has to change, also in Russia- It takes time

- 48 -

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Lesson 5

The Hidden Champions combine focus 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.

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Innovation

50

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Innovation: R&D Intensity

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

Normal firms* Global Top 1000** Hidden Champions

3.0%

3.6%

6.0%

3.0%

3.6%

6.0%

51

Largecorporations

HiddenChampions

6

31

Patents per 1,000 employees

Cost per patent

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Patents of Hidden Champions vs. Large Corporations

Largecorporations

HiddenChampions

€2.713m

€0.529m

52

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Innovation: Enercon E-Ship with Flettner rotors

53

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Innovation: Volocopter

54

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Innovation: 3D Sensor Pepperl & Fuchs

55

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Drivers of Innovation

21%

14%65%

Hidden Champions

50%

31%

19%

Large corporations

Customer Needs

Technology

Customer Needs & Technology

- 56 -

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Top value-to-customer

57

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Value

Strategy value-oriented, not price-oriented

Price premium 10-15%

Service as good as product

Avoid price wars, value competition instead

58

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Closeness-to-customer

59

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Closeness-to-customer is the biggest strength of the Hidden Champions

Market-related Strengths

8 %Large corporations

38 %Hidden Champions

Closeness-to-customer

Employees with regular customer

contact

88.7 %

- 60 -

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Closeness to top customers

Grohmann: Global top 30 customers as targets, most important customer is Intel

Top customers as partners and sources of innovation

Follow the top customers everywhere

You can only become and stay world class if you work for the global top customers

- 61 -

Igus is world market leader

in plastic ball bearings and energy chains.

"Never a ‘no’ to a customer

without approval of the boss."

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Exemplary Closeness to Customers

62

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Competitive advantages

63

Competitive Advantages of the Hidden Champions

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Competitive performance

Importance

weaker stronger than the strongest competitor

Product quality

Price

Economy

Closeness-to-customer

Systems solution

Advice

Service

Punctuality

Flexibility

Advertising

Distribution

Cooperation

with suppliers

Made in Germany

Patents

Ease of use

64

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Competitive Parameters with Biggest Increase in Importance

Advice Systems integration Ease of use

10

8 8

Increase in importance in %

65

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Lesson 6

Innovativeness and closeness to customer are the

greatest strengths of the Hidden Champions. Their

strategies are value-oriented, not price-oriented.

The Hidden Champions hold strong competitive

positions. Advice, systems inte-gration and ease of

use are new advantages which create higher

barriers to entry. 66

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Employees and leaders

67

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Employees

"More work than heads"

High performance cultures

High qualification

Low turnover

68

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Vocational Training

German industry Hidden Champions

6%

9%

Percentage of apprentices (Azubis)

69

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Higher Qualification

10 years ago today

9%

19%

Share of university and college graduates

70

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Employee Turnover Rates

Source: Hernstein-Institut/US Department of Labor/INSEE (Frankreich), Wall Street Journal Europe, 4. Juni 2013, S. 15

2.7%

5.3%

7.3%

8.8%

9.0%

11.0%

19.0%

Austria

Switzerland

Daimler

Hidden Champions

Germany

USA

France

19.0%

11.0%

9.0%

8.8%

7.3%

5.3%

2.7%

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Leaders

Identity of person and mission

Leadership

- authoritarian in the principles

- participative, flexible in the details

Leaders come young into power

More women in top positions

Very high continuity of the leaders

- Hidden Champions: 20 years

- Large corporations: 6.1 years

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Personality Traits of Hidden Champion Leaders

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Identity of person and

mission

Unity of person and

purpose

Stamina and perseverance

Single-mindedness

Fearlessness

Inspiring to others

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Lesson 7

The Hidden Champions have "more work than

heads" and high performance cultures. Turnover

and sickness rates are extremely low. They have

strong leaders whose leadership is authoritarian in

the principles but flexible in the details. Continuity

is very high.

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The Lessons in Three Circles

Focus

Strong leadership with ambiti-

ous goals

Closeness to customer

Com

petitiv

e

advanta

ges

Glo

bal

ori

enta

tion

Dep

th

Innovation

High performance employees

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Lessons for Russia and Russian Firms

The whole society must understand the challenges and opportunities of Globalia.

A big country like Russia needs both large corporations and strong mid-sized companies to excel in global competition.

Strong efforts are necessary to educate a generation of globally oriented citizens and entrepreneurs.

Innovation is indispensable for success in Globalia. This applies to companies of all sizes.

Russia must build and retain a strong manufacturing base; relying on raw materials is not enough.

In order to fully exploit their know-how, Russian companies should build their own global networks.

Ultimately, people, especially entrepreneurs, count. Russia has the human resources to excel in Globalia, but it must deploy them more effectively.

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To conclude…

… my personal storyfrom Professor

to Hidden Championship

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Focus: Marketing, sales, pricing

Global presence

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Best consultancy in marketing, sales, pricing

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1 Simon-Kucher & Partners

2 Boston Consulting Group

3 McKinsey & Company

manager magazin

Source: manager magazin survey of top managers in Germany, August 2007 and 2011/IMB

Source: brand eins Thema/Statista survey of 1,426 partners and project leaders from consulting firms and 1,300 C-level managers from German companies, May 2014

Marketing and sales

Simon-Kucher & Partners

Boston Consulting Group

McKinsey & Company«««

Marketing and pricing

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Simon-Kucher & Partners

Boston Consulting Group

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Sales and CRM

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brand eins Thema

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Simon-Kucher is world leader in giving advice to companies on how to price their products.

BusinessWeek

No firm has spearheaded the professionalization of pricing more than Simon-Kucher & Partners.

William Poundstone in Priceless

In pricing you offer something nobody else does.

Professor Peter Drucker

No one knows more about pricing than Simon-Kucher.

Professor Philip Kotler

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Growth1

98

5

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

3 4 5 7 13 18 19 22 27 35 46 56 7190

112130

147165

187220

248283

354

436446466

550

625

694

740Employees

Revenue 2014: €173 million

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Germany,Bonn

Switzerland, Zurich

Italy,Milan

France,Paris

USA,San Francisco

GermanyMunich

China,Beijing

Turkey,Istanbul

Germany,Frankfurt

USA,New York

Germany,Cologne

USA,Boston

England,London

AustriaVienna

USA,Miami

Denmark,Copenhagen

Netherlands, Amsterdam

Spain,Madrid

Japan,Tokyo

Singa-pore

Australia,Sydney

Poland,Warsaw

UAE,Dubai

Chile,Santiago de Chile

Brazil, Sao Paulo

Belgium, Brussels

Luxem-bourg

Canada,Toronto

Spain,Barcelona

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Hidden Champions Worldwide

Spain1997/2010

Hungary2010

Italy2001/2007/201

1

Brazil2003

India2009

Egypt2008

Germany1997/2007/201

2

China1997/2000/2005/200

9

USA1996/2009

Lithuania2009

Netherlands1997/2009

Slovenia2010

Japan1998/2012

Sweden2013

Vietnam2013

Korea1997/2008/2014

Poland1999/2009

Serbia2007

Czech Rep.2010

Russia2005/2014

Turkey1999/2014

France1998/2012

Taiwan1996/2004/201

3

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The New Book in Russian

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Management Thinkers 2014

The most influential management thinkers in the German-speaking countries 2014.

www.managementdenker.de, Internet Survey, n=482

Fredmund Malik

Günter Faltin

Jack Welch

Michael E. Porter

Hermann Simon

Peter F. Drucker

6%

7%

9%

13%

19%

25%

85

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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, he 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-founder 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 has received numerous international awards and holds honorary doctorates from IEDC Business School of Bled (Slovenia), from the University of Siegen (Germany) and from Kozminski University Warsaw (Poland). 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, Dubai, Frankfurt, Istanbul, London, Luxembourg, Madrid, Miami, Milan, Munich, New York, Paris, San Francisco, Santiago de Chile, Sao Paulo, Singapore, Sydney, Tokyo, Toronto, 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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