Changsha, October 10, 2009

Hidden Champions of the 21st Century Strategy and Leadership Beyond the Crisis

Prof. Dr. Hermann Simon

Bonn OfficeHaydnstrasse 36, D-53115 Bonn, GermanyTel. ++49/228/9843-115, Fax ++49/228/9843-380e-mail: hermann.simon@simon-kucher.comInternet: www.simon-kucher.com

9H01X043- 2 -

Who is No. 1 in Exports?

China

USA

Japan

Germany

9H01X043- 3 -

Exports in 2008 (Billion US-$)

Source: 2009 CIA World Factbook

293

373

458

462

469

538

566

630

777

1377

1429

1463

Spain

Belgium

Korea

Canada

United Kingdom

Netherlands

Italy

France

Japan

USA

China

Germany

9H01X043- 4 -

Exports 2000-2008 (US-$ billion)

1.428

762

438

593

1.220

972

1.463

1.322

1.109

971

910

752

1.377

1.037

1.148

904

819

725

400

600

800

1.000

1.200

1.400

1.600

2003 2004 2005 2006 2007 2008

Source: WTO Trade Statistics

in billion US-$

Germany

China

USA

Year

9H01X043- 5 -

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

9H01X043- 6 -

Hidden Champions

Delo

Baader

Brainlab

Lantal

Brita

Tetra

Belfor

9H01X043- 7 -

Hidden Champions from China China International Marine Containers: 46% of global market for standard containers

BYD Battery: 72% of global market for mobile phone batteries

Shanghai Zhenhua Port Machinery: 35% of global market for harbor cranes

Galanz: Microwave ovens

Tender: Electric switches

St. Allen: Nail clippers

9H01X043- 8 -

China: World Market Shares

9H01X043- 9 -

Hidden Champions Worldwide

Russia2005

Japan

1998

Germany1997

Italy2001/2007

Brazil2003

Netherlands

1997

Spain1997

Poland1999

Turkey1999

France1998

January 26, 2004

India2006

Serbia2007

Egypt2008

Korea1997/2008

China1997/2000/2005/2009

Taiwan1996/2004

USA1996/2009

9H01X043- 10 -

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

9H01X043- 11 -

Hidden Champions and Crises

30% have survived serious crises

Hidden champions profit from crises

Markets are redistributed in difficult, not in easy times

Solid financing is crucial

9H01X043- 12 -

Why are they successful?

How do they differ from large firms?

What can we learn from them?

9H01X043- 13 -

Extremely ambitious goals:

Market Leadership

Growth

9H01X043- 14 -

Chemetall

“The goal of Chemetall

is the worldwide

technology and marketing leadership.”

9H01X043- 15 -

3B Scientific

“We want to become

and stay no. 1 in the world.”

9H01X043- 16 -

Karl Mayer

“We don’t want our world market share

to drop below 70%.”

9H01X043- 17 -

Market Share of Hidden Champions

Relative market share

Absolute market share

1.56

10 years ago

2.3433.0%30.2%World

TodayToday10 years ago

9H01X043- 18 -

GrowthFrom Hidden Champion to Big Champion

Fresenius

SAP

Wuerth

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

1995 2008

Rev

enu

es in

US

D m

illio

n

9H01X043- 19 -

GrowthMid-sized Hidden Champions

CronimetClaasEnercon

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1995 2008

Rev

enu

es in

US

D m

illio

n

9H01X043- 20 -

GrowthSmall Hidden Champions

Rational

Brainlab

Bartec

0

100

200

300

400

500

600

1995 2008

Rev

enu

es in

US

D m

illio

n

9H01X043- 21 -

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.

9H01X043- 22 -

Focus and Depth

9H01X043- 23 -

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.”

9H01X043- 24 -

Flexi

“We will do only one thing,

but we do it better than anyone else.”

9H01X043- 25 -

Deep Instead of Broad: A Focused Strategy

The Case of Winterhalter

Dishwashers for

Hospitals

Dishwashers for

Schools

Dishwashers for Hotels/

Restaurants

Dishwashers

WaterConditioners

Detergents

Service

Dishwashers for

Companies

Dishwashersfor

Organisations

Broad

Deep

9H01X043- 26 -

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

9H01X043- 27 -

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

9H01X043- 28 -

Lesson 2

Only focus and concentration lead to world class.

The Hidden Champions see the market definition as

part of their strategy. They are highly focussed and

deep rather than broad.

9H01X043- 29 -

Globalization

9H01X043- 30 -

- Specialization in product und know-how -

Global Selling and Marketing

The Hidden Champions Strategy

9H01X043- 31 -

Globalization Has Only Just Begun

1900 1950 1980 2000 2007

6 23

437

World exports per capita (US-$)

985

2150

9H01X043- 32 -

Globlization Multiplies Market Size

100

370

1135

Germany Europe World

Ind

ex

9H01X043- 33 -

Founding year of subsidiaries

Num

ber of subsidiaries

Globalization: KaercherWorld leader in high pressure water cleaners

61 subsidiaries since 1962

9H01X043- 34 -

Future Attractiveness of Emerging Markets

13%

21%

34%

35%

48%

73%

Brazil

Asia (rest)

Eastern Europe(without Russia)

India

Russia

China

9H01X043- 35 -

From Transatlantica to Eurasia

Region Revenue share Revenue share Change10 years ago (%) today (in %) (%)

Western Europe 61.9 50.6 -18.3

USA 14.9 17.5 +17.4

Asia 10.1 16.9 +67.3

Eastern Europe 3.6 8.1 +125.0

Rest 9.5 6.9 -27.4

9H01X043- 36 -

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. They are in a process of trans-

forming from Transatlantic to Eurasian companies.

9H01X043- 37 -

Innovation

9H01X043- 38 -

R&D as % Indexof revenue

Industrial firms with R&D 3.0% 100

Booz (Global Top 1000 in R&D) 4.2% 120

Hidden champions 6.0% 200

R&D intensity

9H01X043- 39 -

Patents per Cost per patent1,000 employees in 1,000 $

Patent-intensivelarge corporations 5.8 3,717

Hidden champions 30.6 725

Patents

9H01X043- 40 -

Enercon Wind Turbines

Extremely innovative

Founded in 1984

More than 11000 employees, $4 billion revenue

42% of all patents worldwide

Price 20% higher than competition

Superb service

9H01X043- 41 -

Driving Forces of InnovationLarge corporations Hidden Champions

market technology market &technology

market technology market &technology

19

31

50

65

14

21%

%

%

%

%

%

9H01X043- 42 -

Innovation Process

Role of top-management

Brains more important than budgets

Cooperation between functions

Co-development with customers

Continuous improvements rather than breakthrough innovations

Speed

9H01X043- 43 -

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.

9H01X043- 44 -

Closeness to Customer

Marketing Professionalism

Value and Price

9H01X043- 45 -

Market-related Strengths

36,4%

84,1%

88,7%closeness-to-customer

image

professional marketing 36.4%

84.1%

88.7%

Five times as many employees (25-50%) have regular customer contacts compared to large companies (5-10%).

9H01X043- 46 -

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

9H01X043- 47 -

Value and Pricing

Strategies are value-driven, not price-driven

Price premium 10-15%

Avoidance of price wars

9H01X043- 48 -

End of 2005 Porsche introduced the all

new coupé Cayman S

The Cayman S is technologically based on

the roadster Boxster S

Price position Cayman S?

Porsche Cayman (1)

9H01X043- 49 -

Porsche Cayman (2): Convertible more expensive

3.2%38 400 €37 200 €Chrysler Crossfire

4.2%43 150 €41 400 €BMW 330Ci

7.0%42 700 €39 900 €Audi TT

7.3%39 050 €36 400 €Nissan 350Z

12.3%61 850 €55 100 €MB CLK 500

12.9%69 800 €61 800 €BMW 630i

13.8%86 949 €76 410 €Porsche 911 Carrera

ConvertibleConvertibleCoupé

DifferencePrices in the German market (incl. VAT)

9H01X043- 50 -

Porsche Cayman

Price recommendation SKPPrice recommendation SKP Success factors:Success factors:

Think out of the box!

Innovation and

creativity

Know and quantify

the value drivers!

Precondition: Differentiation from Boxster S More power: + 15 hp Different product name Specific positioning

76 741 €

52 265 €

58 500 €

911

Boxster SCayman S

9H01X043- 51 -

Value Pricing Miele

Ca. 20% above the Market

Global brand and presence

Motto “Always better”

“Our products are made to last 20 years.”

9H01X043- 52 -

150

100

050 100 150

Performance (Index)

Pri

ce-C

ost

(In

dex

)

120

120

150

100

050 100 150

Performance (Index)

Pri

ce-C

ost

(In

dex

)120

120

Past Future

75

Premium Old

Standard Old

Premium New

Standard New

Widening the Competitive Scope

9H01X043- 53 -

5,1%

3,8%

Pricing Process Industrial Suppliers

Hidden championsHidden champions Less successful suppliers

Less successful suppliers

Price cut demanded by

automotive manufacturers

Actual price cut achieved

Source: Simon-Kucher & Partners project, 56 large suppliers

4,7%

1,4%

Hidden champions preserve 2.4 percentage points more!!

9H01X043- 54 -

Communication

“We never talk about price.”

“We set the standards – and the price. The others follow.”

“Of course we cannot avoid prices wars. But we communicate value, value, value – then price.”

9H01X043- 55 -

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

9H01X043- 56 -

Attributes with Strongest Increase in Importance

Attribute Increase in percentage pointslast ten years

Advice +10

Systems integration +8

9H01X043- 57 -

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

9H01X043- 58 -

Competing with the “Neighbor”Product Competitors Place Country RemarksShopping carts Wanzl Leipheim Germany Global No. 1

Siegel Jettingen Strong competitorOrthopedic implants Zimmer Warsaw Indiana, USA Globale No. 1

DePuy Warsaw All three are leadersBiomet Warsaw

Private Planes Cessna Wichita Kansas, USA Cessna global No. 1Hawker Beechcraft Wichita others leadingLearjet Wichita

Sparkling wine Freixenet Sant Sadurni d'Anoia Spain Global No. 1Codorniu Sant Sadurni d'Anoia Global No. 2

Strong competitionEyewear Luxottica Agordo Italy Global No. 1

Safilo Padua Global No. 2Very similar strategies

Assembly products Würth Künzelsau Germany Global No. 1Berner Künzelsau Global No. 2

Aromas/perfumes Givaudan Vervier Switzerland Global No. 1Firmenich Geneva Global No. 2/3

Interface technology Phoenix Contact All in the region of Germany Global No. 1, all threeHarting East Westphalia global leadersWeidmüller

Golf equipment Callaway Carlsbad California, USA Both fight for globalTaylorMade Carlsbad market leadership

Wind energy Vestas Randers Denmark Global No. 1Enercon Aurich Northern Global No. 3, techological

Germany leader

9H01X043- 59 -

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.

9H01X043- 60 -

Ownership and Financing

9H01X043- 61 -

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

- thereof with non-family management 18 22 +4

Corporations 21 16 -5

Publicly listed 2 10 +8

Private equity - 8 +8

9H01X043- 62 -

Key Financial Indicators

Return on Capital Emplyed (ROCE) 13.6%

Equity Ratio 41.9%

Self-financing dominates

Capital markets increasingly important

9H01X043- 63 -

Financing of the Hidden Champions

Past Future

Self-financing 78.6% 77.8%

Traditional bank loans 61.6% 44.0%

Private equity 15.3% 9.7%

Capital markets 12.8% 29.6%

9H01X043- 64 -

Lesson 6

The financing of the Hidden Champions is very

solid. The ownership is long-term oriented and

capital markets do not play a big role. Rather, the

Hidden Champions rely on self-financing. They are

conservative in financial matters.

9H01X043- 65 -

Employees

9H01X043- 66 -

Employees

“More work than heads”

High performance cultures

High qualification

Low turnover

9H01X043- 67 -

Vocational Training

Pillar of German competitiveness

Highly qualified workers

Combination of practice and theory

Vocational schools

9H01X043- 68 -

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.

9H01X043- 69 -

Turnover Rates

2,7%

5,3%

7,3%

8,8%

9,0%

15,0%

Austria

Switzerland

Daimler

Hidden champions

Germany

Source: Hernstein-Institute/US Department of Labor

9.0%

8.8%

7.3%

5.3%

2.7%

USA 30.6%

9H01X043- 70 -

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.

9H01X043- 71 -

Leadership

9H01X043- 72 -

How Important is Leadership?

45%

28% 27%

Entrepreneurship/ strength of leadership

Professional, market-oriented

management

Qualified, loyal employees

9H01X043- 73 -

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)

9H01X043- 74 -

Lesson 8

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.

9H01X043- 75 -

Lessons for China

The success of China 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 global ambitions

Active role of large corporations: help start-ups, spin-offs etc

9H01X043- 76 -

The Three Circles of the Hidden Champions

Focus

Leader-ship with ambitious

goals

Closeness to customer

Co

mp

etitive ad

vantag

es

Glo

bal

o

rien

tati

on

Dep

th

DecentralizaitonHigh

performance employees

9H01X043- 77 -

The Ultimate Lesson

The “Hidden Champions of the 21st Century”

go their own ways

– more decisively and successfully than ever.

Maybe this is the most important lesson…

from the teachings of management gurus, from modern management fads, from large corporations

They do most things differently…

9H01X043- 78 -

To conclude….

… a personal

Hidden Champions Story

9H01X043- 79 -

Simon - Kucher & Partners

Worldwide Strategy & Marketing Consultants

Focus: Revenue-driven Profit Growth

Core Competency: Pricing

9H01X043- 80 -

Best Consultancies in "Marketing & Sales" in Germany Germany’s most prestigious business magazine ranks Simon-Kucher as the leading consultant in "Marketing & Sales", ahead of Boston and McKinsey.

Competence Ranking "Marketing & Sales"Competence Ranking "Marketing & Sales"

manager-magazin 08/2007

Roland Berger5

Bain & Company4

McKinsey & Company3

Boston Consulting Group2

Simon-Kucher & Partners1

Score*ConsultancyRank

* Maximum 500; Source: manager-magazin August 2007/IMB (Institute for Management & Consulting); Survey of 264 Top Managers

370

346

344

338

401

9H01X043- 81 -

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

9H01X043- 82 -

Employees and RevenueRevenue in 2008: US-$ 140 million

3 4 5 9 16 20 20 24 30 40 51 6082

99125 134

160 169

205

261

305

403

486

235

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

9H01X043- 83 -

Simon-Kucher after 24 years: larger than BCGNumber of Consultants after 24 years

331

398

Year

1986 (Founding

1963)

Year

2008

Boston Consulting

Group

Simon-Kucher

9H01X043- 84 -

Global Presence

Germany,Bonn

Switzerland,

Zurich

France,Paris

Italy,Milan

Spain,Madrid

USA,San Francisco

GermanyMunich

Japan,Tokyo

Poland,Warsaw

Germany,Frankfurt

USA,New York

GermanyCologne

USA,Boston

England,London

AustriaVienna

Luxem-bourg

Russia,Moscow

Netherlands,Amsterdam

Brussels,Belgium

China,Hong Kong

(2010)

9H01X043- 85 -

The New Books

9H01X043- 86 -

The Most Influential Management Thinkersin German-Speaking Countries 2005-2008

1. Peter F. Drucker † 37.2%

2. Hermann Simon 14.6%

3. Fredmund Malik 13.1%

4. Michael E. Porter 6.8%

5. Philip Kotler 4.9%

Source: www.managementdenker.de, Internet Surveys, n = 1782, 2005 –2008

9H01X043- 87 -

Hermann Simon

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 May 2009. It investigates the strategies of little known world and European market leaders in German-speaking countries. This summer his most recent book Beat the Crisis – 33 Quick Solutions for Your Company will be published in the US. Numerous international adaptations are underway (China, Korea, Italy, Brazil, Russia, Spain).

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.

Hermann Simon is chairman emeritus of Simon-Kucher & Partners Strategy & Marketing Consultants with offices in Amsterdam, Bonn, Boston, Brussels, 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. From April 1995 to May 2009 he was chairman and CEO of Simon-Kucher & Partners.