Mumbai, May 11, 2010

Hidden Champions of the 21st Century

Role Models of Strategy and Leadership beyond the Crisis

Prof. Dr. Dr. h.c. Hermann Simon

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

Indo-German Chamber of Commerce/PricewaterhouseCoopers

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Source:CIA World Fact Book

Exports in 2009 (billion US-$, est.)

135

151155159162

181198216

224296299

351

355369

398

457516

9951187

1194

133Sweden

Poland

Thailand

India

Brazil

Australia

Saudi Arabia

Taiwan

Spain

Mexico

Russia

Canada

United Kingdom

South Korea

Italy

Netherland

France

Japan

USA

Germany

China

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Exports 2000-2009 (US-$ billion)

Source: WTO Trade Statistics

1.428

762

438

593

1.220

972

1.194

1.463

1.322

1.109

971

910

752

1.187

1.377

1.037

1.148

904

819

725

994

400

600

800

1.000

1.200

1.400

1.600

2003 2004 2005 2006 2007 2008 2009

in billion US-$

Germany

China

USA

Year

Germany

China

USA

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What Is a Hidden Champion?

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

Revenue below $3 billion

Not well known in general public

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Hidden Champions

Delo

Baader

Brainlab

Lantal

Brita

Tetra

Belfor

Essel Propack

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Hidden Champions Worldwide

Russia2005

Japan

1998

Italy2001/2007

Brazil2003

Spain1997

Turkey1999

France1998

January 26, 2004

India2009

Serbia2007

Egypt2008

Korea1997/2008

China1997/2000/2005/2009

Taiwan1996/2004

USA1996/2009

Germany1997/2007

Netherlands

1997/2009

Poland1999/2009

Lithuania2009

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Key Facts of the Last Ten Years

1 million new jobs

Annual growth of 10% p.a., revenue 2.5 times larger than 10 years ago

More than 100 new €-billionaires

Sharp increase of world market share

Massive wave of innovation

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Why are they successful?

How do they differ from large firms?

What can we learn from them?

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Extremely ambitious goals:

Market Leadership

Growth

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Chemetall

“The goal of Chemetall

is the worldwide

technology and marketing leadership.”

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3B Scientific

“We want to become

and stay no. 1 in the world.”

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Karl Mayer

“We don’t want our world market share

to drop below 70%.”

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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

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GrowthFrom Hidden Champion to Big Champion

SAPFresenius

Wuerth

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

1995 2008

Rev

enu

es

in U

SD

mil

lion

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GrowthMid-sized Hidden Champions

CronimetClaasEnercon

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1995 2008

Rev

enu

es

in U

SD

mil

lion

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GrowthSmall Hidden Champions

BrainlabBartec

Rational

0

100

200

300

400

500

600

1995 2008

Rev

enu

es

in U

SD

mil

lion

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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.

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Focus and Depth

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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.”

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Flexi

“We will do only one thing,

but we do it better than anyone

else.”

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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

Deep

Broad

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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

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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

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Lesson 2

The Hidden Champions see the market definition as

a part of their strategy. In defining their markets

narrowly they observe both customers’ needs and

technology. They define their markets rather deep

than broad and are highly focussed.

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Globalization

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- Specialization in product und know-how -

Global Selling and Marketing

The Hidden Champions Strategy

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Globalization Has Only Just Begun

1900 1950 1980 2000 2008

6 23

437

World exports per capita (US-$)

985

2150

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Globalization: Kaercher

Founding year of subsidiaries

Num

ber of subsidiaries

61 subsidiaries since 1962

World leader in high pressure water cleaners

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Future Attractiveness of Emerging Markets

13%

21%

34%

35%

48%

73%

Brazil

Asia (rest)

Eastern Europe(without Russia)

India

Russia

China

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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

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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.

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Innovation

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R&D Intensity

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

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Patents

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

Patent-intensivelarge corporations 5.8 3,717

Hidden champions 30.6 725

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Driving Forces of Innovation

Large corporations Hidden Champions

market technology market &technology

market technology market &technology

50%

31%

19%

65%

14%

21%

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Innovation: Enercon

Founded in 1984

Revenue: $5 billion

42% of all patents worldwide

Prices:

20% higher than

competition

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Enercon: E-Ship

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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.

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Closeness to Customer

Marketing Professionalism

Value and Price

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Market-related Strengths

36.4%

84.1%

88.7%closeness-to-customer

image

professional marketing

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

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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

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Value and Pricing

Strategies are value-driven, not price-driven

Price premium 10-15%

Avoidance of price wars

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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

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Attributes with Strongest Increase in Importance

Attribute Increase in percentagepoints last ten years

Advice +10

Systems integration +8

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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.

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Employees

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Employees

“More work than heads”

High performance cultures

High qualification

Low turnover

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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.

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Turnover Rates

2.7%

5.3%

7.3%

8.8%

9.0%

15.0%

Austria

Switzerland

Daimler

Hidden champions

Germany

9.0%

8.8%

7.3%

5.3%

2.7%

USA 30.6%

Source: Hernstein-Institute/US Department of Labor

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Lesson 6

The Hidden Champions have “more work than

heads” and high performance cultures. Employee

qualification is top. Turnover and sickness rates

are extremely low.

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Leadership

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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)

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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.

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The Three Circles of the Hidden Champions

Focus

Leader-ship with ambitious

goals

Closeness to customer

Co

mp

etitive ad

vantag

esG

lob

al

ori

enta

tio

n

Dep

th

Innovation

High performance employees

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The Ultimate Lesson

The “Hidden Champions of the 21st Century” go their own ways – more decisively and successfully than ever.

They are true role models of strategy and leadership

beyond the crisis.

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

They do most things differently…

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To conclude….

… a personal

Hidden Champions Story

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Simon - Kucher & Partners

Worldwide Strategy & Marketing Consultants

Focus: Revenue-driven Profit Growth

Core Competency: Pricing

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Best Consultancies in "Marketing & Sales" in Germany

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

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

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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

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

William Poundstone (Priceless, Hill and Wang, 2010)

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Employees and Revenue

3 4 5 7 13 18 19 22 27 35 46 5671

90112

130147

165187

248

283

354

436 446

220

1985 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09

Revenue in 2009: $128 million

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Comparison Boston Consulting vs. Simon-Kucher

Boston Consulting

Group

Simon-Kucher

364

Jahr

1987 (Gründung

1963)

Jahr

2009

372

After 25 years Simon-Kucher is larger than the Boston Consulting group was after 25 years.

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Global Presence

Germany,Bonn

Switzerland,

Zurich

England,London

Italy,Milan

Spain,Madrid

USA,San Francisco

GermanyMunich

Japan,Tokyo

Poland,Warsaw

Germany,Frankfurt

USA,New York

Germany,Cologne

USA,Boston

Luxem-bourg

AustriaVienna

Belgium, Brussels

Russia,Moscow

Denmark,Copenhagen

Netherlands, Amsterdam

France,Paris

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The New Books

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Lessons for India India is very strong in big globally active companies

India’s export performance is still lacking

Biggest internationalization and job creation potential lies in mid-sized firms

India is quite advanced in mental internationalization

Government support is a necessary, not a sufficient condition

Foundation of everything lies in entrepreneurship

Social respect for founders and small companies crucial

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The Most Influential Management Thinkersin German-Speaking Countries 2005-2009

1. Peter F. Drucker † 38.6%

2. Hermann Simon 14.3%

3. Fredmund Malik 13.6%

4. Michael E. Porter 6.7%

Source: www.managementdenker.de, Internet Surveys, n = 2069 2005 –2009

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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 (May 2009) investigates the strategies of little known world and European market leaders in German-speaking countries. His most recent book Beat the Crisis – 33 Quick Solutions for Your Company has just been published in the US. In only six months it has appeared in 13 countries (Germany, USA, China, Korea, Russia, Spain, Italy, Brazil, Bulgaria, Czech Republic, Slovenia and the Netherlands). 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. Simon holds an honorary doctorate from IECD Business School of Bled, Slovenia.

Hermann Simon is chairman 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.