Cologne, November 16, 2010

Hidden Champions of the 21st Century

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

The Success Strategies of Unknown World Market Leaders

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

DEG - The Atrium Dialogues 2010

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Exports in 2009 (billion US-$)

Source: WTO, press release of March 26, 2010

84173175189204218230

270304316330351364370

405475499

5811057

11211202

Hungary

Switzerland

United Arab Emirates

Saudi Arabia

Taiwan

Spain

Mexico

Singapore

Russia

Canada

Hong Kong

United Kingdom

Korea

Belgium

Italy

France

Netherlands

Japan

USA

Germany

China

Per Capita Exports

China

USA

Japan

Germany

France

United Kingdom

Italy

South Korea

Spain

Hungary

Per capita exports 2009 in US-$Country

Source: Calculations based on data from UN Comtrade - 2009 International Trade Statistics Yearbook, New York June 2010;

- 3 -

893

3.358

4.568

13.724

7.469

5.791

6.785

7.484

5.382

8.365

0 2.000 4.000 6.000 8.000 10.000 12.000 14.000 16.000

(0H01X52)

Source: Calculations based on data from UN Comtrade - 2009 International Trade Statistics Yearbook, New York June 2010;

China

USA

Japan

Germany

France

United Kingdom

Italy

South Korea

Spain

Hungary

Deviation from empirical norm 2009 in US-$Country

Per Capita Exports

- 4 -

509

-2.495

-2.282

6.635

274

-1.404

-421

217

-1.927

894

-8.000 -6.000 -4.000 -2.000 0 2.000 4.000 6.000 8.000

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What Is a Hidden Champion?

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� 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

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Hidden Champions Worldwide

Russia2005

Japan1998

Italy2001/2007

Brazil2003

Turkey1999

France1998 January 26, 2004

India2009

Serbia2007

Egypt2008

Korea1997/2008

China1997/2000/2005/2009

Taiwan1996/2004

USA1996/2009

Germany1997/2007

Netherlands1997/2009

Poland1999/2009

Lithuania2009

Slovenia2010

Hungary 2010

Spain1997/2010

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Key Facts of the Last Ten Years

� 1 million new jobs

� Annual growth of 10%, revenue 4 times larger than 1995

� 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

1.6

10 years ago

2.333%30%World

TodayToday10 years ago

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GrowthMid-sized Hidden Champions

CronimetClaasEnercon

0

500

1000

1500

2000

2500

3000

3500

4000

1995 2008

Rev

enue

in €

mill

ion

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GrowthSmall Hidden Champions

Brainlab

Bartec

Rational

0

50

100

150

200

250

300

350

400

1995 2008

Rev

enue

in €

mill

ion

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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 only focus on one thing,

but we do it better than anyone else.”

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Deep Instead of Broad: A Focused StrategyThe Case of Winterhalter

Dishwashers for

Hospitals

Dishwashers for

SchoolsDishwashers

for Hotels/Restaurants

Dishwashers

WaterConditioners

Detergents

Service

Dishwashers for

Companies

Dishwashersfor

Organisations

Deep

Broad

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Lesson 2

Only focus and depth lead to world class. The

Hidden Champions focus on narrow markets and are

deep rather than broad. They tend to do things

themselves and refrain from outsourcing core

competencies.

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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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Accelerating Globalization

6 23

437

985

1600

2353

1900 1950 1980 2000 2005 2008

Exports per capita in US-$

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Globalization: Kaercher

Founding year of subsidiaries

Num

ber of subsidiaries

67 subsidiaries since 1962

World leader in high pressure water cleaners

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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 heavily invest into the

markets of the future.

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Innovation

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R&D Intensity

R&D as % Indexof revenue

Industrial firms with R&D 3.0% 50

Booz (Global Top 1000 in R&D) 3.6% 60

Hidden champions 6.0% 100

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Patents

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

Patent-intensivelarge corporations 6 2.713

Hidden champions 31 529

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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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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 innovations are both market- and

technology-driven.

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Customers and Competition

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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 strongerthan 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 percentage pointslast 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 positions. Advice and systems

integration are new advantages which create

higher barriers to entry.

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Ownership and Financing

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Ownership and Leadership

Ownership/management Ten years Today Changeago (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

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Key Financial Indicators

� Return on Capital Employed (ROCE): 13.6%

� Equity Ratio: 41.9%

� Self-financing dominates

� Capital markets increasingly important

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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%

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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.

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Employees and Leaders

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Employees

� “More work than heads”

� High performance cultures

� High qualification

� Low turnover

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Vocational Training

� Pillar of German competitiveness

� Highly qualified workers

� Combination of practice and theory

� Vocational schools

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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 h as more thandoubled.

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Employee 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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Leaders

� Identity of mission and being

� Leadership

- authoritarian in the principles

- participative, flexible in the details

� CEOs come young into power

� More women in top positions

� Very high continuity (average CEO tenure 20 years, DAX-companies 5.1 years)

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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. Total identification and

continuity of the leaders are the foundations for

long-term success.

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The Three Circles of the Hidden Champions

Focus

Leader-ship with ambitious

goals

Closeness to customer

Com

petitive advantagesG

loba

l or

ient

atio

n

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.

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…

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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 German y

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 consul tancy.”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

220248

283

354

436450

500

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 '10

Revenue in 2010: €103 million

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Comparison Boston Consulting vs. Simon-Kucher

Boston Consulting

Group

Simon-Kucher

364

Year1987

(Founded in 1963)

Year2010

375

After 25 years Simon-Kucher is larger than the Bost on Consulting group was after 25 years (number of professionals).

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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

Austria,Vienna

Belgium, Brussels

Russia,Moscow

Denmark,Copenhagen

Netherlands, Amsterdam

France,Paris

China,Beijing

Singa-pore

Australia,Sydney

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Challenges for Emerging Countries

� Strong export performance requires internationally active mid-sized companies

� International orientation/openness of society

� Entrepreneurial culture

� Strategic lessons for individual companies

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The New Book

www.hermannsimon.com

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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 25 languages, including the worldwide bestsellers Hidden Champions(Boston 1996, cover story of BusinessWeek in January 2004) and Power Pricing (New York 1997), as well as Strategy forCompetition (New Delhi 2003). Manage for Profit, Not for Market Share (Boston 2006) takes a critical look at the widespreadfocus on volume and market share and calls for a conscious shi ft of focus towards profit. His book Hidden Champions ofthe 21st Century, Success Strategies of Unknown World Marke t Leaders (New York 2009) investigates the strategies of littleknown market leaders. His most recent book Beat the Crisis (New York 2010) provides companies with practical adviceagainst the crisis and for a quick recovery.

Simon was and is a member of the editorial boards of numerous b usiness journals, including the International Journal ofResearch in Marketing, Management Science, Recherche et Ap plications en Marketing, Décisions Marketing, EuropeanManagement Journal as well as several German journals. Sinc e 1988 regularly writes columns for the business monthlyManager Magazin. As a board member of numerous foundations an d corporations, Professor Simon has gained substantialexperience 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 admin istration at the universities of Bonn and Cologne. Hereceived his diploma (1973) and his doctorate (1976) from th e University of Bonn. Simon holds an honorary doctorate fromIECD Business School of Bled, Slovenia.

Hermann Simon is chairman of Simon-Kucher & Partners Strate gy & Marketing Consultants withoffices in Amsterdam, Beijing, Bonn, Boston, Brussels, Col ogne, Copenhagen, Frankfurt, London,Luxembourg, Madrid, Milan, Moscow, Munich, New York, Paris , San Francisco, Singapore, Sydney,Tokyo, Vienna, Warsaw and Zurich. Simon is an expert in strat egy, marketing and pricing. He has anextensive global range of clients. In the German language ar ea he was voted the most influentialmanagement thinker after the late Peter Drucker.

Before committing himself entirely to management consulti ng, Simon was a professor of businessadministration and marketing at the Universities of Mainz ( 1989-1995) and Bielefeld (1979-1989). Hewas also a visiting professor at Harvard Business School, St anford, London Business School,INSEAD, Keio University in Tokyo and the Massachusetts Inst itute of Technology. From April 1995 toMay 2009 he was CEO of Simon-Kucher & Partners.