Warsaw, November 17, 2008

Hidden Champions of the 21st CenturySuccess Strategies of Unknown World Market Leaders

Prof. Dr. Hermann SimonWarsaw OfficeWołoska 9, 02-583 WarszawaTel +48 22 330 57 00 Fax +48 22 330 57 01 e-mail: hermann.simon@simon-kucher.comInternet: www.simon-kucher.com

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Who is No. 1 in Exports?

China

USA

Japan

Germany

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Exports in 2007 (Billion US-$)

67110

136138139

257322

379442431

454502

546678

11481220

1354

Hungary

Turkey

Norway

Poland

Australia

Spain

Belgium

Korea

United Kingdom

Canada

Netherlands

Italy

France

Japan

USA

China

Germany

Source: 2008 CIA World Factbook

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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

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Hidden ChampionsDeloBaaderBrainlabLantalCEAGBritaTetraBelfor

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Polish Hidden Champions

Company Main RevenueProduct (PLN million/

year)

FAKRO Roof windows 600

Famur Mining equipment 909

Psiloc Smartphone applications ?

Atlas Adhesive mortars for tiles 560

DGS Closures for glass containers ?

Nowy Styl Chairs 900

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Hidden Champions Worldwide

Russia2005

Japan1998

Germany1997

Italy2001/2007

Brazil2003

Netherlands1997

Taiwan1996

Spain1997

Poland1999

USA1996/2009

Turkey1999

France1998

China1997/ 2000/

2005

Korea1997

India2006

Serbia2007

Egypt2008

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The Book

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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

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Hidden Champions and Crises

30% have survived serious crises

Hidden champions profit from crises

Markets are redistributed in difficult, not in easy times

Punctuated development

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Why are they successful?

How do they differ from large firms?

What can young entrepreneurslearn 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

in profitable niches of specialty chemicals.”

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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

FreseniusSAP

Wuerth

0

2000

4000

6000

8000

10000

12000

14000

16000

1995 2007

Rev

enue

s in

USD

mill

ion

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GrowthMid-sized Hidden Champions

Cronimet

Leoni

Enercon

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1995 2007

Rev

enue

s in

USD

mill

ion

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GrowthSmall Hidden Champions

Bartec

Rational

Brainlab

0

50

100

150

200

250

300

350

400

1995 2007

Rev

enue

s in

USD

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. Young entrepreneurs: Be very

ambitious!

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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 Bogdahn

“We will do only one thing,

but we do it better than anyone else.”

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Deep Instead of Broad: A Focused StrategyThe Case of Winterhalter

Dishwashersfor

Hospitals

Dishwashersfor

Schools

Dishwashersfor Hotels/

Restaurants

Dishwashers

WaterConditioners

Detergents

Service

Dishwashersfor

Companies

Dishwashersfor

Organisations

Broad

Deep

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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 qualitystandards 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

Only focus and depth lead to world class. By

focussing on a narrow customer segment the

Hidden Champions can offer superior value. High

vertical integration and a deep value chain create

unique products customers cannot do without.

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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 2005 2010 2020

6 23437

1543

World export per capita (US-$)

985

2000

3000

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Globlization Multiplies Market Size

100

370

1135

Germany Europe World

Inde

x

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Founding year of subsidiaries

Num

berof subsidiariesGlobalization: Kaercher

High pressure water cleanersA R G 44IN D 43

U KR 42THA 41

S K 40R O 39

R U S 38KOR 37

IR L 36TR 35

D u b a i 34MA L 33

TA IW 32VR C 31

I ( C IP ) 30MEX 29S GP 28

I ( C ET) 27P L 26C S 25H 24

HK 23GR 22

N Z 21U S A ( A KM) 20

J P N 19E 18

C D N 17A U S 16

ZA 15D K 14S F 13N 12

N L 11U S A 10

S 9B 8

U K 7B R A 6

I 5C H 4

A 3F 2

11962 1964 1966 1974 1975 1978 1982 1983 1984 1985 1987 1988 1989 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2002 2003 2004 2005 2006 2008

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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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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.

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Innovation

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R&D as % Indexof revenue

German firms with R&D 3.0% 100

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

Hidden champions 5.9% 169

1/3 of hidden champions > 9% 257

R&D Intensity

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

Patent-intensivelarge corporations 5.8 3,717

Hidden champions 30.6 725

Patents

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Enercon Wind Turbines

Extremely innovative

Founded in 1984

More than 10000 employees, 3 billion € revenue

42% of all patents worldwide

Price 20% higher than competition

Superb service

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Driving Forces of InnovationLarge corporations Hidden Champions

market technology market &technology

market technology market &technology

19

31

50

65

14

21%

%

%

%

%

%

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Innovation Process

Role of top-management

Heads more important than budgets

Cooperation between functions

Co-development with customers

Continuous improvements rather thanbreakthrough innovations

Speed

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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 36.4%

84.1%

88.7%

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 Avantages 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

Cooperationwith 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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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

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Competing with the “Neighbor”Product Competitors Location Remarks

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

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Lesson 5Closeness 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. Entrepreneurial clusters foster the emergence of Hidden Champions.

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Employees

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Employees

“More work than heads”

High performance cultures

High qualification

Early on sharp selection/later on “zero” 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 thandoubled.

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Turnover Rates

2,7%

5,3%

7,3%

8,8%

9,0%

15,0%

Austria

Switzerland

Daimler

Hidden champions

Germany

Source: Hernstein-Institut/US Department of Labor

9.0%

8.8%

7.3%

5.3%

2.7%

USA 30.6%

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Lesson 6

The Hidden Champions have “more work than

heads” and high performance cultures. Early

selection on the job is sharp. Turnover and

sickness rates are extremely low.

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Ownership and Leadership

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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

- therof with other management 18 22 +4

Corporations 21 16 -5

Stock exchange 2 10 +8

Private equity - 8 +8

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Key Financial Indicators

Return on Capital Emplyed (ROCE) 13.6%

Equity Ratio 41.9%

Self-financing dominates

Capital markets increasingly important

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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

Com

petitive advantagesG

loba

l or

ient

atio

n

Dept

h

DecentralizaitonHigh

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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Lessons for PolandThe success of Poland in globalization will depend heavily on mid-sized companiesAdmiration not only for large firms, but also for midsized companies requiredNeeded: Young entrepreneurs with high ambitionsThe technical competencies are there, marketing and globalization must be addedThe role of large corporations: help start-ups, spin-offs etc.Poland is in a good starting position, geostrategically ideal

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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 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

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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

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Employees and RevenueRevenue in 2007: US-$ 120 million

3 4 5 9 16 20 20 24 30 40 51 60 82 99125 134

160205

261311

379

485

235

169

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

11/200

8

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Comparison Boston Consulting vs. Simon-KucherAfter 23 years Simon-Kucher is larger than the Boston Consulting group was after 23 years.

331308

SKP (1985-2007)

BCG (1963-1985)

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Global Presence

Germany,Bonn

Switzerland, Zurich

France,Paris

Italy,Milan

Spain,Madrid

USA,San Francisco

Germany,Munich

Japan,Tokyo

Poland,Warsaw

Germany,Frankfurt

USA,New York

Germany,Cologne

USA,Boston

England,London

Austria,Vienna

Luxem-bourg

Russia,Moscow

Netherlands,Amsterdam

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SKP in Poland

Consumergoods

Media

EnergyFinancial services

Telecommunication

Transporta-tion /logisticsPharmacy

Retail

Others

Industrial goods

Constructionmaterials

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The Most Influential Management Thinkersin German-Speaking Countries 2005-2007

Source: www.managementdenker.de, Internet Surveys, n = 1 195, 2005 – 2007

1. Peter F. Drucker † 31.8%

2.

3.

4.

Hermann Simon

5.

Fredmund Malik

12.2%

10.7%

6.3%Michael E. Porter

5.1%Philip Kotler

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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 will appear in February 2009. It investigates the strategies of little known world and European market leaders in German-speaking countries. In October 2008 his new textbook Preismanagement appeared in German. 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, DécisionsMarketing, 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 of Simon-Kucher & Partners Strategy & Marketing Consultants with offices in Amsterdam, Bonn, Boston, 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.