The German economic model and particularly the Hidden Champions (HC) model for growing businesses is the best choice for countries in the EU according to Arto Lahti, professor of entrepreneurship at Aalto University School of Business. He deals with the topic in his brand new book German Hidden Champions: The EU's best option in global B2B markets!
To this day, Hidden Champions has helped around 1,500 German companies grow since the 1990s by nearly 10% per year, and these companies have become highly profitable world market leaders.
HC companies believe that considerable profits can be gained even from small market segments by investing in small assets, customer service and innovations. HC companies keep customer relations closely under control by favouring sales subsidiary companies. There is a notable market risk and interdependency between the customer and the entrepreneur family, but HC companies have produced global success stories through collaboration and staff commitment.
Diversity above all - exporting game industry is not enough
In Germany, family-owned companies specialise in industries others frown upon and consider as fields of business whose time has passed. If the outlook of a certain industry is not particularly bright, Germans seize the opportunity and are often able to make business flourish in the field. In Finland, too much trust is put in large companies and high tech businesses.
'We should search for diversity, versatility, which could help us become distinctive from others instead of depending on a handful of successful companies. Large companies flee abroad, and we should thus encourage family owned businesses. There is a shortage of engineers in Germany, while we are not able to offer employment to all engineers in Finland', laments Arto Lahti.
Companies must grow in order to succeed
The majority of Finnish companies have less than 10 employees. In order to become globalised, a business should have 500 to 1,000 employees, a number which only a few companies in Finland can reach. Approximately 30 large companies are responsible for 90% of Finnish exports. Indeed, it could be argued that there are ten times too few Finnish international companies.
'The German business sector made the correct marketing strategy choice in the 1990s: as globalisation results in market growth, companies had to grow in order to reach a sufficient scale. There has been a global increase in exports from Germany, as different countries have a constant need for high-quality machinery and equipment as well as system products and components connected to them. In Germany, a company is not sold off once it starts to grow and succeed. In Finland, that is exactly what is done', says Professor Arto Lahti.
German export industry differentiates, innovates and succeeds
The focus of the German export industry is on mechanical engineering and manufacturing of equipment. The price of a machine may be three times as high as that of the least expensive product in the global market. Nevertheless, clients all over the world are willing to pay a high price for German machinery. This is based on the idea that when a machine is used for production, a standstill is going to cost a lot of money. Therefore, a German machine will pay itself back sooner than a cheap, unreliable one. German midsize, i.e. Mittelstand, companies are growing and succeeding through technological innovations and customer service.
'Germany is also a master of a dynamic regional structure. In Germany, young interns get paid according to their work input; starting salaries are low, but the level of wages rises as one gains more experience and develops their competence. Germany makes small towns into global winners where there is something for young people to do. This is also part of the German recipe for success', explains Professor Lahti.
Further information and orders for books:
Professor Arto Lahti
tel. +358 50 376 9428
A statement about the book (13 April 2015):
A few days ago I found your new book “German Hidden Champions: The EU’s best option in global B2B markets!” on my desk. I would like to thank you, especially for the personal dedication.
I am very impressed by the book. In my perception its unique feature is that it integrates all relevant contributions to a better understanding of companies and markets, from Chamberlin to Schumpeter, to Gutenberg etc. You really have a comprehensive understanding of the history of economics and business sciences. With this book you deliver an excellent overview. I think it’s the first time that the Hidden Champions concept has been integrated into this larger context of the flow of theory and practical research.
Prof. Dr. Dr. hc. mult. Hermann Simon
Simon-Kucher & Partners
Strategy & Marketing Consultants