Hidden Champions in the Chinese Century: Ascent and Transformation

Hidden Champions, little-known global market leaders, are extremely important for the export performance of countries. They are a little-used source of management knowledge. No country has more Hidden Champions than Germany. After a phase of hyper globalization the Hidden Champions are facing new challenges, especially from rising Chinese competitors. They have to increase their R&D activities once again and include unfamiliar areas of knowledge in the process. They need to relocate their centers of excellence to the best place, which is often China. New drivers such as digitalization, business ecosystems and sustainability require them to adapt and open up their traditionally closed corporate cultures. This applies equally to cooperation partners and foreign environments.


Introduction
Hidden Champions are companies that are among the top three in their market worldwide, have revenue of less than 5 billion euros and are little known to the general public. Germany has more of these unknown world market leaders than any other country. On a per-capita basis, Austria and Switzerland have a roughly equal density of around 19 Hidden Champions per million inhabitants.
Hidden Champions are the reason why among the large countries Germany has by far the highest per-capita exports. Because of their low profile, they are rarely used as a source of management wisdom. This is unfortunate because these companies are extremely successful and do not follow short-term fashions in their strategies. In recent years, Chinese Hidden Champions are increasingly www.scholink.org/ojs/index.php/ibes International Business & Economics Studies Vol. 4, No. 1, 2022 2 Published by SCHOLINK INC.
appearing on the global stage and are likely to become the fiercest challengers to the German champions.

Ascent
I coined the term Hidden Champion in 1990. In 1995, the 457 German Hidden Champions I identified at the time generated average sales of 95 million euros. Today, the 1,573 German Hidden Champions currently recorded report an average revenue of 467 million euros. The main driver of their growth has been globalization. The second source of their growth is innovation.
The Hidden Champion concept has attracted worldwide attention. On the Internet more than 500,000 entries appear when "Hidden Champions" is called up. and Asia. Behind these moves is the expectation that it will become more difficult to trade between these regions in the future, both for political and environmental reasons.

The New Game in Globalization
What are the effects of these new rules of the game for Germany and German Hidden Champions?
Spontaneously, one might fear that negative effects will dominate. However, I do not see this happening. Reciprocal to German direct investments in China and other countries, not least the USA, I expect a strong inflow of direct investments into Germany. In a meeting with more than one hundred Chinese automotive suppliers, they all said that they want to manufacture in Germany and intend to build new factories or acquire German suppliers for this purpose. According to their reasoning this is the only way to do business with German automakers worldwide. Almost 60 percent of German Hidden to the traditional location in favor of a consistent openness to the world.
For the global strategy, the regional focus will become even more important than in the past. If we look ten years ahead to 2030, the "first global league" will consist of the USA, China, and the European Union. These three regions account for around 60 percent of the global gross domestic product. All other regions and countries will lag far behind. This is not because their growth rates are too low, but because of their modest starting levels, particularly in India and Africa. The African population will double by 2050. By 2030, however, Africa's share of the global GDP will only have increased from 3 to 3.3 percent. In absolute terms the inequality between the regions is increasing. Since the Hidden Champions are primarily active in high-tech markets, they will focus on the top global league. This is not necessarily politically desirable, but it is the reality.

The New Driving Forces
If we now move from the macro level to the "operational engine room," we encounter four decisive new driving forces:

Business ecosystems
 Sustainability

Innovation
Innovation has always been the second most important driver of growth for Hidden Champions after globalization. In this respect, this driving force is not fundamentally new. However, it is becoming even more important, i.e. its weight is increasing compared to globalization. One reason for this is that many

Digitalization
In digitalization, it is important to distinguish between consumer and industrial markets. The consumer markets are an American and Chinese game in which German and European companies play no role. In my opinion this will not change. In contrast, many Hidden Champions are leading the way in industrial digitalization. Teamviewer, the world market leader in remote screen control, is installed on more than 2.5 billion devices. The LSTM (for Long Short Term Memory) software, which goes back to Professor Jürgen Schmidhuber of the Technical University of Munich, is behind Apple's Siri, Amazon's Alexa, and many similar artificial intelligence systems. LSTM is used on more than 3 billion smart phones. As proven in numerous tests, Cologne-based Deepl offers the best translation program in the world.
Celonis is number one in so-called process mining and is valued at $11 billion. Further examples are RIB Software in construction software, Leanix in cloud governance, Control Expert in automatic processing of accident claims, and Riskmethods in early warning systems for global supply chains.
Apple has the incredible number of 767 suppliers in Germany, and Tim Cook, CEO of Apple, said: "Germany plays in the very top group. The air is pretty thin up there. The culture of precision is just found here." But all these Apple suppliers operate below the surface visible to consumers; they remain "hidden." Is it a problem that German Hidden Champions are not represented in the major digital consumer markets? The answer is mixed. In principle, it is not a problem as long as these companies remain leaders in their industrial markets. The same is true of Germany's position in traditional markets.
Germany doesn't have world-leading consumer goods companies like Coca-Cola, Procter & Gamble or consumer service providers like McDonald's, Starbucks or Marriott. But Germany is very strong in industrial markets. One problem, however, arises from the fact that historically unprecedented profits and market capitalizations are being achieved in digital consumer markets. They result from a unique constellation of the three profit drivers sales, cost, and price. Sales go to billions of customers, marginal costs are zero or close to zero, and prices are high due to monopoly-like market positions. The danger that the financial power resulting from such constellations will spill over into industrial markets cannot be ruled out. If they wanted to, Microsoft, Google, Facebook or Alibaba could buy German Hidden Champions with "petty cash."

Business Ecosystems
In a business ecosystem, companies share their capabilities. They can do so cooperatively, competitively, or in a mix of both in order to bring new products to market, better meet customer needs, and ultimately drive further innovation. I use the lithography ecosystem for the semiconductor industry as an illustrative example. With the advance of Extreme Ultraviolet Lithography (EUV), which enables further miniaturization of integrated circuits and microchips, complexity has increased to the extreme. components. Zeiss contributes the optics, which are not less complex. Both supply relationships in this ecosystem are exclusive. We are dealing with an interwoven ecosystem in which three independent companies enter a very close cooperation and are thus able to offer a product that none of the three would be able to produce on their own. In complex technologies, the competition of the future will increasingly take place between such ecosystems and less between individual companies.

Conclusion
The German Hidden Champions have experienced an impressive ascent. Today, they are five times larger than they were 25 years ago. The main drivers of growth were globalization and innovation. But the rules of the game are changing. Hyperglobalization is giving way to relative deglobalization.
Exports of goods are increasingly being replaced by direct investments. The international exchange of goods is undergoing dematerialization. The need to carry out each activity at the best location requires Hidden Champions to change their culture and even set up regional headquarters with fully integrated value chains.
At the operational level, innovation is becoming even more important, as many industries are facing radical transformation and an innovation tsunami is rolling in from China. In digitalization, a focus on industrial markets appears to be the most promising path for the Hidden Champions. As markets become more complex, competition will increasingly take place between business ecosystems and less between individual companies. It will therefore be important for the Hidden Champions to integrate themselves into highly competent ecosystems. This requires a change in culture, as many of these companies have traditionally been rather closed-minded lone wolves. Sustainability brings great opportunities for the Hidden Champions. This is because the solutions often lie in specialized technologies. Europe and Germany have a competitive edge in this area. With the exception of "sunset industries," such as combustion technology, the future prospects of Germany's Hidden Champions are positive. However, to take advantage of the opportunities that present themselves, they will have to adapt their cultures and become "global citizens" to an even greater extent than before.