Hidden Champions – Europe’s hidden contribution to the globalized world

The (Central) European model of hidden champions is one of the most promising alternatives for continued global economic development. Contrary to the authoritarian Asian model of state capitalism it is able to tackle the complexities of our newly globalized world; contrary to the US shareholder value capitalism it is based on value creation in the “real economy.” The hidden champions model can help to dissolve humankind’s most critical problems, to cope with the end of the fossil fuel era, and to tackle all environmental and climate issues.

Has China become the colonial power of the 21st century? Are Chinese politicians and businessmen recklessly exploiting Africa’s natural resources? With all their financial power, do they throw African countries into new dependency? It has become difficult to form a realistic picture of those new developments in the developing world. While the West is heavily criticizing the Chinese ventures in Africa (e.g. in Ghana) it can’t be denied that China has made the greatest contribution to the rise of African countries during the last two decades.

It is the Chinese who built, within a relatively short period of time, in Ethiopia, Ghana, Mozambique, Angola and many other African countries, large-scale infrastructure in the form of roads, railway lines, harbours, airports, government buildings and many other such. And it has been Chinese investments in productions facilities such as furniture, shoe, plastic and other factories, which have tackled another critical development shortage—the build-up of a more sophisticated manufacturing sector. Although these investments might not have fulfilled western operational or quality standards they have been an important basis for Africa’s surge in the last 15 to 20 years.

Economic models during times of transition

Developments like the Chinese engagement in Africa have to be interpreted in the face of changes in the general set-up of our world order:

  1. After the rise of the Western world which started in the 15th century, and the rise of the USA  starting in the late 19th century, we are witnessing the third big power shift in modern times—“the rise of the rest” (Fareed Zakaria) and the emergence of a truly globalized world. For the first time in history worldwide economic development is possible.
  2. Knowledge and the productivity of knowledge have become the most important drivers of development. In the age of knowledge societies there are no more underdeveloped countries, just “under-managed” ones (Peter Drucker).
  3. With the proliferation of communication networks power has shifted from suppliers and manufacturers to buyers and consumers. Buyer markets are the dominant pattern of today’s economy.
  4. Boosting and leveraging the financial economy has created global imbalances and a growing split between the financial and the “real” economy. Since 2007 the Western world has faced severe systemic economic crises. Sluggish economic development in the West contrasts with the boom in the rest of the world.
  5. The fossil fuel era peaked some years ago. The containment of its negative outcomes for the environment and climate has become the main challenge of mankind. New forms of energy supplies and therewith new economic and societal models are developing.

Up to now, the economic success stories of the emerging world have unfolded on the basis of specific economic and political models. China has conquered big shares of world markets with its state-capitalist system. The liberalization and decentralization of unquestionably confined economic activities within an authoritarian political system have successfully led to economic development and an immense growth in wealth. China seems to be particularly successful at embedding archaic rural structures in the globalized economic system. It is also appealing to traditional authoritarian political leadership in other countries because it combines the prospect of developing one’s economy while preserving political power. For instance, the leadership of Ethiopia, which has a population of more than 90 million people, is successfully applying the Chinese model in respect to its economic as well as its political system.

On the other end we have the Anglo-Saxon economic model, particularly in its form of the US-American shareholder value capitalism. The purpose of economic activities is profit maximizing, or maximizing the shareholder value of a company. Millions of people worldwide have gone through MBA courses, which in 99 percent of cases focus on number- and balance sheet-oriented profit thinking. The leveraging of the financial economy, which promised unprecedented personal wealth creation for more and more people all over the world, has additionally fuelled this hype. In addition, the reckless pursuit of money by the nouveau-riche in many emerging economies gets extra legitimization through shareholder value thinking.

It has been these two economic models with their inherent worldviews which together have shaped the success story of emerging countries in the last two decades. State-capitalist actions of local governments together with short-term profit seeking of state-related private actors have driven development in many emerging countries.

Limits of development

Recently, the economic success story has faced social, political, and economical limits. In many emerging countries only a few people have exploited the new opportunities that came along with a globalizing world. A class of new rich and super rich can be seen not only in Russia, China and the entire Arab world, but also in Angola, Mozambique, Ethiopia, Nigeria and many other African countries. From a European point of view we see an unacceptable disparity in income, wealth and individual development opportunities. The “Arab spring” brought an awakening and all of a sudden the upper class in most of the emerging world fears possible uprising and upheaval.

Alongside with these social limits, political limits have been encountered. The new world of social media and other communication networks doesn’t comply with purely authoritarian ruling, albeit legitimized by democratic elections as seen e.g. in Egypt. The balancing of interests requires much more than simply enacting new regulations. Democratic elections and the mere existence of a multi-party system alone don’t guarantee thriving development. The transition from a society based on traditional relationships to a modern state that is integrated into the globalized economic and political system is obviously quite a complicated political process with many obstacles and hindrances.

Add to this the economic limits the world is facing. The fossil fuel era has come to an end, for our globalized world a linear growth involving eating up all the natural resources will not be possible. Any economic recovery is in danger of being stifled by a sudden price hike in fossil energy resources. Technical and social innovations are very much required to overcome this challenge.

But neither the authoritarian state-capitalist system—whether it involves Chinese-style authoritarian modernizers or Arab-style military dictators—nor finance-driven shareholder value capitalism is capable of creating the necessary supportive environment. The former has demonstrated its social and political limits; the later has created too many global imbalances, which have led into our ongoing systemic crises.

Europe’s chance

Up to now, Europe has not contributed substantially to the recent success story of the non-Western world. European companies have not invested heavily in the emerging world, nor has European development aid been a significant driver. But given the new limits in global development, European experiences, worldviews, social, political and economic systems might be part of the solution. It has been Europe’s diversity and variety that have caused so many troubles over the course of time, but which forced Europe to experience and form new political and economic systems.

One facet of the European system, which is already contributing to the world economy, is the economic model of “hidden champions.” Hermann Simon, a German management thinker, coined the term. He recognized the fact that the German speaking part of Europe has an unusually large share of companies that are world market leaders in a specific market niche. More than 1500 companies are among the top three on the world market or they are number one on the European market. They employ more than 5,6 million people and generate an estimated yearly turnover of 900 billion euros, which means they contribute substantially to their national economies. These are what Simon calls hidden champions.

Although the success story for each of those companies is very different, they do have two factors in common:

  1. Customer orientation: Hidden champions pursue a strategy of “social specialization.” They focus on solutions for specific problems of specific customers, worldwide. Therewith they have created new and highly innovative products and services. On the back of creating “Customer Value” hidden champions conquer world market niches and become world market leaders.
  2. System-oriented management of new complexities: Hidden champions work with clear values, goals and strategies. They normally communicate openly to the inside and to the outside world. Often, they base their activities on self-organized units or teams. This allows effective customer feedback, iterative and network-based approaches, and highly sophisticated forms of organization. As a result, hidden champions have a highly motivated and highly qualified workforce with a very low degree of employee illness and low employee turnover, even during the current crisis period.

 

Hidden champions – Europe’s contribution to globalization

The changes in the general setup of our world order has led to an increasing level of interdependencies and networked systems, a new type of communication, and a new increase in the division of labor—in short to a “complexification” (Fredmund Malik) of almost all spheres of live. As a consequence, our newly globalized world requires a qualitatively greater degree of governance for its political, economical and social processes.

An economy built on hidden champions automatically builds on strong self-organization. As “customer value” is the main driver for a company, customer feedback drives innovation and development. And as customer orientation remains in the focus of economic activities, long-term-oriented societal value creation is enabled. This enables the management of a greater degree of complexity. The customer-oriented model of hidden champions leads the way to a qualitatively greater degree of governance in economic processes. The model perfectly corresponds to the general framework of our newly globalized world and can be an important complement to thriving development:

  1. The authoritarian state-capitalist system and the European model of hidden champions are both long-term oriented. But the former showed its weaknesses as soon as a more sophisticated level of (economic) development was reached. Since the model of hidden champions has its entry point at company level, its decentralized structure allows adaption to fast-changing circumstances and therefore to a complexity-oriented governance of economic processes.
  2. Whilst US-American shareholder value capitalism is inclined to create bubbles and ponzi schemes in the financial economy and is based on incentives not necessarily leading to value creation in the real economy, the hidden champions economy focuses on value creation in the real economy.
  3. This means that the hidden champions economic model is much more suited to the creation of an environment for tackling humankind’s most pressing challenges, the preservation of our global public goods as climate and environment.
  4. Customer focus always implies a debate on values. Hence, apart from profit seeking and one-sided monetary orientation a much broader level of action moves into focus. Societal and humanistic values become a much more natural part of any entrepreneurial activities.
  5. As a consequence the international political dialogue will be facilitated and Europe’s position when it comes to bringing in humanistic values will be strengthened.
  6. The elaboration and dissemination of the (Central) European economic model of hidden champions is in Europe’s own interest. Firstly, it promotes European companies, which generally provide products and services on a more sophisticated quality standard. Secondly, it contributes to worldwide superior and environmentally friendly products and services.
  7. Finally, Europe will be able to drop the traditional model of development aid and save financial resources, as the model of hidden champions is a holistic model contributing much more substantially to inclusive and sustainable global development.

Currently, China creates and changes the non-Western world, and the US, as the only real superpower, still dominates many spheres of life and still knows how to pursuit its interests. In contrast Europe, while it advocates humanistic, inclusive, sustainable, and environmentally friendly policies, has very limited impact on the real world through its actions. It is the European customer-oriented model of hidden champions that might change the situation and bring Europe back on stage.

2 Replies to “Hidden Champions – Europe’s hidden contribution to the globalized world”

  1. The model of hidden champions is not a European wide phanomen, it is rather limited to certain regions/countries/or industries, which under specific economic circumstances have developed especially in Germany. Where are the hidden champions in the other big countries such as France, Spain, Italy? – They are not apparent to the extend as in Germany. This may be too much for one country to carry.

    A recent study undermines this: “A mix of poor demography, excessive reliance on exports, low productivity growth and too many low-paid jobs has led the OECD, a rich-country think-tank, to rank Germany joint last, with Luxembourg, in its growth projections for the next 50 years.” (Economist Sep 14th 2013).

    If hidden champions may be the answer for bringing Europe back to relevance depends on economical and business preconditions enabled by political ambitions to boost this development (not only in Germany). This is to be hoped for in times of political incapability for big reforms.

    An additional threat is the high amount of industrial espionage and patent infringement for which the cultural understanding is much lower in other parts of the world and what Europe’s answer will be.

    1. I agree, Hidden Champions can be found principally in the German speaking world. But there are also signs that countries like the Czech Republic, Slovakia or Slovenia have a similar type of companies. So I suggest to speak of a Central-European economic model.

      But this Central-European model could become an European one in case

      – you want to tackle seriously the economic problems in countries like France, Italy, Spain etc. and

      – Europe wants to influence and be part of the dynamics of the ongoing globalization and booming emerging world.

      I do see the problems with poor demography but wouldn’t take “excessive reliance on exports” as problem in itself. Rather it is the consequence of the poor dynamics at home which come from very basic structural problems and which is a different topic. In any case, excessive exports are also a result of the success stories of hidden champions, up to now have very much helped us out of our structural problems at home and are a general sign of success in a more and more globalized world.

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