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Dear TWIG Readers,
Amid all the bleak economic news from Europe, there are some positive stories to tell. Germany is still home to many major companies and globally recognized brands, but one of the key secrets to its economic success comes from Hidden Champions - relatively unknown companies that are nevertheless major players in niche markets they have come to dominate on a global scale.
These largely family-owned businesses are also great places to work, according to experts who have analyzed what makes Hidden Champions tick.
As defined by German business leader, author, and economics professor Hermann Simon, Hidden Champions are companies characterized by certain criteria: They sell particular products in small niche markets, but their market share puts them in the "Top Three" among global companies in these markets; they earn an annual revenue below $4 billion; and they face a low level of public awareness for their success.
These companies that fall, at least partially, into the category of small- and medium-sized enterprises, or SME's, are also part of Germany's thriving "Mittelstand" - the SME-sized, mostly family-owned businesses that form the backbone of the German economy and explain its ongoing status as one of the world's leading exporters despite its comparatively small geographic size.
In 2010, these companies (SME's, or KMU, in German) accounted for a whopping total of 99.7 percent of businesses in Germany, according to the Bonn-based Institut für Mittelstandforschung (IfM). And they moreover accounted for 39.1 percent of all turnover in Germany and employed 60.8 percent of all employees registered in the private sector. (The latter two figures have remained more or less constant, ie within this range, from 2004 to 2009, according to statistics posted on the IfM website.)
And in 2005, according to the IfM, 95.1 percent of all German companies were family-owned businesses responsible for 45.1 percent of all turnover and employing 57.3 percent of all private sector employees.
The "Mittelstand" - which is also prevalent and thriving in Austria and Switzerland - is widely credited with Germany's economic expansion in the first half of the 20th century. It played a key role as a driving force in the "Wirtschaftswunder" (economic miracle) years of postwar reconstruction from the 1950s to 1970s.
While many of the niche products manufactured by "Mittelstand" companies that can also be defined as Hidden Champions may seem mundane at first - metals, steel coatings, solar cells, theater curtains, film equipment, dental materials, mechanical parts - they fulfill important functions in international niche markets on a global scale.
The upshot: Investing in quality, innovation and stable work environments for well-trained, loyal, and competent employees is well worth it. (Beyond the hallowed halls of traditional academia, vocational training is highly specialized in Germany, producing well-qualified skilled workers who take pride in precise, high-end craftsmanship.)
It would seem that Germany's homegrown "Mittelstand," and many "Hidden Champions," have found their own right recipe for weathering economic storms in today's volatile global economy.
Although many other countries also are home to successful Hidden Champions, Simon in particular has pointed out that there seems to be an unusually high concentration of them in Germany. Behind the scenes, and dwarfed in size and brand name recognition by the nation's more high profile mega enterprises, they keep Germany's economic motor humming.
Karen Carstens
Editor, The Week in Germany
Webteam Germany.info
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