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HIDDEN CHAMPIONS: THE SECRET OF HOW AUSTRIAN MITTELSTAND DOMINATES WORLD MARKETS

6 June 2014

They produce bakery equipment, mine detectors and high-performance ropes. Companies like König, Schiebel or Teufelberger are all global market leaders in their niches but no-one knows them. They are the "hidden champions" of the Austrian economy and they all supply top quality products at high prices.

The German economics professor Hermann Simon coined the term "hidden champions" back in the nineties to describe these companies. Simon was studying export successes in Germany and was surprised to find so many "Mittelstand" or medium-sized companies that no-one has heard of, but who make a significant contribution to Germany’s balance of trade.

Georg Jungwirth from the University of Applied Sciences Campus 02 in Graz used this idea to examine Austria’s "Hidden Champions ".  According to Jungwirth, Hidden Champions are among the top three companies in the world in their market niches, they are largely unknown to the general public, are headquartered in Austria, and have a turnover of less than €200 million. In Austria, 190 companies fall into this category.

Most hidden champions are owner-managed or family-owned and not subject to the dictates of quarterly figures. "Your strategies and objectives as well as your positioning have a long-term perspective." In addition, the founders and managers in these companies are characterized by great willpower and above average energy. Very often the hidden champions have highly motivated staff who identify strongly with the company. Fluctuation is low. One reason for this is that in medium-sized companies staff have more decision-making freedom than in large organisations.

Most Austrian hidden champions fall into the business-to-business category. They have an average of 405 staff and an annual turnover of 56 million euros. The export rate is 79% percent.


Focus on Innovation
Another plus point for the hidden champions: Compared to other market players, they have a much higher level of value creation, production, and research and development. They avoid outsourcing whenever possible. They trust their own skills and expertise. The Hidden Champions usually have a clear positioning and appear to focus their resources better than the competition." Often they focus on one niche only with the intention of becoming market leader in that space," explains Jungwirth. Life in the niche means they are forced quite quickly to cross the borders of their country and become globally active. These companies are called "born globals".

Another success factor for hidden champions is the constant pursuit of innovation. Despite limited R & D budgets, they are often significantly more productive than large concerns when it comes to registering patents. "The Austrian Hidden Champions have an impressive nine patents per 100 employees," says Jungwirth. Large companies such as Siemens, Bosch, Volkswagen and BASF have a modest 0.6 patents per 100 employees according to Hermann Simon.

Quality, price and international markets
In an interview with the managers and owners of the Hidden Champions, Georg Jungwirth finds more similarities.
Almost all businesses are leaders in terms of quality. More than half of the executives surveyed are convinced to aim for better quality than the competition.
About 80 percent of responding managers describe their products as high tech.

As an immediate consequence of marketing high quality products, the hidden champions also have a high price positioning. “80 percent say they charge higher prices than the competition while only 3% are priced below the competition ," says Jungwirth .

There are similar approaches in sales and marketing strategy. Many Hidden Champions were “born global". 60 percent of companies were involved in exporting right from the start, one third were exporting within a few years and only 6% came late to international business. Five out of six Austrian world leaders have offices abroad, 89 percent sell their products directly, 53 percent use third parties.

Getting from SME to Hidden Champion
1) You should invest strongly in R&D, innovation and top quality products rather than on a low cost base
2) You can follow a high price strategy if your customers are getting good value for money
3) Be a specialist. Enter a niche and dominate it with a clear positioning
4) To avoid liquidity constraints you must have a balanced portfolio i.e. various products at different stages in the product life cycle. Innovation will secure the future of your business.
5) If your domestic market is small like Austria or Ireland, target international markets from the word go. Born global.
6) Have a strong customer focus and listen closely to customer feedback.
7) Communicate professionally with the public. 

This content was taken from various articles in the Austrian press including www.report.at and Die Presse. Many thanks.

Top photo: The iconic glass and steel facade of the Convention Centre Dublin was supplied and installed by Waagner Biro in Vienna.

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