Ms Sona Barot sent this article to me which is written by Hermann Simon. Even if you discount the bias of the author himself being a German, the vista and scope is fascinating because he has analyzed the macro factors at the national level and not micro factors at the firm level. And he is not focusing only on finance and economics but on the history, social factors and political factors too.
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Hermann combines scientific knowledge and practical necessities. He is chairman of the consulting firm Simon Kucher & Partners. The article is an excerpt from his new book "Hidden Champions - IMAX Globalia" (Campus Verlag).
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In no country in the world are more “world market leaders” located than in Germany. Consultants and researchers are looking for the German secret of success. If you look closely you will find several. It was in 1986 that my Harvard professorTed Levitt, who popularised the termglobalization asked why the German economy is always ahead in exports. In the 25 years since then, little has changed. Ten times in this period we have beenworld champions in exports. In 2011, there was yet another record. Exports and not domestic demand is the reason for our prosperity and low unemployment. Never before has the interest in the "Germanmodel" as large as is today. So what are the roots of our competitive strength?
Two answers stand out. First, there is no single, all-explaining cause. And second, it is not because of large companies. The United States has four times and Japan twice as many Fortune Global 500 companies as Germany, even France has more than us. The main reason for the ongoing German export success is the strength of our mid-tier or the best of the mid-tier enterprises, the so-called "hidden champions". For 25 years I have been collecting the names of these little-known mid-tier leaders. My list includes Global 2734 companies, of which 1307 claim to be German. The hidden champions are responsible for about a quarter of its exports. They are a unique phenomenon in the world. Germany has 16 hidden champions per million, in France it is 1.1, 1.7 in the United States 1.2, in Japan. Only Austria and Switzerland come close with 14. Why are there so many hidden champions amongst us? In trying to answer this question, we find a bunch of factors that go back partly rooted in history and ultimately explain the German export strength.
History of Small States : Unlike, for example, France, Germany was by the end of the 19th Century, not a nation-state, but a collection of small states. Any enterprise that wanted to grow had to go transnational. The push for transnational growth is in the blood of German entrepreneurs and continues to this day. They start exporting much earlier and at a smaller enterprise size compared to their foreign counterparts. This is the breeding ground, of hidden champions and their success in exports.
Traditional skills : In many German regions there are centuries-old skills that cast their light down to the present. For example, Black Forest has always produced watches that required high precision mechanical skills. Now, watch making is considered "the key machine of the modern industrial age". (Lewis Mumford). Today in the Black Forest area of Tuttlingen there are more than 400 medical device companies that have emerged from this fine mechanical tradition, some even directly from watchmakers. Or take Göttingen. Why do we find there 39 Manufacturer of measuring devices, many of whom are world leaders? The explanation is that the mathematics department of the University of Göttingen was a leader for centuries. Some will go back to principles that Carl Friedrich Gauss discovered. The former Siemens executive Edward Krubasik says: "Germany uses the technology base that goes back to the Middle Ages to succeed in the 21st Century.” So, even the mathematician Carl Friedrich Gauss had a role to play in German success
Outstanding innovation: For sake of simplicity, take as an indicator, the patents granted by the European Patent Office. Germany has per capita more than twice as many patents as France, four times as many as Italy, five times as many as the UK and 18 times as many as Spain - from Portugal (56 times as many), and Greece (110-times as many) others are not worth mentioning. Only Switzerland and Sweden are ahead in the per-capita patent numbers. Our innovation in the European context is outstanding and is impressive on a global scale.
Strong manufacturing base : Unlike, for example, Great Britain and the United States, Germany has maintained its production base. While this was until recently seen as backward, we are now admired for it. The correlation between production base and current account balance at 79 percent is extremely high. Germany may well be old-fashioned in that sense, but is successful in exports for only this reason.
Labour costs : German exports have benefited massively in the last decade from the favourable growth of unit labour costs. These rose only moderately from 2002 to 2010 with
the exception of the crisis year 2008/9 in which they even fell. In the Euro Zone they
rose 22 percent and in France 26 percent. The increase in Germany was, however, only 6 percent.
Strong competition : Michael Porter has pointed out the close correlation between strong internal competition and lasting international competitiveness. A third of the hidden champions see their chief competitors in Germany, often in regional proximity. The
tough internal competition is key to export and competitiveness of Germancompanies.
Made in Germany: In 1887 the British held "Made in Germany" to be a sign of poor quality. Now it is just the opposite has become a mark of first class quality. There is no doubt
about the significant contribution of "Made in Germany" and the underlying quality to the ongoing success of German exports.
Industrial Cluster : These include traditional clusters such as for cutlery in Solingen, bearing in Schweinfurt, locking technology in Velbert or pencils in Nuremberg. Others, like the fans cluster in Hohenlohe, the interface cluster in East Westphalia, the Isoliergefäße cluster in Wertheim or the wind energy cluster in northern Germany are of recent origin. Such clusters gather the highest competence in a world region, and promote peak performance.
Enterpreneural clusters : In addition to the sector-specific industrial clusters, we find a different kind of concentration, which I call entrepreneurial clusters. There are frequently in close proximity to several hidden champions, who are not active in the same industry, so
not industry cluster members. Windhagen in Westerwald has only 4260 residents but three medium-sized world market leaders: Wirtgen road surfacing, JK at professional
sun tanning, Geutebrück in surveillance systems. The same can be observed across
the country in Neutraubling in Lower Bavaria, in Künzelsau Haiger in Hesse, in Oberkochen Ostalb or in Verden on the Aller, to name just a few places with hidden champions clusters. What's goingon? The explanation lies in a social contagion process. Unlike the industrial
cluster is not what unites the industry, but the social network that provides inspiration
to emulate successful one. Germany is much more entrepreneurial than we suspect.
Regional Distribution : In most countries of the world, talent is concentrated in one place, usually in the capital city. Few countries have so decentralized structure as Germany. Even in the country you find world-class companies. I consider this regional distribution to be a huge advantage. Even in the new federal states in the meantime 45 hidden champions have emerged.
Dual Vocational Training : This unique system in the world is regularly cited as a major cause of German competitiveness - and rightly so. "Germany is very well there," says a report by the OECD on vocational training from 2010. Nothing to add, except perhaps that more and more countries try to emulate the German system.
Geostrategic location : Even in Globalia, the globalized world of the future, there are distances and time zones. Germany has in this respect a unique central position. We can make calls within normal office hours to Japan and California. This does not work between America and Asia because the time differences are ten to twelve hours. Our travel time to key business centres of the world is less than that required by Asians or Americans. Even within Europe, we are centrally located. These are benefits that gain more weight as globalisation increases.
Global mentality : International business constantly demands a culture of widening the horizon. "The best language is the language of the customer," said Anton Fugger. Already.
among major countries, Germany is ahead by a large margin when it comes to possessing a global mentality. Smaller countries such as Switzerland, the Netherlands and Sweden are however, further ahead. Of course, there are other explanations. Often typical German virtues such as thoroughness and punctuality are named as success factors. Our analysis shows that the global success of German companies, does not go back to a single root, but to a complex bundle of sometimes interacting causes. And another important insight is that these causes are difficult to imitate.
