Identification and Analysis of Hidden Champions in North Rhine-Westphalia

The scientific study 'Hidden Champions in North Rhine-Westphalia' by the Research Centre for Small and Medium-Sized Enterprises (FZM) at the University of Trier, commissioned by the Ministry for Economic Affairs, Innovation, Digitalisation and Energy of the State of North Rhine-Westphalia (NRW), classifies DFE Chemie GmbH as a 'Hidden Champion'. (read more)

This article aims to summarise in a concise form the results of the study prepared in 2021 and recently published. This is intended to provide a quick overview of the structural characteristics of the hidden champions in NRW and, beyond that, in Germany.

The exclusive source for this article is the above-mentioned study 'Hidden Champions in North Rhine-Westphalia'. (Original Study as PDF, German)

Definition and success characteristics of hidden champions

According to the author of the study, Prof. Dr. Jörn Block, "Hidden champions are among the most successful companies in their industry, but at the same time have a low level of public awareness".

But how exactly are hidden champions defined and where does the term come from?
The study states:

"The term Hidden Champions was first used in the 1990s by Prof. Dr. Hermann Simon to describe a particularly successful subgroup of medium-sized companies. Although the hidden champions have achieved considerable success in their industries and are considered the spearhead of the German economy, they are usually hardly known to the public. ...

Simon defines hidden champions on the basis of three criteria: Market leadership, turnover and name recognition. Accordingly, a company is considered a hidden champion if (1) it is among the top three companies on the world market or number one on a continent, (2) it has a turnover of less than five billion euros and (3) it has a low level of public awareness. ...

Hidden champions strive for continuous growth and comprehensive market leadership. ... Their claim to leadership is therefore not only reflected in their market share, but rather in the creation of unique quality products, development of forward-looking innovations and establishment of industry-wide (technology) standards.

To achieve their ambitious goals, the hidden champions rely on the successful combination of two seemingly contradictory paradigms: strict focus and extensive internationalisation."

Study results

The objective of the study is to systematically identify hidden champions in NRW and to describe them on the basis of key structural characteristics. The authors of the study emphasise that such a comprehensive survey and descriptive analysis of North Rhine-Westphalia's hidden champions did not exist before.

Prof. Block and his team first identify a total of 690 hidden champions based in Germany's largest federal state using the main criteria of market leadership, turnover and number of employees as well as other criteria. This is achieved by evaluating various sources and databases.

This is followed by a descriptive analysis of the previously identified hidden champions, subdivided into various topics, some of which are listed here and text passages from the study are quoted:

1. Size key figures

"The average hidden champion in North Rhine-Westphalia
   ... is 85 years old (median: 73 years) ...
   ... employs 1,368 people (median: 365 people) ...
   ... generates an annual turnover of 261.87 million euros (median: 65.55 million euros) ...

By definition, hidden champions should have high export earnings in order to fulfil the criterion of international or European market leadership. [It] ... was only possible to retrieve export information for 93 of the 690 hidden champions. These companies have an average export ratio of 46.71%. It can be assumed that the other hidden champions also have a similarly high export ratio, but more precise conclusions cannot be drawn due to the low data availability."

2. Sector distribution

"Most of North Rhine-Westphalia's hidden champions are active in the mechanical engineering sector (23.33%). This is followed by 'manufacture of fabricated metal products' (12.03%), 'manufacture of rubber and plastic products' (6.67%), 'manufacture of electrical equipment' (6.09%) and 'manufacture of data processing equipment, electronic and optical products' (5.51%) as the top 5 most common industries. ...

In general, manufacturing is ... very strongly represented, with almost three-quarters (74.64%) of the companies belonging to it. The strong focus on manufacturing and especially mechanical engineering is unsurprising and consistent with previous studies on hidden champions. ...

Previous research has shown that hidden champions invest heavily in R&D. That a total of 206 of the 690 hidden champions in North Rhine-Westphalia (29.86%) are active in technology-intensive sectors in relation to their main business field is therefore hardly surprising."

3. Comparison with hidden champions in Germany

"The comparison of hidden champions from North Rhine-Westphalia with those from (the rest of) Germany refers exclusively to established companies, i.e. companies with a minimum age of ten years (in 2021), for reasons of better comparability. ...

This leads to a total sample of 1,954 German hidden champions, of which 557 (28.51%) are based in North Rhine-Westphalia. In absolute terms, North Rhine-Westphalia thus has the most hidden champions of all the federal states. The share of North Rhine-Westphalian hidden champions in the total number of German (world) market leaders is also in line with previous surveys. ...

[It] … can be seen that the hidden champions in (the rest of) Germany generate a significantly higher turnover than the hidden champions in North Rhine-Westphalia. However, there are hardly any differences in the number of employees and company age. The German hidden champions are slightly older on average, whereas the North Rhine-Westphalian hidden champions have a slightly higher number of employees. Neither the differences in terms of company age nor number of employees are statistically significant, however."

Hidden Champions in North Rhine-Westphalia, study commissioned by the Ministry of Economic Affairs, Innovation, Digitalisation and Energy of the State of North Rhine-Westphalia, prepared by Prof. Dr. Jörn Block, Dr. Alexandra Moritz, Lena Benz and Matthias Johann, Forschungszentrum Mittelstand (FZM) of Trier University, 2021

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