Hidden Champions in Central, Eastern and South-Eastern Europe (CESEE)
Concept of the research
1. Introduction
Almost two decades after Hermann Simon coined the term ‘Hidden Champions’ as well as identified these compelling enterprises in his home country and examined their role in and implications for Germany’s economic development and innovation, CEEMAN launched an elaborate project in 2011, comprising 19 research teams that worked with over 130 companies across Central and Eastern Europe (CEE) and Turkey with the purpose of studying the Hidden Champions of their respective countries in turn. Published in 2013 and basing its work on Simon’s methodology, Hidden Champions in CEE and Turkey: Carving out a Global Niche sought to uncover examples of Hidden Champions, but most importantly, seek comparisons and/or contrasts between their findings and Simon's work as well as identify what support Hidden Champions need in CEE and in Turkey, as the economic environment and historical background in which they are seeking to succeed has several key differences when compared to more mature and established market economies.
Hidden Champions, based on Simon’s definition, are highly successful innovative small and medium-sized companies, which are among the global top three in terms of market share in their respective niche or are the leader on their continent. Their revenues do not exceed EUR 3 billion, and they tend not to be well-known (or known at all) by the wider public. They mostly operate in the business-to-business market, and as Simon’s second book, Hidden Champions of the 21st century: Success Strategies of Unknown World Market Leaders, revealed, have proven to be more resilient when it comes to volatility and even meltdowns in the market; in all (re)examined countries, the survival rate of Hidden Champions was significantly higher than the average in their respective sector. Hidden Champions also boast the tendency to be very competitive in their respective market, exhibit a consistent growth trajectory over the last decade and as well as an above-average innovation rate.
While many Hidden Champions prefer to stay hidden in the literal sense of the word – 45% of the companies identified by the researchers who worked on the book Hidden Champions in CEE and Turkey: Carving out a Global Niche (2013) were not included in the study as they wished to stay hidden – they choose and/or manage to avoid many other obstacles that larger companies grapple with, such as inflexibility, bureaucracy, excessive division of labour, and remoteness from the customer. As McKiernan and Purg conclude, Hidden Champions “do their own thing in their own way and defy much of the body of knowledge generated from the study of large firms that forms much of the curricula of business schools” (McKiernan & Purg, 2013, p. 4). Companies identified as Hidden Champions have been the target of an increasing amount of research in recent years due to their extraordinary characteristics and the fact that their overall activities still largely elude academia. However, there still seems to be a certain gap when it comes to studies examining the longevity of the success of Hidden Champions originating from certain countries in Central Europe, the Baltic states, South-Eastern Europe, Belarus, Turkey and Ukraine (CESEE) which is why further endeavours in this domain are needed. Due to the recent successes of some of the companies in the mentioned countries, there is a need to gain insights into the way these Hidden Champions operate in said countries, to understand the key factors of their success.
Objective of the research on Hidden Champions in Central, Eastern and South-Eastern Europe (CESEE) and Kazakhstan
CEEMAN has decided to delve into the fascinating subject of Hidden Champions yet again in order to explore the characteristics of innovative companies operating in Central Europe, and South-Eastern Europe (CESEE)[1] and Kazakhstan, who are the leaders in their respective niche sectors and the international market.
One of the objectives of this research will be to identify and describe the present Hidden Champions in CESEE countries and Kazakhstan. Secondly, the research will represent a source of inspiration and encouragement to other companies in the CEE and SEE region to understand what the success factors of Hidden Champions are. Additionally, the research will promote CESEE countries in terms of their innovative companies, which are the leaders in their respective niche sectors, and the international market. The exploratory study, which will be the outcome of the research, will also update the information contained in the book Hidden Champions in CEE and Turkey: Carving out a Global Niche (2013) and recognise the common characteristics of Hidden Champions in CESEE countries and Kazakhstan, describing the best practices and spotting the main success factors. This should be particularly interesting, as we can expect that their behaviour and strategies they resort to in order to be successful in their respective sector differ from the way Hidden Champions operate in countries where the external environment (i.e. a more mature market economy) dictates different approaches. Furthermore, the research will seek to assess the development needs of Hidden Champions in CESEE countries in order to determine how their further expansion can be supported in terms of management, financing or the regulatory environment. The research is also an attempt to identify potential Hidden Champions (companies that, given their expected development, are likely to become more relevant for their sector in the near future) and/or industries in which they are likely to appear by country.
Many of the findings in Hidden Champions in CEE and Turkey: Carving Out a Global Niche connected to how Hidden Champions approach leadership, innovation, and questions of sustainability are not only useful for companies seeking to optimise their operations; they also give us an important insight into whether and what kind of knowledge spill-overs many Hidden Champions might have for their environment. We can expect that a study of this extent could have a positive impact on manufacturing levels and export performance in these companies' countries of origin. Given the key findings of both Simon's work and the research coordinated by CEEMAN in 2011 about the performance of Hidden Champions (most prominently the fact that economic recessions have a decreased impact on them, they are significant for the creation of jobs, and that their survival rates are higher) the results obtained through this research can be used for diagnostic studies and identifying priorities in CESEE countries' strategies.
Given the fact that the concept of Hidden Champions is novel and more research has yet to be done (especially in CESEE countries), more data needs to be gathered about if and why they outmatch their more orthodox competitors in terms of survival rates, and what they have on their domestic environment, their respective niche sectors, and the international market. By means of this extensive research, we will gain an improved understanding of how Hidden Champions in CESEE countries navigate obstacles when operating and creating value and sustain their levels of success, and how their practices could be beneficial for the development of their respective national economies.
Finally, the research is going to explore critical drivers of success of Hidden Champions from CESEE countries, improve the understanding of competitiveness from small and medium-sized innovative companies and through different activities (exploratory study, conferences, articles, and promotion activities) enhance business cohesion in CESEE countries. One of the objectives is also to encourage collaborative initiatives between companies operating in the CEE and SEE region.
2. Geographical scope of the research and the research topics
Hidden Champions will be studied in 21 countries: Albania, Belarus, Bulgaria, Bosnia and Herzegovina, Croatia, Estonia, Hungary, Kazakhstan, Kosovo, Latvia, Lithuania, Republic of Macedonia, Moldova, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Turkey, and Ukraine. The research will be carried out by research teams in each respective country, and coordinated by IEDC-Bled School of Management, Postgraduate Studies.
The study will focus on:
1. updating the information on “hidden champions” identified in the 2011 report, and adding information on new ones;
2. recognizing common characteristics of “hidden champions”;
3. describing best practices and spotting main success factors (including country- and sector-specific, if any);
4. pinpointing development needs of “hidden champions” in terms of management, financing or the regulatory environment; and
5. identifying potential new “hidden champions” and/or industries in which they are likely to appear by country.
Company fiches in the remainder of the study should contain the following information:
· Company information (industry, year of establishment, sales revenues in the latest year and 5/10 years before depending on the year of establishment, average ROA/ROE in the past 5 or 10 years depending on the year of establishment, latest debt to equity ratio, number of employees in the latest year, brainer(s) behind the company);
· Description of the nature of market leadership;
· Description of the nature of competitive advantage;
· Core lessons learned on the path to business success; and
· Further development needs in terms of management, financing or the regulatory environment in order to keep or advance business results.
3. Key deliverables
1. Study;
2. International conferences and dissemination events.
4. Planned activities
1. Invitation of research partners in selected countries (February).
2. Finalization of research methodology and research design (March).
3. Research workshop for research partners in Bled (presentation of research methodology and research design) (April/May).
4. Identification of Hidden Champions in selected countries and research implementation (interviews with top management of a selected company) (April – September).
5. First submission of chapters (October).
6. Research workshop for research partners in Bled (review of the results/materials and feedback) (October).
7. Country chapters’ final submission (November).
8. Content and technical editing of chapters (December).
9. Comparative study (December).
10. International conference/International dissemination event.
11. Finalization of the exploratory study (December).
12. Dissemination activities/marketing and promotion activities (throughout the project).
Prepared by
Professor Danica Purg
Dr. Alenka Braček Lalić
Ms. Livija Marko
Bled, February 21, 2018
1
[1] CESEE refers to the following countries: Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kosovo, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovak Republic, Slovenia, Turkey, and Ukraine (IMF, 2014).