The Hidden ChampionsGermany’s Secret Success

Team DeltaKatie AdgentPaige BighamMargaret DischlerMatt Farmer

Outline

• Germany's Economic History

• Germany throughout the recession

• Mittelstand: A Definition

• Market Structure

o Profile of a Quasi-Monopoly

• Lessons Learned

Germany's Economic History• Whiplash Extremes

o The Great Depressiono Nazi Germany - hothouse prosperityo Post-WWII: In Complete Ruins, Disastero '50s - A Business Boomo '60s - A Slowing of Growth, less spectacular

 • "Social" vs. "Market" Balancing Act

o '70s "Laissez-faire" government controlo '80s Government Intervention and Controlo '90s A Slowing Down - "The Sick Man"

 "Out of Germany or Out of Business"                                             - President of GM Europe

Dominating the Financial Crisis

• Experienced relatively short period of GDP contraction

• Huge Decrease in Exports• Still maintained a significant lead within the

European marketplace• Unemployment

o Able to minimize damage to the employment rate• Second highest Trade Surplus in the world

Economy with largest growth

Unemployment Rates

GDP Growth

Began to shrink in the middle of 2008, but quickly moved back to earlier levels of growth by the middle of 2009.

Germany: Trade Surplus Champs

Mittelstand: The "Hidden Champions"

• What is the Mittelstand?o Hermann Simon

• Companies Prospered in the 50's and kept growing

• Came to Dominance in the '90s• Much like current economic situation

Mittelstand: World Market Leading CompaniesNot in the Public Eye

Mittelstand EconomicsStrategy:

Dominating global niche markets

                Governance:"Enlightened family capitalism"

Operational effectiveness:World class in key processes

Governance: Mittelstand Management

Operational Effectiveness

Strategy: Innovation and Differentiation

5.0%

3.6%

Porter’s Five Forces Strategic Framework 

Minimal Threat of Substitutes due to high-tech dominance

Minimal Threat of Entry due to: • high capital requirements in R&D • high switching costs• lack of access to distribution channels

Supplier Power due to niche product

Limited Bargaining Power of Customers

Mittelstand Strategy: Niche Market

Quasi-Monopoly

High-tech Innovation

Differentiation________

The Industry Demand Curve is the Firm's

Demand Curve

Conclusion

Strategy:Dominating global niche markets

                Governance:"Enlightened family capitalism"

Operational effectiveness:World class in key processes

Our Questions

• Optimal Size • Decreases in Demand

• Easily Imitated?

Lessons Learned

•Value-oriented instead of price-oriented •Specialization  •Innovation

•Corporate Culture

Questions?

References• How Germany’s Mid-sized Companies Get Ahead and Stay Ahead in the Global Economy, Prof. Bernd Venohr, 2008• “The Power of Uncommon Common Sense Management Principles – The Secret Recipe of German Mittelstand companies – Lessons for large and small companies”, Prof. Bernd Venohr, 2010•http://www.bloomberg.com/news/2010-09-30/german-mittelstand-gives-chilean-miners-economy-escape-route.html•http://www.economist.com/blogs/freeexchange/2010/08/europes_economies•http://www.nytimes.com/2010/02/27/business/global/27gcon.html•http://www.economist.com/node/17572160•http://www.businessweek.com/globalbiz/content/sep2010/gb20100929_905740.htm•http://www.globalpost.com/dispatch/germany/101111/mittelstand-german-economy-manufacturing•http://www.businessweek.com/globalbiz/content/sep2010/gb20100929_877580.htm