Hidden Champions
Hidden Champions are mid-sized companies that rank among the world's largest players in a very narrow market segment, yet are barely known outside their industry. The term originates from economist Hermann Simon and describes a particularly large number of companies from Germany, Austria, and Switzerland.
There are companies whose names everyone knows: Apple, Siemens, Volkswagen. Alongside them exists a second group of companies that almost nobody knows, yet which nonetheless rank at the top of their field worldwide. They often don’t manufacture finished products for consumers, but rather components, machinery, or specialty materials for other companies. It is precisely these companies that are called Hidden Champions, meaning hidden masters. The economist Hermann Simon coined the term in the 1990s. As a rule of thumb: the company ranks among the top three worldwide in its market, but generates less than roughly five billion euros in revenue and is unknown to the general public.
Why unknown companies carry an entire economy
Roughly half of all Hidden Champions worldwide are based in Germany. They are a key reason why a comparatively small country exports so much. Many of these companies are located in small towns and villages and are the largest employer there. They train apprentices, pay local business taxes, and keep entire regions economically stable.
Their strength, however, also has a downside. If a company is nearly the sole worldwide producer of a certain specialty material, an entire industry depends on it. If production fails, for example due to a fire or a blocked supply chain, assembly lines elsewhere grind to a halt. Such dependencies have become visible multiple times in recent years.
Hidden Champions are especially interesting for the tech industry. The Dutch machine builder ASML, for example, was long a classic case: barely known, yet the world’s sole manufacturer of certain lithography machines for computer chips. Today the company is too large and too well-known for the definition. Still, it illustrates well how much power can reside in a narrow market niche.
How to become a world market leader in a narrow niche
The shared pattern is almost always the same: extreme specialization. Instead of many products for many customers, the company does one single thing and keeps getting better at it over decades. One example is a manufacturer of coffee roasting machines or of adhesive labels for fruit. The market for this is tiny, but whoever dominates it faces hardly any competition worldwide.
Because the domestic market for such a niche product is far too small, these companies sell abroad from the very start. Export quotas of 70 percent and more are typical. They often operate their own service technicians in dozens of countries, even though they may have only a few hundred employees in total.
Added to this is an unusual degree of persistence. Many Hidden Champions are family businesses and are not publicly listed. This means they don’t have to deliver quarterly results and can invest in research that only pays off after ten years. Managing directors often stay in office for twenty years, and employees rarely change. A common misconception is that Hidden Champions are simply small companies. They are only small compared to major corporations; within their market, they are the largest.
The term in business news and everyday life
In business news, the term typically appears in three contexts. First, regarding succession: many family businesses lack a next generation, so they get sold to investors. Second, regarding takeovers by foreign corporations, which regularly triggers political debates. Third, regarding the skilled-labor shortage, because unknown companies in rural areas find it harder to attract applicants than well-known brands in big cities.
In everyday life, one constantly encounters their products without noticing. The motor in a car’s window lifter, the coating on a frying pan, the sensor in a washing machine: all of this often comes from companies whose names appear on no packaging. Anyone looking for an internship or apprenticeship rarely finds such companies through advertising, but rather through industry directories.
Hidden Champions should be distinguished from start-ups. A start-up is young and wants to grow fast; a Hidden Champion is often over eighty years old and deliberately grows slowly. Both are specialized, but with completely different time horizons.