Hidden Champions: Ningbo Examples

10 June 2020

Author: Dr Lucas Wang, Assistant Professor in International Business and Strategy


  • Konfoong Materials International Co Ltd.

       宁波江丰电子材料股份有限公司

  • Ningbo Xusheng Machinery Co., Ltd.

       宁波旭升汽车技术股份有限公司

  • Ningbo Shuaitelong Group Co., Ltd.

       宁波帅特龙集团有限公司

  • Ningbo Shanshan New Materials Technology Co., Ltd.

             宁波杉杉新材料科技有限公司

Have you heard the above four companies before? Most likely the answer is no. Compared with media favourites like Lenovo, Huawei, and Haier, the four manufacturing companies mentioned above are much smaller in scale and rarely hit headlines. Nonetheless, their small size and low profile belie a powerful command that each of them has over their respective market segment. The global market share they control ranges from 70% to 90%. If global market share is considered the metric for business success, these four companies are the ‘true superstars’ [1]. Shuaitelong, for instance, is a company that designs and manufactures interior and exterior upholsteries for cars. In recent years, it has been one of the top three suppliers of car handles in the world to customers such as Audi, Mercedes-Benz, and SAIC Shanghai, etc. Following Dr Hermann Simon’s conception, these four companies are typical hidden champions.   

What is a hidden champion?

The concept of a hidden champion can be traced back to a conversation in 1986 between Dr Simon, a Germany-born scholar, and Dr Theodore Levitt from Harvard Business School. During the conversation, Dr Levitt threw on the table some inspiring questions: “why does Germany’s (Federal) export trade rank first in the world even though its GDP is only one-quarter of the US? What companies contribute the most?” Dr Simon did not have a response on the spot, but his intuition hinted that well-known German giants like Siemens or Daimler are hardly the answer as they had no obvious edge over other international competitors.  

Through intensive research in the next few years, Dr Simon finally discovered the answers to Dr Levitt’s questions in a group of small and mid-size companies in Germany. These companies had ‘a talent for export (p.116)[2]’ and normally occupied world market shares between 70% and 90%, and collectively, contributed to a substantial chunk of Germany’s exports. These companies were far less comparable in publicity than those international conglomerates. Hence, Dr Simon later coined the concept ‘hidden champion’ to capture those small but powerful players in global competition. A company is qualified as a hidden champion if it meets the following three criteria:

  1. Ranks in the top three in the world or is ranked first in its continent
  2. Annual revenue less than $5 billion
  3. Not well known to the general public

The set of criterion corresponds strictly to the three defining characteristics of hidden champions. The first refers to the champion component of a company, the second to its relatively small scale business, and the third is its low profile.

How does a hidden champion rise?

Hidden champions are impressively shining stars in their respective playgrounds. Then how does a small or medium-sized company become a hidden champion? After examining hundreds of hidden champion companies, Dr Simon revealed the key building blocks that pave the way to that dominant status.

Ambition to be the best worldwide

Companies that eventually made it to hidden champion status are not satisfied in being a market follower or just surviving. Instead, they all share a clear and ambitious goal of becoming a leader, which then serves as the guiding policy to their strategy and operation.

Focus leads to being world-class

The strategy of hidden champions is characterised by an extreme focus on a specific niche. They normally choose one product and persistently improve quality until it becomes the best in the world. The outstanding nature of hidden champions is, thus, in their depth, not breadth. To some, diversification is an alien concept.

Innovation is the only way to gain and retain market leadership

Innovation is a powerful weapon behind the global competitiveness of hidden champions. This results from significantly above-average investments in R&D in its industry segment.

Closeness to customers offers high value

Hidden champions, nonetheless, do not single-mindedly pursue technological advancements. They have a deep understanding of the close link and mutual reinforcement between technology and market knowledge. Hence, they pay close attention to customer needs and feed market information to the innovation process so that neither technology nor marketing lose sight of critical information from either side.   

Globalisation makes every market bigger

Hidden champions cover global markets in one segment rather than being confined within one country. The international footprint allows them to overcome the inherent scale limitation of a niche market while enjoying various specialisation advantages. 

Hidden Champion: Ningbo Examples

Exemplified by the Fortune Global 500 list, most of the attention from government, media, and the public has been paid to large companies. However, the development of the hidden champion concept and related knowledge uncovers these small but powerful companies that play a significant role in a national economy and global competition. Dr Simon stated, ‘business success in Globalia does not primarily depend on large corporations but on mid-sized world-class businesses like the hidden champions. Fostering hidden champions is therefore very important.’[3] As a measure to recognise and encourage hidden champions, the Ministry of Industry and Information Technology in the Chinese central government confers the formal title ‘Champion of a Single Product Category’ to qualified companies across China. The four companies from Ningbo listed at the beginning of this article are the new recipients of this title. These four additions raise Ningbo’s champion companies to 39, about 7.6% of all champion companies based in Ningbo [4]. With these additions, Ningbo has become the city with the most hidden champions in China. In this sense, Ningbo is a champion.    

 

[1] Simon, H. 1992. Lessons from Germany’s midsize giants. Harvard Business Review, March-April, 116-123.

[2] ibid.

[3] Presentation by Dr Hermann Simon at the forum.

[4] Ningbo Municipal government. Unveiling the Fourth Batch of single champions in manufacturing and 11 from Ningbo. Oct 31st, 2019, http://gtob.ningbo.gov.cn/art/2019/10/31/art_227_1026216.html, accessed April 25th, 2020.