How Europe’s Successful Mid-sized B2B Exporters Outperform Everyone on Growth and Profitability, Even During the Crisis
Europe’s Successful Exporters are mid-sized companies (average 2000 employees worldwide with average revenues of €300 m). Most are B2B. They keep low profiles. Their products and services are not widely known to the general public. Yet, they have quietly become “best-in-class” global leaders in their markets and are highly respected.
Their growth and profitability have consistently outperformed large companies: Over the last ten years, their profitability has averaged 10%-12%, compared to only 5.7% for the Fortune Global 500 giants, and they grew 3.7 times faster. Many are located in Germany (where they are called the “Mittelstand”), Switzerland, The Netherlands and the Scandinavian countries. They contribute disproportionately to the GDP growth of their countries. They tend to serve niche markets and have few competitors.
A Major Influence on MCE’s Approach
These successful companies practice management differently than the “conventional” wisdom in the mainstream business press. Because of their pragmatic approach and their consistent success, MCE takes its inspiration for leadership and strategy implementation from them.
How do they Achieve their Outstanding Performance?
The best practices of these successful exporters are based on the research of Hermann Simon, conducted over many years, and published in Hidden Champions of the 21st Century: Success Strategies of Unknown World Market Leaders, Simon-Kucher and Partners, Bonn 2009
The practices below are common to these Successful Exporters. They could be adopted by larger companies, within divisions.
Aim for growth and market leadership in Core Capabilities, rather than diluting effort over a diversified portfolio
- Market Leadership Successful Exporters consider market leadership to be more important than market share.
- Performance and quality rather than price leadership Lead through superior performance in terms of technology, innovation, quality, and reputation and have the will to do so.
- Focused market Define a selective, specific playing field as the focus for their capabilities. They dominate this market all over the globe.
- Long-term goals and persistence in implementation Goals are long-term, extended over generations rather than quarterly. They know their core capability and they stick to it and keep making it better. They are determined and persistent in achieving their long-term goals.
Build competitive strength through a very specific Market Focus
- Define the market selectively Define the market and target customers and build up a strong position in the market. Stay true to philosophy and capabilities. Although this carries market risk, a focused concentration of resources reduces competitive risk.
- Learn everything about your market and target customers Learn everything you can about your customers’ business, challenges and needs, (as well as your customers’ customers). Focus on how to serve those needs.
- Make close customer relationships a top strategic priority Focus management attention, time and resources on developing close relationships with customers. You will over time develop an intuitive understanding of your customers’ needs and be able to propose high value-added solutions to their business challenges. The close relationship creates high barriers for competitors. Successful Exporters consider customer relationships to be even more of a competitive strength than their superior technical capabilities.
- Be specific about your Customer Value Proposition Europe’s Successful Exporters do not compete on cost. Neither do they allow their product or service to lag at “mid-range”. They deliberately choose to differentiate through a Premium Offer or Custom-Made Solution type of value proposition to customers. To find out more about this, please click here.
- Globalization rather than diversification is the dominant growth driver Grow the business geographically as quickly as possible. Create direct customer relationships through fully-owned subsidiaries to serve regional customers. Serve your global customers everywhere, and understand their global challenges. Global presence and customer relationships are a competitive advantage.
Continuous Innovation and Improvement are driven by Customer Needs
- Create real value for demanding customers and charge more for it Find out what the customer needs in terms of performance, and then work to deliver it. Offer products and services that provide superior performance your customer cares about, or that are combined with expertise in a custom-made solutions. Focus on value rather than price.
- Make the difference between needs and wants Identifying the customer’s needs is not done just by asking a contact in the customer company what he or she wants. It also involves knowing company as a whole, its business, its customers and competitors and its challenges. Then you are in a position to identify real needs which will make a difference in your customer’s success.
- Devote management and people resources to customer focus The share of employees, including top management, with regular customer contact is five times higher in a Hidden Champion than in large corporations. The people who are doing the innovating are also the people talking to the customer and vice versa.
- Innovate continuously and incrementally Innovate continuously, in small steps, in response to market requirements and technology developments. Use ideas and insights from customer interactions to increase the value of your offerings and build up competitive strength that cannot be easily copied. Innovate internally to continuously improve delivery efficiency and keep costs under control.
Compete on Quality and Performance rather than Price
- Innovate on Quality and Performance Product/service/solution quality is a competitive advantage. It is sustainable because it is difficult to copy. It differentiates your offer from low-cost rivals and helps you avoid ‘lowest bidder’ competitions for a customer’s business.
- Choose markets where there are few competitors (or none) and dominate them Successful Exporters typically have only a few competitors worldwide, and most of those compete on cost. By keeping focus on providing what the customer needs and cares about to a very high standard, they are able to continue dominating and keeping the competitor pool small.
- Don’t get obsessed with Competitors - focus on your Customers and Capabilities You have to keep an eye on what competitors are doing, but the way to win is to keep your focus on your customer relationships, their needs, and continuously improving your capabilities to meet their needs.
Practice Conservative Management and Finance
- Simple, decentralized structure Successful Exporters keep their corporate structure simple, rather than complex. They decentralize authority into small customer-centric-facing units. Central management provides the goals, drives innovation, and coordinates and supports customer units. The decentralized teams are accountable for achieving the goals and living the values of the company, but they have the authority to decide how they will do it.
- Keep core activities in-house rather than outsourcing When quality, uniqueness, and expertise are your competitive strength, it is not wise to outsource core activities or entrust them to alliances. Instead, outsource non-core activities so you can focus on the core.
- Manage finances conservatively Successful Exporters keep solid equity ratios (average 41.9%). They have excellent credit ratings and low capital costs. Even during the recession, they were able to finance continued growth and globalization. Their average return on equity is 24.2%.
- Invest continuously in further strengthening competitive advantages to avoid competitor encroachment Successful Exporters have quietly continued investing in innovation and improvement throughout the crisis, further strengthening their competitive positions. Weaker competitors can be bought out or disappear during crises. Those who continue to build emerge stronger.
Treat Talent Management as a source of strength rather than a "nice to have"
- Be serious about getting the right people Delivering superior performance to clients requires excellent, dedicated people who are fully engaged and enabled to deliver. Invest in hiring people with high skill levels, and continuously developing them. Successful Exporters see employee loyalty/engagement, training and development, motivation and flexibility as competitive strengths that are difficult to copy. They enjoy low employee turnover (2.7%) and absenteeism (3.2%). In fact, they have been creating jobs while large companies have been laying people off. And instead of moving all their production to low-cost areas, their expansion abroad strengthens their position and job demand in their home countries.
- Let people do the job but keep them accountable Qualified people who are aligned to a common vision and set of values work in self-directed teams in small units. Successful Exporters have very clear top-down visions, values and goals. They allow freedom in deciding how to implement and do not micromanage. Rather, they hold their people accountable for results within the accepted values.
- Align people policies to business goals HR interventions are closely aligned with strategic goals rather than following external fads.
- Build a high-performance culture Successful Exporters culture is based on traditional values of hard work and strict employee/management selection. People are proud of their company and work, and do not tolerate underperforming peers.
Build leaders from the inside
- Leaders have a personal stake in the long-term success of the company Successful Exporters are often led by their founding entrepreneurs. The company is their life’s purpose, and they work single-mindedly to grow it.
- Provide continuity of leadership Leadership continuity is important; the average tenure of the CEO is 20 years, compared to only 3-5 years in larger companies. Hidden Champion leaders therefore stick around long enough to face the results of their decisions and learn for next time.
- Build successive leaders from the inside Successful Exporters develop the leadership team from within. It is too difficult for outsiders to lead in their distinctive corporate cultures, and it is important to have leaders that intuitively understand the business and its customers.
- Combine authoritarian and participative leadership styles Although they keep a low public profile, Hidden Champion leaders are a source of inspiration and encouragement to their people. They are authoritarian and uncompromising on vision, values and goals. But they give people freedom to decide how to achieve the goals, within the principles. With this freedom comes accountability.
Be disciplined in developing and implementing strategy
- Strategic analysis balances objective metrics with subjective data for a complete picture of reality. Strategy reviews begin with an audit that includes both objective and quantitative data. This is balanced with subjective opinion from clients, employees or experts.
- Benchmark against competitors. Benchmark against competitors on competitively relevant criteria such as closeness to customer, innovation; competitive advantages, employee motivation and leadership.
- Put the Customer Value Proposition at the centre of your strategy. Look first at customer need and then what capabilities and comparative strengths you have to meet that need. Define a clear Customer Value Proposition and then ensure you deliver on it. This is a simple idea, but Successful Exporters are better than most at putting it into practice.
- Involve people in planning and implementation. Strategy development is both top-down and bottom-up, getting the buy-in of the people who are needed for implementation. Successful Exporters truly treat people as their most important asset. They do not neglect to involve people at all levels in strategy planning workshops and related activities. This way, people have bought into the same plan and can work together on implementation.
Many Practices are Relevant for Large Corporations and Even International Public Organizations
Many of these practices are transferrable to larger organizations, and could help to improve competitiveness, and lay a stronger foundation to weather future crises. In fact, many of the Successful Exporters emerged from troubled positions in past crises.
How MCE can Help
Experienced MCE Senior Associates can look with you into your organization to determine where and how you might achieve greater competitiveness through market focus, management focus or other relevant practices.