Internationalization strategies of hidden champions: lessons from Germany

Abstract

Purpose In contrast to the predictions from the family business and the small- and medium-sized enterprise internationalization literatures, Hidden Champions are world-market leaders exhibiting a high share of exports. The purpose of this study is to analyze their strategy of internationalization of Hidden Champions in Germany and find that the international success and strong, sustained performance emanates from their product type, enabling to successfully pursue a niche strategy for differentiated premium products. Design/methodology/approach The authors first conceptually explore how Hidden Champions pursue strategic internationalization, and then analyze a sample of N = 2,690 Hidden Champions to examine why Germany has been able to generate the highest per capita share of Hidden Champions in the world. Findings The study finds that on both a micro and macro level, the strong and sustained performance of Hidden Champions is driven by product type and quality strategies. Niche strategies for a knowledge-intensive, technological product enable the firm to lock-in customers. However, to safeguard the internalization of highly specific quasi-rents, Hidden Champions enter foreign markets through fully owned subsidiaries, retaining control and residual property rights. The second finding of this paper is that Germany has succeeded in deploying its high level of human capital into the Mittelstand through highly skilled workers. Research limitations/implications Unfortunately, no micro-level panel data are available. Still macro-level data beginning in the nineteenth century provide strong empirical support for the hypothesized causality. Originality/value This is the first paper to link the strong and sustained export performance of Germany to the Hidden Champions by examining the origins of the German Mittelstand model, dating back to the social, political and economic developments of nineteenth century.