Deutsche Welle (English edition)
China eyes Germany's famous 'hidden champions' model
Germany's 'hidden champions' face increasing pressure in their home markets and beyond from Chinese companies. Some sense danger, while others see an opportunity to further widen Germany's manufacturing success story.
Small- and medium- sized family companies, otherwise known as the Mittelstand, are well-known as the backbone of the German economy. They may not be a Bosch or a Bayer, but if market share is anything to go by, family-owned companies like Krones, Weinig and Webasto are global players. The model that Germany crafted in the post-war period is the envy of the world and rivals like China are lining up to replicate it.
Germany has only 28 of the world's top-500 companies, but 48% of small market leaders. Indeed some 99% of German companies are smalland medium-sized and account for 70% of all jobs and 90% of apprenticeships.
These are the so- called hidden champions, a term created by Hermann Simon, the founder of Simon-Kucher & Partners, a leading pricing specialist. To qualify, a company must meet three criteria: be number one, two or three in its global market while having a low level of public awareness. Germany has more of these than any other country.
Mind the gap
To highlight the existing gap between Germany and China, almost 60% of German hidden champions produce in China.
The number of German factories in China is over 2,000. In contrast, there are currently only four Chinese greenfield factories, which are newly established in any given sector in Germany.
Simon believes that the Germans still have big advantages in global presence, brand and quality. "But the battle in the future will be fought on the field of innovation, including digitalization," he told DW.
China is now the world's largest manufacturer, bringing in 31.3 trillion yuan (€4 trillion, $4.6 trillion) in 2020. Though it leads in sectors such as 5G, quantum communications and railroads, it is still on the second and third rungs in terms of advanced manufacturing.
However, Chinese exports to Germany contain increasing amounts of sophisticated industrial goods like machinery, pharmaceutical and automotive
products. According to a study by the German Economic Institute (IW), the share of such products in overall EU imports from China rose from 50.7% in 2000 to 68.2% in 2019.
Beijing moves
In June, six Chinese ministries jointly issued a guideline that by 2025 the nation aims to develop 10,000 "little giant" enterprises that specialize in niche sectors and 1,000 enterprises that are champions in a single industry.
"China accumulated rich experience in developing industry titans like Huawei in the past. Now we need to switch the policy emphasis to climb up the manufacturing ladder in the 14th Five-year Plan period," Tian Yun, vice director of the Beijing Economic Operation Association, told The Global Timesin April.
China's strategic policy shift over the next five years is to focus on breakthroughs in spe
cific and critical sectors and supply chains where the country may be vulnerable amid a technology war with the US.
"Hidden champions have a long history of industrial expertise, but China is catching up here as well, sometimes also by taking over individual hidden champions in Germany," Jürgen Matthes from the German Economic Institute, told DW.
"That's actually very important. In 2014-20, there were 300 Chinese acquisitions of German companies and quite a few hidden champions among them," Simon said.
Adjusted for size, Chinese hidden champions employ around three times as many people in research and development ( R& D) than their German counterparts. A hidden champion on average spends 6% of its revenue on R&D, twice the amount of standard corporations.
Historically, hidden champions have had a high level of innovation. They have 31 patents for every 1,000 employees, while large corporations only have six. China has ranked in the top 10 since 2005 in the number of international patents and overtook Germany in 2010.
Hidden dangers
German hidden champions should be worried about Chinese companies moving into their own domestic markets, Simon says.
"But the problem is not confined to the German market, because German hidden champions are truly global. Most of them generate more than 80% of their revenue outside their domestic market. There is no doubt that the Chinese will become the toughest competitors for the Germans."
Growing closer?
Germany exported nearly €100 billion worth of goods to China in 2019, over half of the value of all EU exports to the country. Germany bought even more from China than it exported there, making the country its biggest trading partner.
KA Schmersal, a specialist in security technology, has been operating in China since 1997. "The plant there is a copy of the plant in Wuppertal," according to its boss Michael Ambros. "That's why we don't have ' Made in China' or 'Made in Germany,' but only 'Made by Schmersal.'"
"There will be the fear that because Gambia is being seen as defiant, we may see increased visa restrictions against Gambian nationals and also African nationals by the EU and the broader Western community because there is the fear that there are migrants from these countries and they will not be able to get them back," he said.
There are almost 7,000 Gambians without residence rights in Germany alone.
Tegulle thinks it's unwise for the EU to deport more than 2,000 people back to a country grappling with soaring unemployment. "The Gambians would be more comfortable if their people come back with their arms full of gifts of gold and silver," Tegulle said. Moreover, Tegulle insisted there is no reason why the EU should be treating people like this in the age of globalization.
"They didn't go to Europe to be deported back to Africa," he said.
With thousands of Gambians set to be deported from Germany, Yahya Sonko, a refugee activist in Germany's state of Baden-Württemberg, said German and Gambian authorities should negotiate a deal to solve this problem. "Gambia should come up with an official statement that indicates its position in this issue. Then we will use that official position of our government to challenge different courts here, and these people will be free," Sonko told DW.
Playing politics with migrants?
Gambian authorities have avoided making allusions to the political benefits of the move. Instead, they say the refusal to accept migrants is because of their remittances to the country's economy. According to the International Monetary Fund, Gambians in the diaspora sent back $588 million (€495 million) in 2020, making up for the country's loss in tourism revenues. Remittances from an estimated 118,000 Gambians living abroad account for over 20% of the country's GDP.
Political observers say President Adama Barrow could, however, be seeking political capital from his decision not to welcome migrants expelled from the EU. Gambia's presidential election is scheduled for December.
But for some, like Emmanuel Bensah, a policy analyst on the Economic Community of West African States (ECOWAS) and the African Union, several factors, including the pandemic, do in fact need to be considered before taking in the migrants.
"The Gambia's president cannot be sure of the COVID-19 status of those who are being deported. In addition, the Gambia is a small country, and the health system has not been coping so well with COVID-19," Bensah told DW. According to him, the arrival of migrants could be an added burden for the country. "The other thing is that the Gambian government since 2017 has become quite unpopular. The euphoria connected with Barrow winning the presidency when ECOWAS intervened to get rid of [former President Yahya] Jammeh has died down."
The former Gambian ruler was criticized for human rights violations that included the jailing of journalists and political opponents.
When Barrow was sworn in as president for the first time on February 18, 2017, Gambians were optimistic the country would usher in a new era of democracy. But Barrow's decision to stay on for five years instead of the three he had earlier promised dented any hopes that the tiny West African nation would witness genuine democratic reforms.
Blaming Gambia's government
Most Gambians have accused the government of abdicating its responsibilities. "This government is not serious about the plight of Gambians both at home and abroad," said Smith Omar, a young Gambian in Banjul.
"On the contrary, to the credit of European institutions, this government has received millions of euros in aid, especially for youth empowerment. But what is the impact of this youth empowerment project?" Omar asked, "It is quite clear that these projects have failed," Omar told DW.
"I think they lost the trust of the people," another Banjul resident told DW. "They [Gambia's government] are doing it for their own benefit. But it is not for the benefit of people who are supposed to be deported."
Is Gambia setting a precedent?
There are fears that Gambia's refusal to welcome home migrants expelled from the EU may become the new normal for African countries.
International law expert Gawaya Tegulle said the recent Gambian decision is not isolated, citing similar incidents involving Sierra Leone, Guinea and Eritrea. He added that in 2016, Gambia had taken similar measures, only caving in later after being threatened with sanctions by the West.
But ECOWAS policy analyst Emmanuel Bensah disagrees. He thinks that no African country can copy the Gambian example. "Sometimes these cases are rather isolated," he said, pointing to Uganda that has been very active in receiving migrants from Afghanistan after the Taliban took control. "With what Uganda has done and is doing even for Afghans, I don't foresee that this is going to spark a trend in other African countries."
Bensah also regrets that the standoff between Gambia and the EU is a test of the West African country's diplomacy. "The EU is going to restrict visas for Gambians. That is not a good sign," Bensah said. "But I think if they can appeal such an EU decision through ECOWAS, for example, they can get ECOWAS as an honest broker to help roll back some of the restrictions the EU wants to impose," he said.
Tegulle believes it's high time both parties held a frank discussion over the migration crisis. "This is a very delicate issue that has to be reshaped in a broader and deeper and more sincere conversation. This issue concerns human beings who deserve better than they are getting now," he said.