President Ma Ying-jeou (馬英九) said in his New Year’s Day address that the nation’s new industrial policy is to develop “hidden champions” in Taiwan’s small and medium-sized enterprises (SMEs) which have a leading status in their respective businesses in terms of key technologies and global competitiveness.
In his speech, Ma said he had recently visited several SMEs in different parts of the country and was impressed by these smaller-scale companies that have quietly secured unique but solid positions in the world market.
The president named a few companies, such as ball-bearing maker Tungpei Industrial Co in Taoyuan County, high-pressure gas cylinder producer Mosa Industrial Corp in Yunlin County and Gloria Material Technology Corp in Greater Tainan, which supplies steel for the global aviation, aerospace and energy industries. He said these companies might not be household names, but represented the true hidden champions of Taiwan’s economy.)
Ma’s remarks echoed what Premier Sean Chen (陳冲) told Cabinet officials in August, that Taiwan should transform domestic SMEs into the kind of mittelstand companies which have become the engines driving Germany’s export sector. At that time, Chen set a goal of turning 100 Taiwanese SMEs which possess key technologies and market products under their own brand names into hidden champions in three years.
Clearly, the government is trying to reinvigorate smaller export-orientated companies in a manner similar to the German economic model to reverse the declining market share of Taiwan-made products, while revamping local contract manufacturing industrial clusters to own-brand industries.
Borrowing the term “hidden champions” from German business consultant Hermann Simon in a study of the role of mittelstand companies in Germany’s exports success, the Taiwanese government aims to upgrade local SMEs, which account for more than 90 percent of the nation’s businesses, to help build a sustainable economy. In Germany, the mittelstand companies account for about 70 percent of exports, with “hidden champions” contributing about 25 percent of the total.
It would be nice if the government’s hidden champions plan could be handled smoothly: Just provide a blueprint of industrial development, the necessary assistance in recruitment, financing and intellectual property rights protection, and wait for the efforts to bear fruit. Unfortunately, that is no easy task.
Take the four German companies that Chen mentioned in August, for example — lens maker Carl Zeiss, drinking water filtration system provider Brita, dishwasher maker Winterhalter and Dorma Group, which supplies door technology products and systems. They have remained market leaders for decades because of the inherent attributes of the companies, regardless of government assistance. Though not big in size, many are family-run businesses. They have secured market niches by focusing on specific products and are able to stay at the top of their sectors with heavy investment in research and innovation.
Furthermore, these companies have strong leadership; they are aggressive and focused in their business; they recruit highly competitive employees with a low turnover rate; they maintain close relationships with customers; and, most importantly, they pay as much attention to globalization as giant corporations do.
For Taiwan, the plan to nurture hidden champions represents an important step in the restructuring of the country’s industrial development.
The government needs to help companies deal with a talent shortage, improve domestic investment and facilitate the integration of domestic industries. Companies must develop competitive business models and sustainable corporate management, and expand the scope and depth required in their long-term technology roadmaps.