Management Challenges for Germany and

German Companies in the 21st Century

Parallels to Korea?
SKK Graduate School of Business
Prof. Dr. Hermann Simon
Office Bonn
Haydnstrasse 36, D-53115 Bonn, Germany
Tel. ++49/228/98 43-115, Fax ++49/228/98 43-380
e-mail: hsimon@simon-kucher.com
Internet: www.simon-kucher.com

Seoul, April 29, 2005

Overview
Globalization: The great enigma
Time bomb population
Capital markets:World democracy and world tyranny
Change: Where are we heading?
Germanys stars

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German Schizophrenia
Export record in 2004
Worst internal situation since decades
Depressed mood
Lack of leadership
Strengths of German companies

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Exports in 2004 (billion US-$)

. . .

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Globalization Has Only Just Begun

World export per capita

985
437
6

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23

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Globalization Has Only Just Begun

World export per capita
2,000

985
437
6

23
(prognosis)

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Unlimited Opportunities for Growth

1.2 billion people without clean drinking water
2 billion people without electricity
49% of the world population have never made a
phone call
61% of the world population have never taken a
photo
Today: 40 million cars per year
2020: 80 million cars per year
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Globalization of Management
Example: Board of Adidas
3

Germans

Americans

Swiss

New Zealander

7
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Globalization of Management
Example: Board of Fresenius Medical Care
2

Germans

American

Spaniard

Italian

5
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Globalization of Management
Example: Board of Nestl
1
1
1
1

Austrian
Briton
Mexican
Spaniard

2
1
1
1

American
Swiss
Swede
German

Dutchman

10
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World-Class Talent
"A recent study says global corporations are at
war for 21st century executive talent. Attracting
world-class is getting more and more difficult.
Firms big and small need to provide talented
people with a compelling reason to join and
stay with a company."
The Wall Street Journal
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Markets of the Future?

Transatlantica
China

How do Korea and

South-East Asia

Germany stand relative

to these markets?

Japan
India

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Report Card on Globalization

Germany

Korea

Mental globalization

Global presence

Worldwide war for talent

International management

Global market leaders

++

Education

Anti-globalization

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Lesson 1
Globalization has only just begun. It brings
enormous opportunities for growth but also great
risks. Mental globalization, the battle for the best
talents

and

the

best

know-how

are

huge

challenges.

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Timebomb Population
Industrial countries

Pyramid

Life expectancy goes up

radically
Pension age goes up from 8
(1957) to 27 years (2030)
Declining birthrate

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Timebomb Population
Developing countries

Pyramid

High birthrate
More children survive
Explosion
AIDS?

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Timebomb Population

Gesamtschau

Industrial countries

Developing countries

1 billion rich
old people

Breeding
ground for
affluence
or
World War III?
2 billion
young people

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The Population Time Bomb

Birth rates:

Germany

(births per 1,000/population)

USA

Population below 15:

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8.45
14.13

Korea

12.3

Japan

9.56

Germany

15.0%

USA

21.0%

Korea

20.9%

Japan

14.3%

India

32.7%

Iraq

40.2%
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Population Development in Germany

Deutsche Bevlkerungsstruktur 2002

today
99 - 100

mnnlich
male

we
iblich
female

90 - 91
81 - 82
72 - 73
63 - 64
54 - 55
45 - 46
36 - 37
27 - 28
18 - 19
9 - 10
0-1

T ds.

-1.000

T ds.
-500

(5H01X010)

500

1.000

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Population Development in Germany

Deutsche Bevlkerungsstruktur 2010

2010
99 - 100

mnnl
malei ch

we
i bl ich
female

90 - 91
81 - 82
72 - 73
63 - 64
54 - 55
45 - 46
36 - 37
27 - 28
18 - 19
9 - 10
0-1

T ds.

-1.000

T ds.
-500

(5H01X010)

500

1.000

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Population Development in Germany

Deutsche Bevlkerungsstruktur 2020

2020
99 - 100

mnnlich
male

we
iblich
female

90 - 91
81 - 82
72 - 73
63 - 64
54 - 55
45 - 46
36 - 37
27 - 28
18 - 19
9 - 10
0-1

T ds.

-1.000

T ds.
-500

(5H01X010)

500

1.000

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Population Development in Germany

Deutsche Bevlkerungsstruktur 2030

2030
99 - 100

mnnlich
male

we
iblich
female

90 - 91
81 - 82
72 - 73
63 - 64
54 - 55
45 - 46
36 - 37
27 - 28
18 - 19
9 - 10
0-1

T ds.

-1.000

T ds.
-500

(5H01X010)

500

1.000

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Population Development in Germany

Deutsche Bevlkerungsstruktur 2040

2040
99 - 100

mnnlich
male

we
iblich
female

90 - 91
81 - 82
72 - 73
63 - 64
54 - 55
45 - 46
36 - 37
27 - 28
18 - 19
9 - 10
0-1

T ds.

-1.000

T ds.
-500

(5H01X010)

500

1.000

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Population Development in Germany

Deutsche Bevlkerungsstruktur 2050

2050
99 - 100

mnnlich
male

we
iblich
female

90 - 91
81 - 82
72 - 73
63 - 64
54 - 55
45 - 46
36 - 37
27 - 28
18 - 19
9 - 10
0-1

T ds.

-1.000

T ds.
-500

(5H01X010)

500

1.000

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The Gap in Germany

There is a gap of 10 million people
under 30!
This explains nearly everything.
"Demography is Destiny"

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The Only Solution

1 million immigrants per year - well selected

Two conditions:
- willingness to integrate
- value education

The current immigration policy is exactly the

opposite.
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Consequences/Implications
Collapse of social insurance system

Innovations drive of society and companies

Integration of older employees

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How does Korea cope

with the demographic challenge?

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Lesson 2
Population dynamics determine our future more than
anything else. This is not a prognosis but reality. The
current

systems

cannot

cope

with

the

aging

population. Germany needs 1 million immigrants every

year. German society is going to change completely.
Companies face very major challenges with regard to
getting

enough

young

people

and

integrating

immigrants and older employees.

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Low Profitability of German Companies

Return on sales after tax: 0.0% in 2003. Germany and
France no. 20 of 20 industrialized countries

Return on sales public coporations 2003:

UK:
5.7%
France:2.4%
Germany: 1.5%

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Market Capitalization

Metro

14,2

Wal-Mart

Bayer

19,4

Merck

Deutsche Bank

67,7

Citigroup

Siemens

61,9

General Electric 296,2

Samsung Electronics 55.3

Quelle: NYSE.com

Quelle: Company Websites

Quelle: Deutsche Brse

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159,4
57,8
187,6

Posco Steel

12.3

Hyundai

0.9

Korea First Bank

0.6

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Value Extraction
BRAND

Value
Delivery
ValueDelivery

(What
value
doliefern
we
(Welchen
Wert
deliver
to Kunden?)
wir den
the customer?)

++
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Value
Value Extraction
Extraction
(Wie holen
(How
do wir
weuns
get
Gegenwert?)
theden
counter-value?)

-/o/+
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Lesson 3
The capital market is both a world democracy and a
world dictatorship whether you like it or not. Each
country and each company must adjust itself to the
rules applicable, which are above all profit and
growth. Whoever believes they can elude these
rules of the market will end up an outsider and
destitute.

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Willingness to change in Germany

95% of 46 to 59 year olds are AGAINST an increase
in the retirement age.
75% of 30 to 45 year olds OBJECT to reductions of
their retirement funds.
81% do not want to FINANCE THEIR OWN sick pay.
Source: N-Indikator for the analysis of political consequences, 2003

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A Brutal Diagnosis
20 million addicts to a drug called state.
Terror of minorities, e.g. unions
Education as a major weakness of Germany
and a strength of Korea?

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Well know weve become Germany when two

things are true: Dad can never lose a job and also
can never find one.
Holman W. Jenkins Jr.
WSJE, February 26, 2004

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Effects on Productivity
Job market regulation and productivity
Growth of productivity*
Ireland
Canada

Australia

New Zealand

Finland
Norway

Denmark

Sweden

USA

Austria

Italy

Belgium
Germany
Netherlands

France
Japan

Correlation -0.69

Spain

Job market protection indicator**

* Difference of average growth of productivity between 1990-2000 and 1980-1990
** in 1998, with 0=lowest and 6=highest degree of job market regulation (OECD)

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Development of Employment
Beschftigungsentwicklung:
D/USA
Germany
Deutschland
vs. USA
vs. USA
180

1970=100

1970=100

180

170

170

160

160

150

150

140

140

130

130

120

120

110

110

100

100

90

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

90

USA
USA,

sb.
Germany
Deutschland, einheitsbereinigt, sb.

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Observations
Discussion with a professor of theology.

Secondary school director in Duisburg: 80% of my

teachers are against the performance principle.

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Change vs. Status Quo Managers

Distribution of
Change Managers

16 %
" ... visionaries and
discoveres who are
full of ideas and almost
obsessed with their
search for the new
and innovative."

and

Status Quo Managers

84 %
" ..., who all have one
thing in common:
They hate change
more than anything."

Source: Rolf Berth, Triebfedern des Erfolges, Max-Planck-Gesellschaft, Spiegel 6/1993, S. 40 - 42

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Contradiction
For me one of the strangest aspects in Germany is
the contradiction between societal culture and
corporate cultures.

Germany has a very severe growth problem. Many

German companies, however, do not have this
growth problem they simply grow abroad.
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Is Korea better at accepting and

managing change than Germany?

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Lesson 4
To save Germany, much more radical change is
necessary. Most Germans are in favor of more
radical change but, due to rigid structures, such
change

has

yet

to

take

place.

Germanys

management elite has failed to communicate the

necessity of change. It is doubtful that Germany
will be able to pull off the necessary change.
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Hidden Champions The German leaders

The hidden champions: 1000 world market leaders
Focus
Globalization
Clear competitive advantages
No alliances

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Hidden Champions

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Hauni
Rittal
Baader
Brita
Tetra
Wrth
Enercon
Belfor
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The Hidden Champion - Strategy

- Specialization in Product and Know-how -

Global Selling and Marketing

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Champions of Growth
Rank Company

Primary Product

Revenue 1993/94
in Mill.

Revenue 2003/04
in Mill.

Growth
Multiple

SAP

standard business software

563

7500

13.3

Fresenius

dialysis services

895

7270

8.1

Hexal

generic drugs

160

1110

6.9

Mahle

pistons and cylinders

767

5195

6.8

Puma

sporting goods/sports lifestyle

210

1274

6.1

Porsche

sports car manufacturer

978

5580

5.7

Kamps

305

1679

5.5

Andritz

bakery products
production systems, industrial
process solutions

322

1481

4.6

Gildemeister

turning- and milling machines

255

1100

4.3

10

Brose

automotive parts

453

1925

4.2

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Globalization: Krcher
High Pressure Water Cleaners

RUS
KOR

37
36
35
34
33
32
31
30
29
28
27
26
25
24
23
22
21
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1

IRL
TR
Dubai
MAL
TAIW

= Krcher Europe

= Krcher Asia/Pacific
= Krcher Production Sites

Number of subsidiaries

VRC
I ( C IP )
MEX
S GP
I (C ET)
PL
CS
H

= Krcher America

HK
GR
NZ
US A ( AKM)
J PN
E
C DN
AUS
ZA
DK
SF
N
NL
US A
S

B
UK
BRA
I
CH
A
Krc her
Winnenden
1935

F
1962

1964

1966

1974

1975

1978

1982

1983

1984

1985

1987

1988

1989

1991

1992

1993

1994

1995

38

1996

1997

1998

1999

2000

2003

2004

Founding year of subsidiaries

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Wuerth Group: 50 Years of Growth (1954-2004)

million euros

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Enercon Wind Turbines

A case of extreme innovation
Founded in 1984
7,000 employees today, $1.6 billion revenue
No. 2 in world after General Electric
More than 40% of all patents worldwide
20% higher price
Superb service (more than 97% availability)

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Lesson 5
The biggest strength of Germanys economy is the
least known: the hidden champions! They prove how
top performance and high customer value beat the
competition worldwide. These companies often grow
very strongly. Many German companies have the
potential to become a hidden champion. However, to
an increasing degree they achieve this goal outside
Germany. On distant shores Germanys stars reach a
new prime.
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Summary
Globalization has only just begun.
The population time bomb keeps ticking. Suggestion: 1
million young, qualified immigrant per year
The capital market is the word democracy/
dictatorship. Germany still has to learn this.
Germany is sick, is a cure in sight?
German companies are world stars, but less and less
at home.

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Simon, Kucher & Partners

Worldwide Strategy & Marketing Consultants

Clear Focus: Revenue-Driven Profit Growth

Core Competence: Pricing / Pricing-Processes

"Simon-Kucher is world leader in giving advice
to companies on how to price their products"
Business Week, 2004
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Global Presence
France,
Paris

England,
London

Germany,
Bonn

Germany,
Frankfurt

Germany,
Munich

Poland,
Warsaw

Japan,
Tokyo

USA,
Palo Alto

Austria,
Vienna

Spain,
Madrid

USA,
Boston

Italy,
Milan

China,
Shanghai

Switzerland,
Zurich
Country

Planned Offices

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Continuous Growth
Employees

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Revenue

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References (Selection)

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Hermann Simon
Hermann Simon is founder and chairman of Simon, Kucher & Partners Strategy & Marketing
Consultants, Bonn, Boston, London, Munich, Paris, Tokyo, Vienna, Warsaw and Zurich. Simon is a
leading strategy, marketing and pricing expert. He consults to corporations worldwide.
In his first life Simon was Professor for Management Science and Marketing at the Universities of
Mainz (1989-95) and Bielefeld (as of 1979). He worked as a Visiting Professor at numerous
institutions: Harvard Business School, Stanford University, London Business School, INSEAD, Keio
University Tokyo and the Massachusetts Institute of Technology. From 1985 to 1988 he was Director
of USW-The German Management Institute in Cologne.
Simons more than 30 books include Profit Renaissance (forthcoming with Harvard Business School
Press 2005, the world bestseller Hidden Champions (published in 13 languages), Power Pricing (also
in 13 languages). From 1984 to 1986 he was President of the European Marketing Academy.
He has been on the editorial boards of numerous scientific journals both in the USA and in Europe.
As a consultant he has worked for firms around the globe, such as Aventis, Bayer, Bertelsmann,
BMW, Ciba, Coca-Cola, Compaq, DaimlerChrysler, Deutsche Bank, Dow, Hewlett Packard, General
Motors, Kodak, Lufthansa, Novartis, Panasonic, Siemens, TRW, UBS. He is a director in several
corporations and serves on the board of trustees of several foundations.
A native of Germany he studied economics and business administration at the universities of Bonn
and Cologne. He received his diploma (1973) and his doctorate (1976) from the University of Bonn.

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