Case Study

Overview

Hidden champions are the unsung heroes of Germany's economy—mid-sized, often family-owned companies that dominate niche global markets with revenues under €5 billion and minimal public visibility. This anonymous German engineering firm, founded in the mid-1970s in a small town in Baden-Württemberg, perfectly embodies this model. Starting as a modest operation focused on basic underground machinery, it has evolved into a worldwide leader in mechanized infrastructure solutions.

By the late 1990s, it had become a joint-stock company while staying family-managed, emphasizing long-term stability over short-term profits. Today, with thousands of employees and production facilities spanning Europe, Asia, and the Americas, the firm generates over €1 billion in annual revenues. Its success hinges on precision engineering, customer intimacy, and a strategic pivot to localization, allowing it to counter high European operational costs and compete against agile Asian rivals. This case illustrates how European firms can expand into Asia not just to survive, but to thrive, by blending core strengths with regional adaptation.

Challenges

The firm's journey was far from smooth, reflecting broader hurdles for European companies eyeing Asia. Key challenges included:

1. Intensifying Global Competition: In the early 2000s, Asian competitors, particularly from China, began flooding the market with lower-cost alternatives. These rivals quickly adopted advanced technologies, eroding the firm's once-dominant 70% global market share. For instance, local players leveraged government subsidies and rapid prototyping to undercut prices by 20-30%, forcing the firm to rethink its value proposition beyond just superior quality.
2. Operational and Technological Complexity: Infrastructure projects in Asia often involve extreme conditions—urban density in cities like Shanghai or remote terrains in Southeast Asia—requiring machines that handle diverse geologies without downtime. Early on, the firm struggled with customizing solutions for these variances, leading to project delays and increased costs. Additionally, supply chain disruptions, such as those during global economic downturns, highlighted vulnerabilities in relying heavily on European suppliers.
3. Internationalization Risks: Expanding into Asia brought a host of non-technical issues: navigating complex regulatory environments (e.g., varying safety standards and import tariffs), cultural differences in business practices (like relationship-based negotiations in China versus contract-focused approaches in Europe), and economic volatility (post-2008 recession slowed infrastructure investments). Talent retention was another pain point; attracting skilled engineers in competitive Asian markets while maintaining the firm's family-oriented culture proved challenging.
4. Sustaining Innovation Amid Cost Pressures: As a mid-sized player, the firm had to allocate significant resources to R&D—often 5-10% of revenues—to innovate and protect intellectual property. However, high labor and energy costs in Germany (up to 50% higher than in Asia) squeezed margins, making it hard to compete on price without compromising quality. Geopolitical tensions, such as trade wars, further complicated IP protection in regions with lax enforcement.

Today's Geopolitical Challenges and Supply Chain Risks

In 2025, escalating geopolitical tensions amplify these issues, including ongoing conflicts in Ukraine and the Middle East, Russia's cyber operations and energy leverage, and China's technological dominance.

European firms, particularly in Germany, face heavy dependency on Chinese critical inputs like rare earths, with over one-third of companies reliant, leading to vulnerabilities in supply chains amid US-China trade disputes and tariffs.

Transatlantic uncertainties post-2024 US elections introduce unpredictable policies, while threats to shipping routes like the Red Sea and Strait of Hormuz cause disruptions and price volatility.

Geopolitical fragmentation drives regulatory divergence between the US, EU, and China, increasing compliance costs and risks of input shortages. Cybersecurity surges as a top risk (16% of businesses), alongside inflation and raw material shortages, exacerbating operational challenges for European-Asian operations.

These challenges underscore the "perfect storm" many European firms face: domestic cost burdens clashing with Asia's dynamic, cost-efficient ecosystem, now intensified by global instability.

Strategies

To navigate these obstacles, the firm implemented a multifaceted approach, with localization as the cornerstone. Here's how they did it:

1. Essential Localization (A Must-Do): Recognizing that one-size-fits-all wouldn't work, the firm established subsidiaries, joint ventures, and full production facilities in key Asian markets like China by the early 2000s. This involved sourcing local materials to reduce costs by 15-25%, hiring regional talent for on-site customization, and adapting products to meet local regulations. Localization also built trust through partnerships with Asian governments and contractors, turning potential competitors into collaborators. In the face of 2025's geopolitical risks, this strategy mitigated supply chain vulnerabilities by reducing dependency on long-haul imports and enabling quicker responses to disruptions like tariff hikes or route blockages.
2. Customer-Centric Innovation: The firm invested heavily in R&D, collaborating closely with clients to develop versatile technologies. For example, they pioneered hybrid systems that switch between modes for different soil types, reducing project times by up to 30%. Engineers were embedded in client sites during projects, gathering real-time feedback to iterate designs—ensuring solutions were not just advanced but practically tailored.
3. Family-Led Professionalism and Talent Development: Maintaining family ownership provided a long-term horizon, avoiding the pressures of quarterly earnings. They fostered a flat hierarchy and invested in apprenticeships and cross-cultural training programs, blending German precision with Asian agility. This helped retain a global workforce of over 5,000, with low turnover rates.
4. Strategic Alliances and Market Positioning: The firm focused on high-profile, complex projects where quality trumped cost, such as major urban metro systems or cross-border tunnels. They formed alliances with local firms for joint bids, enhancing their B2B reputation without aggressive marketing. Digital tools, like AI-driven predictive maintenance, were integrated to offer value-added services, differentiating them from commoditized competitors. To address current risks, alliances included risk-sharing clauses for geopolitical events, bolstering resilience.

These strategies were executed iteratively, with regular reviews to adapt to market shifts, proving that proactive localization can mitigate Asia's competitive pressures and geopolitical uncertainties.

Results

The firm's efforts yielded transformative outcomes, demonstrating the power of strategic adaptation:

1. Financial Leap and Market Resilience:From initial revenues in the millions, the firm scaled to over €1 billion annually by the 2010s, consistently achieving 10-15% year-over-year growth. Despite Asian competition and 2025's disruptions, it retained a 60-70% global market share by focusing on premium segments, with Asia contributing 40% of revenues through localized operations.
2. Engineering Milestones and Global Impact: The company set multiple industry records, including deploying the largest-scale equipment for mega-projects. In Asia, its solutions powered infrastructure like high-speed rail tunnels and urban water systems, completing projects ahead of schedule and under budget. This not only boosted client satisfaction but also generated repeat business, with 70% of contracts from existing partners.
3. Expanded Footprint and Sustainability: Operating in over 60 countries, the firm now has multiple Asian production sites, employing thousands locally. Embracing sustainability—such as eco-friendly materials and energy-efficient designs—aligned with regional green initiatives, opening doors to government-funded projects. Digital transformation, including IoT for remote monitoring, further enhanced efficiency, reducing operational costs by 20%. Amid recent geopolitical tensions, localized setups allowed bypassing disrupted routes and maintaining supply continuity.
4. Long-Term Resilience: Post-challenges like the COVID-19 supply disruptions and 2025's ongoing conflicts, the firm's localized model allowed quicker recovery compared to peers reliant on European hubs, solidifying its position as a benchmark for hidden champions.

Action Items for Companies Expanding into Asia

For European firms looking to follow suit, here are simple, actionable steps to implement localization and boost competitiveness, while addressing geopolitical and supply chain risks:

1. Assess Market Fit: Conduct a thorough audit of your products/services against Asian needs—identify cost gaps and regulatory requirements. Action: Hire local consultants for a 3-6 month feasibility study, including risk mapping for geopolitical hotspots like trade tensions.
2. Build Local Presence: Start with a representative office, then scale to subsidiaries or joint ventures. Action: Partner with a trusted local firm within the first year to co-develop products and navigate bureaucracy, incorporating contingency plans for conflicts.
3. Localize Supply Chains: Shift sourcing and manufacturing to Asia where feasible to cut costs. Action: Aim to localize 30-50% of your supply chain in the target market within 2 years, starting with non-core components, and diversify suppliers to mitigate dependency on single regions like China.
4. Invest in Talent and Culture: Recruit and train local teams while infusing your core values. Action: Launch cross-cultural training programs and set up apprenticeships to blend expertise, targeting 50% local hires in key roles to enhance on-ground resilience.
5. Enhance Innovation and Digital Tools: Prioritize R&D for adaptable solutions and integrate tech for monitoring. Action: Allocate 5-10% of budget to joint R&D with Asian partners, using AI for predictive risk analysis on supply disruptions.
6. Form Strategic Alliances: Build partnerships to share risks and access markets. Action: Negotiate alliances with local entities including clauses for geopolitical events, such as alternative sourcing during tariffs or embargoes.
7. Monitor and Adapt to Risks: Regularly review geopolitical developments. Action: Establish a dedicated risk team to track issues like US-China tensions or shipping threats, updating strategies quarterly.
8. Focus on Sustainability and Compliance: Align with local green regulations to secure opportunities. Action: Audit for compliance with diverging EU-Asian standards, investing in eco-friendly adaptations to reduce vulnerability to energy volatility.

Discover how to replicate this success at www.gbp-international.com.