Europe's Hidden Champions

The annual World Economic Forum in Davos convenes at a time of both hope and peril for European companies. Economists expect growth to accelerate this year and gather momentum in 2005. Yet the record-high euro threatens exporters, while the Parmalat scandal has shaken confidence in European corporate integrity.

Germany and France have failed to rein in their public finances and decisively reform their labor markets, heightening fears that Europe's biggest economies are doomed to years of stagnation and high unemployment.

So it's bracing to learn that a whole breed of company exists that defies both the unfriendly business climate and the slow-growth economy. These companies are called "hidden champions," after a 1996 book by that name by Bonn consultant Hermann Simon. Back then, Simon realized that the German economy was driven in large part by smaller companies that were intensely focused on a niche market, which they often dominated. And it turns out that such companies remain a crucial, little-noticed component of the European economy, marked by their ability to innovate, shift direction when the market does, and expand even in bad times. Without these companies, often family-owned, the European corporate landscape would look a lot bleaker.

Inevitably, of course, even the best of companies can fall prey to foreign competition or a collapse of the market. That's why it's crucial that European leaders do everything they can to ensure that Europe continues to spawn hidden champions -- and lots of them. So far, Europe's policymakers aren't doing nearly enough. Germany, especially, must do more to promote research and development while reviving its decaying university system, a crucial source of skills, technology, and entrepreneurial drive. Across the euro zone, countries must roll back taxes and eliminate unnecessary regulation. Business and financial leaders must also do their part. Following the collapse of Frankfurt's Neuer Markt, there is a dearth of financing for startups and midsize companies. Europe's banks and bourses should do more to promote corporate transparency and a unified financial market.

Unfortunately, across Europe there remains a post-Socialist reflex to quash entrepreneurial spirit rather than to praise the contribution that energetic businesspeople make to a nation's growth and employment. This attitude is changing, but slowly. Hidden champions show how important it is for Europe, which too often perpetuates mediocrity, to instead celebrate and support excellence.

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