In furtherance to the initial post on explaining the concept of International Niche Market Leaders (INMLs), in this text we will attempt to take their operationalization a step further.

International Niche Market Leaders in operational terms

When speaking of INMLs we refer to:

  • Small and mid-sized companies:
    • With an annual turnover figures of up to 1 billion euros
  • Acting in narrowly defined niche markets:
    • Markets that can not so easily be pigeon-holed into the classical classification system for economic activities
    • Rather than adhering to customary industry definitions they define their own market boundaries as an outcome of their business strategies, thereby showing proof of clever market segmentation skills
    • Consequently, the ways in which they define their business –or market c.q. industry- can be markedly different manner from how regular players profile themselves, which forms, in fact, the core of their strategy to compete for markets
  • Of a business-to-business (B2B) nature:
    • Selling their output chiefly on B2B markets instead of Business-to-end Customers (B2C) markets
    • Their clientele consisting either of industrial firms and (non-)profit organizations that are active realms, such as: utilities and health care
    • Where their reputation and brand awareness is highly robust; both among their value chain counterparts (suppliers and buyers alike), as well as peers
  • Where they are –either on a continental (e.g. European) level or on a worldwide scale- leader in terms of market share:
    • In the event of continental (e.g. European) market leadership, they occupy the number one position
    • In the case of global leadership, they form part of the top 3
  • Displaying a pronounced international sales profile:
    • Output of INMLs is sold in several continents across the globe or, if primarily in one single region of the world, in a continent-spanning fashion
    • High export propensity with an export share (part of turnover that stems from sales outside of domestic market) that is at least 50%

How / where to spot them?

To illustrate how the above selection criteria can play out in practice, the following examples can be useful:

Whereas the health industry represents about 10% of GDP of Western economies each year on a whole, and blockbuster companies like Pfizer, Bayer, Baxter, Fresenius (once a hidden champion itself) or Hoffmann-La Roche play a dominant role in the provision of medicines, medical treatment and medical care devices; beyond these household names there is a string of companies that focus on niche markets in health issues that fall between the joints of the market segments that these global giants focus on. And while these segments may be like the left-overs that the powerhouses in this industry do not show an interest in, they can still represent a succulent business potential for a mid-sized company that is willing and able to specialize itself in a confined product area and develop, aggregate and serve a global demand for it.

A similar parallel can be drawn with, for instance, the automotive industry. While companies like Akebono, CBI (formerly Bosch), Continental Teves, Mando, and some others, largely divide the global market for braking systems, underneath this Tier 1 level, there is a string of components, sub-assemblies, parts, and mechanisms that make up the overarching brake device, and whose manufacturers stay almost completely out of sight for the public eye.

The same goes for white line household appliances. We all know the likes of Miele, Whirlpool, Samsung or Electrolux, but do we know the multifarious technologies and third-party components that go inside their washing machines, ovens cook plates, …, and which actually make our domestic apparatuses tick? Once you go beyond the façade of the product of these world-renown brands, is when you enter the market turf and territory where International Niche Market Leaders thrive.

And while there is a world underneath the hood of cars and domestic apparatuses, also the machines that are being used to manufacture critical inputs to end customer products is a universe of its own. Here we see that, on the one hand, many INMLs design their own machinery to make their premium goods, whereas others reach out to specialist machine builders for this. Machine builders that, in turn, also carve an international sales niche for themselves that way.

As a concluding example of the many areas that form a potential fishing ground for INMLs, we can point at deep-sea off-shore markets. These offer product-market combinations that stay almost literally out of sight of public attention. The heavy duty equipment and appliances that are required to deliver an excellent job in these harsh environments are only for the best-in-class. And often, the firms and products that prosper in these markets comply with many of the low profile idiosyncrasies that were explained at the outset of this post.

Wrapping up

If one is interested in INMLs and their behaviour, one should look beyond the beaten tracks and towards “shielded” environments (deep) inside standing product families and traditional industry classifications. To a certain extent they can be considered as the silent backbone of industry; neither exhibitionistic nor making a lot of noise. In fact; their role and importance vis-à-vis the clients and products they support can in several cases be compared to that of Intel in computers or Campagnolo on bicycles: “it’s what you can’t see or don’t pay attention to that makes the difference”.

To be continued next month...