Mittelstand

The Sum of its Parts

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Nice hood: Schunk is a world leader in climate testing. Source: Schunk

A quick glance around the waiting area in the reception of the Schunk Group headquarters confirms that the firm has what must be the most diverse customer base in the world.

In the corner is Mr. Schmidt, who’s after electrical motor parts to improve the speed of his company’s power tools. Sitting by the fish tank is Ms. Fritz. She wants a climate chamber to test the performance of her firm’s new mobile phone in pouring rain.

Next to her, reading a gossip magazine, is Mr. Müller. He needs to call on Schunk’s ultrasonic welding technology to enable his carmaker employer to better fuse cables in its vehicles. And finally, there’s Mrs. Meyer. She won’t leave until she secures a deal for precision-molded levers that adjust components in aircraft engines.

OK, so the waiting room four may be imaginary, but the point is clear: Schunk has a finger in many pies.

Its diversified niche strategy has made Schunk very successful. In addition to a record turnover in 2016, the firm had a whopping equity ratio of 64 percent.

Established in 1913, the engineering company is a classic example of a German midsize, or one of the so-called Mittelstand firms that make up the backbone of the country’s economy. Schunk turned over a record €1.1 billion in 2016, up 6.6 percent on 2015, and is targeting more than €1.5 billion in 2020.

Almost all of us come into contact daily with Schunk products, usually unawares. The firm describes itself as a world leader in the core markets of carbon technology and ceramics, environmental simulation and air conditioning, sintered metals and ultrasonic welding. Based in Heuchelheim, a small town in the central state of Hesse, it employs some 8,000 people in 29 countries.

A distinctive feature is that it belongs wholly to a foundation, so is not accountable to pesky shareholders or partners. It plows profits back into the business and in good years shares them with employees.

Schunk has grouped its 60 firms into four divisions that at first sight have nothing in common, as demonstrated by the four customers in the waiting room. “They’re all highly specialized players in niche industries,” explains Arno Roth, a physicist and CEO since 2013.

Schunk Carbon Technology is the biggest, generating half the group’s revenue. It makes everything from the carbon brushes that transmit current from the static to moving parts of electric motors, to large carbon crucibles for smelting silicon, the basic raw material in the chip and solar industries. “Our competitors, especially in the Far East, can’t yet match our precision,” notes Mr. Roth, whose main rivals in the carbon market are SGL Carbon in Germany, Morgan Advanced Materials in the UK and Mersen in France.

Next up is Schunk Sinter Metals, which was launched in 1932. It specializes in injection molding of fine metal powder, a more precise and cheaper method of building small parts than casting. No car could move without sintered parts, which are found mainly in engines and transmission parts.

The third Schunk division is Weiss Technik, an environment simulation and climate technology specialist. It offers chambers that can test the effects of wind, rain, ultraviolet radiation, salt water and vibration on almost any product, be they pills, electric appliances, vehicles or locomotives. “In our climate chambers we can simulate, in time-lapse, desert hot to polar cold,” explains Mr. Roth, who is certain such tests can never be completely simulated by computers.

The division is also involved in climate control, manufacturing specialist air conditioning units and custom-made climate-controlled chambers. “We even offer cabinets that simulate the best growth climate for cannabis plants,” says Mr. Roth.

The fourth division, Sonosystems, produces ultrasonic metal welding systems. The technology, which uses sound rather than heat to fuse metals and plastics, is most commonly found in cars, in particular the mass-produced “wiring harnesses” that combine systems of related electrical cables, connectors and couplers. They have made it possible to replace copper with lightweight aluminum, saving up to 40 kilograms of weight. Competitors are Branson in the USA and Telsonic in Switzerland.

Its diversified niche strategy has made Schunk very successful. In addition to a record turnover in 2016, the firm had a whopping equity ratio of 64 percent. Profits are also at a high. “We’re already close to our 2020 target of a double-digit profit margin,” says Mr. Roth. He adds that €26.5 million will be shared among workers in 2017, up to €5,000 per person.

But it’s not all been plane sailing. In 2012, Schunk lost 80 percent of its carbon business as a result of a crisis in the solar and semi-conductor industry. Despite that enormous hit, group turnover fell only 2.8 percent – “the advantage of diversity,” notes Mr. Roth. If one business is doing poorly, the others help out. However, the current diesel scandals in the auto industry, on which Schunk is heavily dependent, are a big worry, he adds.

Fortunately, Gunthard Sommer, chairman of the Ludwig Schunk Foundation, sole owner of the Schunk Group, thinks the firm has never been in better shape. Being run like a foundation is good for the enterprise, its workers and the home region, he says.

The likes of Mr. Schmidt, Miss Fritz, Mr. Müller and Mrs. Meyer will be hoping that continues to be the case.

 

Katrin Terpitz covers companies and markets at Handelsblatt, focusing on Germany’s Mittelstand and family-owned businesses. To contact the author: terpitz@handelsblatt.com

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