Global component firm ZF seeks India partners

German Tier I component and tech solutions specialist, ZF, is revamping its global supply business model to enhance its focus on India. This includes prioritising localisation efforts, which indicates a desire for more made-in-India components than relying solely on imports. With this, ZF aims to reduce costs, improve supply chain efficiency, and cater better to the specific needs of the Indian market.

By partnering with Indian companies, ZF also hopes to address challenges faced by distressed industries in Europe and the US. By leveraging these tie-ups, ZF may be able to access cost-effective solutions and support struggling industries in other parts of the world.

Fabian Schlegel, Senior Vice President Global Commodity Purchasing & Supplier Management at ZF, shared details of their strategy with Autocar Professional, expressing confidence that their chosen path will work well for the company both in India and overseas.

Eight years ago, ZF’s annual purchasing volume was less than Euro 100 million globally and has surpassed Euro 3 billion now. This progress, Schlegel says, shows how ZF is transforming itself, moving away from pure mechanical
projects and products to becoming a fully electronic product company.

The goal: expand rich supplier base

Schlegel admits that ZF wasn’t known in the past for being an electronics-driven company, but in the past five to 10 years, there’s been a drastic change in their purchasing policies and greater emphasis on offering electronic components or combined solutions to clients. ZF has business relationships with over 400 suppliers in India, of which 10 are joint ventures and talks with another five are underway.

As part of his recent visit to India, Schlegel is hopeful that discussions with potential new suppliers will fructify in the coming months, and they’ll be able to make a formal announcement by Q2 (CY24).

“We spoke with two potential partners [during my India visit], but I can’t disclose the name until Q2. We want to close the deal and announce public partnerships on made-in-India green steel,” he says, adding that ZF had finalised contracts in Europe and were working towards US and India partnerships.

‘India Year 2024’

From a business perspective, India has had the strongest Compound Annual Growth Rate (CAGR) for ZF in the past few years. “Our CAGR in terms of purchasing volume is 38%, and this is outperforming China, for instance, which had only had 10% draws in the same period in the past few years,” says Schlegel.

On the business agenda in India, Schlegel refers to it as ‘India Year 2024’ that encompasses setting the foundation for existing businesses as well as looking forward.  “To make it the ‘India Year,’ we need to get those projects going… ZF aims to introduce advanced technologies to the Indian market. By leveraging its expertise and global resources, ZF seeks to bring innovative solutions to India, catering to evolving market demands and driving technological advancements in the automotive sector.”

Prioritising business strategies

As adoption of EVs is gaining momentum in India, the senior executive says there’s a lot happening at ZF to meet future profitable business opportunities. He also recognises that ZF is better known as a mechatronics supplier and needs to up its game in the electronics domain.

When asked about ZF India’s role in the automotive ecosystem worldwide, and the dependence of OEMs on the supplier ecosystem, he said: “We have a clear plan. Currently, India is very well established in forgings, steel, rubber, etc. There’s an evolution underway, and we need to be part of it… We need to see new partners come aboard. I’m emphasising on electromechanics as we go forward.”

“There’s a lot of scope, be it in electro mechanicals or electronics. In the future, these will be related to electric drive systems because India was a comparatively late starter in this arena. But we’re getting prepared for it because ZF has a very strong track record in electrical drivetrains globally.”

Make and buy strategy

ZF is pursuing a clear ‘make and buy’ strategy, particularly considering semiconductor shortages, to ensure the timely delivery of complex assemblies and systems. Referring to the wave semiconductor deficits that hampered several OEM production chains, Schlegel is keen to play catch up.

“I’ll double my electromechanical team here on short notice because it’s imperative for us that we are able to fit together different commodities (mechanical or electronics) into one system or into complex assemblies,” he explains. “In many cases, we’re seeking advice on purchasing more complex parts from our suppliers, whereas we made them on our own in the past.” Schlegel is confident that this strategy will make way for great opportunities for their supply base because it would add value and also involve a skilled workforce. And on the issue of sourcing electronic components like semiconductors from India, he’s certain that they would have to be sourced from foreign suppliers since India wasn’t a dominant producer.

Act local, go global

On ZF’s plans to integrate electronics with mechanical systems, the senior vice president says this would begin with PCBs and assemblies.

“We have opportunities with products like solenoid valves, if we take them into electronics because they are closely connected, as well as higher-end electronics with more power, like Mosfets [metal-oxide-semiconductor field-effect transistors) or silicon carbide chips. I’m establishing a pioneer group of scouts — scouts because ZF is known to be in the first row as a technology innovator, and with these scouts, I want to be sure that we capture emerging electronic companies in India.”

Asked whether Indian suppliers could benefit from ZF’s strong network in Europe and the US, Schlegel’s response was positive: “The total basket of over 400 suppliers is not deemed for just local-to-local business. We always look for global business export and growth in terms of localisation, and we serve this out of one hand. I changed the organisation policy in this regard because it’s important to me.”

Supporting distressed industries

Automotive suppliers in Europe and the US are currently in the grip of financial distress and inflation, as well as challenges in the context of transitioning towards sustainability and producing better battery EVs. In this context, Schlegel points out that one of ZF’s key mission objectives was to actively search for strategic partners and invest in enterprises, focussing on stabilising distressed suppliers.

Here, ZF’s goal appears to be to enable global growth for Indian suppliers while also addressing the need for political resilience and strategic planning in the country. Schlegel believes it’s a win-win for both sides.

“We can ensure a stable partnership from our side with solid volumes behind it. We have good connections and other markets around the world and can open the door for decision-makers in the region to get those investments done and reach the right people…”

Core focus: CVs and electronics

ZF has been evolving its business model towards offering electronic components and combo solutions for its clients, indicating a shift away from pure mechanical projects towards becoming a fully electronic product company.

In terms of exploring emerging opportunities in alternative fuels, like CNG, ethanol blends, or hydrogen, ZF has chosen to wait and watch before plunging into the industry headfirst. In fact, ZF started working in the hydrogen field only recently.

“We have a partnership on our commercial vehicles side on hydrogen. This began only last year, so it’s like a pilot or an incubator. It’s not on a large scale, where we industrialise (or commercialise) hydrogen. Right now, we are focussed on our CV business and electrification.”

Electrifying trucks and trailers

Speaking of electrification, Schlegel said their e-mobility and powertrain division was generating sales of more than Euro 10 billion annually.

“Our huge hub of engineers are only working on moving from ICE to BEV. They are the solution providers for our truck business. So working towards electrical driving excellence for buses is already serious. Next, trucks and, in the future, trailers will also be self-propelled with the knowledge we bring from passenger car making. That’s unique to the market and a USP for the dev because we’re the largest Tier 1 on the truck side now. But at the same time, ZF is a very decent player on the electrical drivetrain and the powertrain side. So this connection plays well into our strategy,” he explains.

More opportunities for Indian suppliers

To find solutions to compensate for China’s dominance in certain sectors, large castings for instance, could involve leveraging India’s strengths, like in its pool of talented suppliers, to develop competitive alternatives domestically, he said. Encouraging and supporting local industries to innovate, improve efficiency and enhance quality could also help level the playing field against Chinese imports.

This feature was first published in Autocar Professional's March 1, 2024 issue.